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: 05-31-2008 -------------------------------------------------------ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] ANNUAL REPORT MAY 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS TAX-FREE MONEY MARKET FUND TAX-FREE BOND FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor, At American Century Investments®, we are committed to helping you reach your financial goals. Your success is the ultimate measure of our performance. That's why we focus on achieving superior investment results and building long-term relationships with investors like you. Part of that relationship is to clearly communicate investment results and what influenced them. To help you monitor your investment with us, we take pride in providing you with the annual report for the American Century® Tax-Free Money Market and Tax-Free Bond funds for the 12 months ended May 31, 2008. We also recommend americancentury.com, where we provide company news, quarterly portfolio commentaries, investment views, and other useful information. As noted on the website, 2008 marks the 50th anniversary of American Century Investments. Since 1958, we've worked to make wise decisions with your interests as our guide. Fifty years also means that we've met the challenges of previous economic downturns. As we've crossed those hurdles and earned your trust, our assets under management have grown to nearly $100 billion, putting us in the top 5% of our industry. This growth has given us the resources to offer a wide array of financial products and services, including a well-diversified line-up of portfolios that provide you with many choices in these uncertain times. Though our offerings are diverse, they share several key qualities, including our disciplined investment approach and active, team-based management. Strict adherence to our processes and long-term strategies allows us to stay focused during volatile periods. Investors in our portfolios also benefit from the sum of our investment teams' expertise as they share research and information. We'll continue to work hard to earn your trust. Thank you for your continued support. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments TABLE OF CONTENTS Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . 2 U.S. Fixed-Income Total Returns. . . . . . . . . . . . . . . . . 2 TAX-FREE MONEY MARKET Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 4 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Portfolio Composition by Credit Rating . . . . . . . . . . . . . 5 Portfolio Composition by Maturity. . . . . . . . . . . . . . . . 5 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 6 TAX-FREE BOND Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 13 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Portfolio Composition by Credit Rating . . . . . . . . . . . . . 14 Top Five States. . . . . . . . . . . . . . . . . . . . . . . . . 14 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 15 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . 32 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . 34 Statement of Operations . . . . . . . . . . . . . . . . . . . . . 35 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . 36 Notes to Financial Statements . . . . . . . . . . . . . . . . . . 37 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . 44 Report of Independent Registered Public Accounting Firm . . . . . 47 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 51 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 52 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments 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 Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments 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 Investments by third party vendors. To the best of American Century Investments' 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 POSITIVE BOND RETURNS IN VOLATILE CLIMATE Despite rising commodity prices and deteriorating conditions in some credit sectors, the broad investment-grade U.S. bond market enjoyed mostly positive results for the 12 months ended May 31, 2008. Credit-related risk-aversion, however, hurt high-yield sectors of the market. Credit fallout, plus soaring oil and other commodity prices, pushed the U.S. economy to the brink of recession. To stimulate the economy and reassure financial markets, the Federal Reserve (the Fed) took extraordinary action. In 2007 it launched an aggressive easing campaign, shaving a total of 3.25 percentage points off the federal funds target rate by the end of the reporting period. The Fed also enacted a series of emergency lending programs targeting a wider spectrum of borrowers, including major brokers. HISTORIC MUNICIPAL UNDERPERFORMANCE IN FEBRUARY In a 12-month period characterized by credit, liquidity, and volatility concerns, investors favored quality. Treasuries significantly outperformed non-Treasury securities, including municipals. Relative newcomers to the municipal market, including hedge funds, were forced to sell their municipal holdings due to margin calls, putting more pressure on the market. Municipals suffered further as investors questioned the health of municipal bond insurers due to exposure to subprime losses in other areas of their business. Margin calls and insurer woes produced the perfect selloff and illiquidity storm in February 2008, when municipals experienced historic underperformance relative to Treasuries. Investment-grade municipal yields shot well over 100% of those of comparable Treasuries. (Long-term municipal yields historically equal 80% to 85% of Treasury yields.) MUNICIPALS REBOUNDED AFTER FEBRUARY A rally in riskier assets was triggered by the Fed's intervention in the meltdown of a major broker-dealer. This, in addition to increasing inflation worries, caused Treasury market prices to decline during the final two months of the reporting period. Municipal bond performance rebounded after February, but municipal yields remained well above their historic range. U.S. Fixed-Income Total Returns For the 12 months ended May 31, 2008 LEHMAN BROTHERS MUNICIPAL MARKET INDICES Municipal Bond 3.87% 3-Year Municipal Bond 6.36% 5-Year General Obligation (GO) Bond 6.71% Long-Term Municipal Bond - -0.45% Non-Investment-Grade Municipal Bond -6.28% TAXABLE MARKET RETURNS Lehman Brothers U.S. Aggregate Index 6.89% Lehman Brothers U.S. Treasury Index 9.42% 3-Month Treasury Bill 4.04% 10-Year Treasury Note 10.77% - ------ 2 PERFORMANCE Tax-Free Money Market Total Returns as of May 31, 2008 Average Annual Returns 10 Since Inception 1 year 5 years years Inception Date INVESTOR CLASS 2.97% 2.13% 2.34% 3.29% 7/31/84 AVERAGE RETURN OF LIPPER'S TAX-EXEMPT MONEY MARKET FUNDS(1) 2.54% 1.84% 2.09% 3.16%(2) -- Fund's Lipper Ranking(1) as of 5/31/08 8 of 110 5 of 85 5 of 66 5 of 23 -- as of 6/30/08 7 of 110 5 of 86 5 of 66 5 of 23 -- (1) Data provided by Lipper Inc. -- A Reuters Company. © 2008 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. (2) Since 8/31/84, the date nearest the fund's inception for which data are available. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The 7-day current yield more closely reflects the current earnings of the fund than the total return. - ------ 3 PORTFOLIO COMMENTARY Tax-Free Money Market Lead Portfolio Manager: Todd Pardula Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY Tax-Free Money Market returned 2.97% for the 12 months ended May 31, 2008, surpassing the 2.54% average return of the 110 funds in Lipper Inc.'s Tax-Exempt Money Market Funds category. The portfolio's 12-month return ranked among the top 8% of the Lipper category, while its five- and 10-year returns ranked among the top 6% and 8%, respectively, of the Lipper group (see the previous page). RECESSION FEARS LED TO FED RATE CUTS Deteriorating conditions in certain credit markets, which led to widespread write-downs among financial companies, combined with soaring oil and other commodity prices, pushed the U.S. economy to the brink of recession. To stimulate economic growth and reassure the financial markets, the Federal Reserve (the Fed) took extraordinary action. In September 2007 it launched an aggressive easing campaign which sliced a total of 3.25 percentage points off the federal funds target rate by the end of May 2008. CREDIT-MARKET FALLOUT HIT MUNICIPALS Initially, the bulk of the credit problems was confined to the stock and bond markets. But the panic eventually filtered through to the asset-backed segment of the taxable money markets, where subprime mortgage exposure within certain asset-backed securities and structured investment vehicles (SIVs) came into play. Tax-Free Money Market did not have exposure to such securities. The subsequent write-downs of subprime-backed securities and investment vehicles ultimately led to ratings downgrades for several municipal bond insurers. Although some securities within our portfolio were insured by these companies, we gradually reduced our exposure. More important, we strongly believe the underlying securities are of high credit quality, even without the insurance. DEMAND FOR QUALITY SENT YIELDS TUMBLING Given the uncertain credit environment, investors generally shunned riskier assets, favoring high-quality securities. U.S. Treasuries rallied strongly across the yield curve. At the short end, the yield on the three-month Treasury bill dropped 2.84 percentage points, from 4.73% at the beginning of the reporting period to 1.89% at the end. Tax-Free Money Market's yield experienced a similar decline, as the fund's 7-day current yield decreased from 3.41% to 1.84% during the reporting period. Yields as of May 31, 2008 7-Day Current Yield 1.84% 7-Day Effective Yield 1.85% 7-Day Tax-Equivalent Current Yields(1) 25.00% Tax Bracket 2.45% 28.00% Tax Bracket 2.56% 33.00% Tax Bracket 2.75% 35.00% Tax Bracket 2.83% (1) The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. - ------ 4 Tax-Free Money Market PORTFOLIO STRATEGY Variable-rate demand notes (VRDNs) continued to comprise the bulk of the portfolio. These "floaters" gave us the flexibility to capture occasional spikes in rates while maintaining liquidity. Our focus on this segment of the market combined with specific security selection accounted for the fund's outperformance relative to the peer group. Typically, in a falling-rate environment, we would limit our exposure to floaters and extend the portfolio's weighted average maturity, to capture the relatively higher yields on longer-term securities. But with the markets experiencing continued credit-related fallout, we believed maintaining liquidity was a prudent strategy, and the fund's maturity remained relatively short. After spiking at 34 days in late August 2007, due to seasonal note issuance, the portfolio's weighted average maturity steadily declined. The portfolio ended the period with an average maturity of 14 days, compared to 15 days on May 31, 2007. OUTLOOK The availability of high-quality variable-rate securities began to subside late in the 12-month period. This was due primarily to continued credit-market deterioration, which led to quality-rating downgrades for many monoline insurance companies and banks. Such downgrades pushed these banks off the fund's approved-issuer list. (In general, approximately 90% of the securities we purchase for the fund are issued or guaranteed by banks.) Given this climate, the key challenge for the fund in the months ahead likely will be remaining fully invested in tax-exempt money market securities. To meet this challenge, we expect to increase our exposure to municipal issuers. Because many of these municipal issues have one-year maturities, this exposure should result in a slightly longer average maturity for the fund. Portfolio Composition by Credit Rating % of fund % of fund investments investments as of as of 5/31/08 11/30/07 A-1+ 87% 80% A-1 13% 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 5/31/08 11/30/07 1-30 days 93% 92% 31-90 days 6% -- 91-180 days -- -- More than 180 days 1% 8% - ------ 5 SCHEDULE OF INVESTMENTS Tax-Free Money Market MAY 31, 2008 Principal Amount Value Municipal Securities -- 100.9% ALABAMA -- 0.9% $ 1,000,000 Gulf Shores Medical Clinic Board Rev., (Colonial Pinnacle MOB, LLC), VRDN, 1.72%, 6/5/08 (LOC: Regions Bank) $ 1,000,000 800,000 Mobile Industrial Development Board Rev., (Holnam Inc.), VRDN, 1.67%, 6/4/08 (LOC: Bayerische Landesbank) 800,000 1,100,000 University of Alabama Rev., Series 2004 C, VRDN, 2.35%, 6/5/08 (MBIA) (SBBPA: Wachovia Bank N.A.) 1,100,000 ------------ 2,900,000 ------------ ARIZONA -- 2.7% 6,750,000 Maricopa County Industrial Development Auth. Rev., (Michael Pylman Dairies), VRDN, 1.82%, 6/5/08 (LOC: LaSalle Bank N.A) 6,750,000 1,600,000 Maricopa County Paradise Valley Unified School District No. 69 GO, Series 2007 B, (School Improvement Project of 2005), 4.25%, 7/1/08 (FSA) 1,600,608 ------------ 8,350,608 ------------ CALIFORNIA -- 4.5% 3,660,000 ABN AMRO Munitops Certificate Trust Rev., Series 2006-19, VRDN, 2.62%, 6/5/08 (MBIA) (SBBPA: ABN AMRO Bank N.V.) (Acquired 5/15/08, Cost $3,660,000)(1) 3,660,000 4,400,000 Alameda County Industrial Development Auth. Rev., (BAT Properties LLC), VRDN, 1.89%, 6/5/08 (LOC: Bank of the West) 4,400,000 883,364 California Economic Development Financing Auth. Rev., (Wesflex Pipe Manufacturing), VRDN, 1.93%, 6/5/08 (LOC: Wells Fargo Bank N.A.) 883,364 4,270,000 Lakeside Union School District COP, (2006 School Facility Bridge Funding Program), VRDN, 1.70%, 6/5/08 (AGC) (SBBPA: Dexia Credit Local) 4,270,000 900,000 Long Beach Unified School District COP, VRDN, 4.30%, 6/5/08 (Ambac) (SBBPA: Dexia Credit Local) 900,000 ------------ 14,113,364 ------------ Principal Amount Value COLORADO -- 5.6% $ 2,840,000 Arvada Water Enterprise Rev., VRDN, 3.65%, 6/2/08 (FSA) (SBBPA: Dexia Public Finance Bank) $ 2,840,000 2,745,000 Avon Industrial Development Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) 2,745,000 5,800,000 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) 5,800,000 1,840,000 Fort Collins Economic Development Rev., Series 2001 A, (The Residence at Oakridge), VRDN, 1.80%, 6/5/08 (LOC: U.S. Bank N.A.) 1,840,000 1,500,000 Hotchkiss Industrial Development Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) 1,500,000 2,900,000 Thornton Industrial Development Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) 2,900,000 ------------ 17,625,000 ------------ FLORIDA -- 1.6% 4,300,000 Miami-Dade County Industrial Development Auth. Rev., (Palmer Trinity Private College), VRDN, 1.65%, 6/5/08 (LOC: Keybank N.A.) 4,300,000 250,000 Orange County School Board COP, Series 2002 B, VRDN, 2.50%, 6/2/08 (MBIA) (SBBPA: SunTrust Bank) 250,000 500,000 Seminole County Industrial Development Auth. Rev., VRDN, 1.82%, 6/5/08 (LOC: Bank of America N.A.) 500,000 ------------ 5,050,000 ------------ HAWAII -- 0.8% 450,000 Hawaii Pacific Health Rev., Series 2004 B, (Department Budget & Finance), VRDN, 1.67%, 6/4/08 (RADIAN) (SBBPA: Bank of Nova Scotia) 450,000 2,000,000 Hawaii Pacific Health Rev., Series 2004 B2, (Department Budget & Finance), VRDN, 1.67%, 6/4/08 (RADIAN) (SBBPA: Bank of Nova Scotia) 2,000,000 ------------ 2,450,000 ------------ - ------ 6 Tax-Free Money Market Principal Amount Value IDAHO -- 0.9% $ 2,900,000 Boise City Housing Auth. Multifamily Rev., Series 2002 B, (Civic Plaza Housing), VRDN, 1.90%, 6/4/08 (LOC: Keybank N.A.) $ 2,900,000 ------------ ILLINOIS -- 3.2% 4,000,000 Illinois GO, Series 2003 B04, VRDN, 1.78%, 6/4/08 (FSA) (SBBPA: Wachovia Bank N.A.) 4,000,000 6,000,000 Illinois Health Facilities Auth. Rev., Series 1997 B, (Loyola University Health System), VRDN, 2.20%, 6/4/08 (MBIA) (LOC: Comerica Bank) 6,000,000 ------------ 10,000,000 ------------ INDIANA -- 5.5% 1,000,000 Indianapolis Local Public Improvement Bank Bonds Rev., Series 2005 G3, (Waterworks), VRDN, 1.77%, 6/5/08 (MBIA) (SBBPA: Depfa Bank plc) 1,000,000 2,800,000 Jasper County Industrial Development Rev., (Newberry Farms LLC), VRDN, 1.82%, 6/5/08 (LOC: Bank of the West) 2,800,000 610,000 La Porte Industrial Development Rev., (KKO Realty), VRDN, 1.82%, 6/5/08 (LOC: Bank of New York) 610,000 1,465,000 Morgan County Economic Development Rev., Series 2002 A, (Morgan Hospital & Medical Center), VRDN, 1.82%, 6/5/08 (LOC: Fifth Third Bank) 1,465,000 11,270,000 Morgan County Economic Development Rev., Series 2002 B, (Morgan Hospital & Medical Center), VRDN, 1.70%, 6/5/08 (LOC: Fifth Third Bank) 11,270,000 ------------ 17,145,000 ------------ KANSAS -- 0.3% 1,000,000 Hutchinson Industrial Development Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) 1,000,000 ------------ KENTUCKY -- 2.2% 4,750,000 Kentucky Economic Development Finance Auth. Hospital Facilities Rev., Series 1997 D, (Health Alliance), VRDN, 3.50%, 6/4/08 (MBIA) (SBBPA: Credit Suisse First Boston) 4,750,000 Principal Amount Value $ 1,000,000 Murray Industrial Building Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) $ 1,000,000 1,000,000 Winchester Industrial Building Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) 1,000,000 ------------ 6,750,000 ------------ LOUISIANA -- 9.0% 9,740,000 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev, (Capital Projects and Equipment Acquisition Program), VRDN, 5.00%, 6/5/08 (Ambac) (SBBPA: JPMorgan Chase Bank) 9,740,000 2,395,000 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Trinity Episcopal School), VRDN, 1.70%, 6/4/08 (LOC: SunTrust Bank) 2,395,000 13,500,000 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., Series 2006 A, (Capital and Equipment Acquisition Program), VRDN, 5.00%, 6/5/08 (Ambac) (SBBPA: BNP Paribas) 13,500,000 2,500,000 New Orleans Aviation Board Rev., Series 1993 B, (Louis Armstrong New Orleans International Airport), VRDN, 3.00%, 6/4/08 (MBIA) (SBBPA: Dexia Credit Local) 2,500,000 ------------ 28,135,000 ------------ MAINE -- 0.9% 2,965,000 Town of York Rev., (Stonewall Realty LLC), VRDN, 1.92%, 6/5/08 (LOC: Citizens Bank of Rhode Island) 2,965,000 ------------ MARYLAND -- 0.1% 440,000 Maryland Economic Development Corp. Rev., Series 2002 B, (Federation of American Societies), VRDN, 1.70%, 6/4/08 (LOC: SunTrust Bank) 440,000 ------------ MICHIGAN -- 1.1% 3,500,000 City of Southfield Economic Development Corp. Rev., (Lawrence Technological University), VRDN, 1.60%, 6/4/08 (GO of University) (LOC: Bank One Michigan) 3,500,000 ------------ - ------ 7 Tax-Free Money Market Principal Amount Value MINNESOTA -- 7.3% $ 6,500,000 East Grand Forks Rev., (American Crystal Sugar Co.), VRDN, 1.82%, 6/5/08 (LOC: Wachovia Bank N.A.) $ 6,500,000 4,900,000 East Grand Forks Solid Waste Disposal Rev., (American Crystal Sugar Co.), VRDN, 1.82%, 6/5/08 (LOC: Wachovia Bank N.A. and CoBank ACB) 4,900,000 5,370,000 Minneapolis & Saint Paul Housing & Redevelopment Auth. Health Care System Rev., Series 2007 B1, (Allina Health System), VRDN, 2.50%, 6/2/08 (MBIA) (SBBPA: Bank of New York) 5,370,000 2,500,000 Minneapolis Health Care System Rev., Series 2005 B, (Fairview Health Services), VRDN, 3.25%, 6/4/08 (Ambac) (SBBPA: Royal Bank of Canada) 2,500,000 3,640,000 Owatonna Housing Rev., Series 2003 A, (Second Century Housing), VRDN, 1.82%, 6/5/08 (LOC: American Bank of St. Paul and FHLB) 3,640,000 ------------ 22,910,000 ------------ MISSISSIPPI -- 2.1% 1,905,000 Mississippi Business Finance Corp. Rev., Series 2004 B, VRDN, 1.74%, 6/5/08 (LOC: Wells Fargo Bank N.A.) 1,905,000 4,800,000 Morgan Keegan Municipal Products Inc. Various States, Series 2007 H1, VRDN, 1.87%, 6/5/08 (LOC: Regions Bank) 4,800,000 ------------ 6,705,000 ------------ MISSOURI -- 5.8% 6,700,000 Jackson County Industrial Development Auth. Rev., (Linda Hall Library), VRDN, 1.69%, 6/5/08 (LOC: Commerce Bank N.A.) 6,700,000 2,355,000 Kansas City Industrial Development Auth. Rev., (Plaza Manor Nursing), VRDN, 1.77%, 6/5/08 (LOC: Comerica Bank) 2,355,000 9,100,000 Missouri Health & Educational Facilities Auth. Rev., (Pembroke Hill School), VRDN, 1.69%, 6/5/08 (LOC: Commerce Bank N.A.) 9,100,000 ------------ 18,155,000 ------------ Principal Amount Value NEW YORK -- 0.5% $ 1,495,000 New York City Industrial Development Agency Civic Facility Rev., (1998 Peninsula Hospital Center), VRDN, 3.60%, 6/5/08 (LOC: JPMorgan Chase Bank) $ 1,495,000 ------------ NORTH CAROLINA -- 1.6% 5,000,000 North Carolina Eastern Municipal Power Agency System Rev., Series 2006 A, VRDN, 2.20%, 6/4/08 (MBIA) (SBBPA: Wachovia Bank N.A.) 5,000,000 ------------ OHIO -- 1.6% 5,000,000 Ohio Higher Educational Facility Rev., Series 2008 B1, (Case Western Reserve University), VRDN, 1.60%, 6/2/08 (LOC: Bank of America N.A.) 5,000,000 ------------ OREGON -- 1.3% 4,000,000 Oregon GO, Series 2007 A, (Tax Anticipation Notes), 4.50%, 6/30/08 4,002,674 ------------ PENNSYLVANIA -- 3.2% 5,000,000 Pennsylvania Higher Educational Facilities Auth. Hospital Rev., VRDN, 1.61%, 6/5/08 (SBBPA: Lloyds TSB Bank plc) (Acquired 11/6/07, Cost $5,000,000)(1) 5,000,000 5,000,000 Union County Hospital Auth. Rev., (Evangelical Community Hospital), VRDN, 8.00%, 6/5/08 (RADIAN) (LOC: Bank of America N.A.) 5,000,000 ------------ 10,000,000 ------------ SOUTH CAROLINA -- 2.9% 1,075,000 Piedmont Municipal Power Agency Electric Rev., Series 2004 B, VRDN, 2.60%, 6/4/08 (MBIA) (SBBPA: JPMorgan Chase Bank) 1,075,000 8,150,000 South Carolina Jobs Economic Development Auth Rev., (Greenville Technical College), VRDN, 2.00%, 6/5/08 (LOC: SunTrust Bank) 8,150,000 ------------ 9,225,000 ------------ TENNESSEE -- 8.9% 7,880,000 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.72%, 6/5/08 (LOC: U.S. Bank N.A.) 7,880,000 - ------ 8 Tax-Free Money Market Principal Amount Value $12,250,000 Morgan Keegan Municipal Products Inc. Various States, Series 2008 D, VRDN, 1.87%, 6/5/08 (LOC: Regions Bank) (Acquired 3/31/08-5/28/08, Cost $12,250,000)(1) $ 12,250,000 4,200,000 Sevier County Public Building Auth. Rev., Series 1999 II-B2, (Local Government Public Improvement), VRDN, 3.25%, 6/5/08 (Ambac) (SBBPA: KBC Bank N.V.) 4,200,000 3,500,000 Shelby County Health, Educational & Housing Facility Board Rev., (Wyndridge III Apartments), VRDN, 1.90%, 6/5/08 (LIQ FAC: FHLMC) 3,500,000 ------------ 27,830,000 ------------ TEXAS -- 18.7% 14,400,000 Brazos Harbor Industrial Development Corp. Rev., (BASF Corporation), VRDN, 2.10%, 6/4/08 14,399,999 4,500,000 Brownsville Utility System Rev., Series 2005-1132, VRDN, 1.67%, 6/5/08 (Ambac) (FSA) (LIQ FAC: JPMorgan Chase Bank) (Acquired 2/28/08, Cost $4,500,000)(1) 4,500,000 10,000,000 Crawford Education Facilities Corp. Rev., (University Package System A), VRDN, 1.71%, 6/5/08 (LOC: BNP Paribas) 10,000,000 3,000,000 Hale County Industrial Development Corp. Rev., (Struikmans), VRDN, 1.82%, 6/5/08 (LOC: Bank of the West) 3,000,000 5,240,000 Muleshoe Economic Development Corp. Rev., (John Lyle & Grace Ajean), VRDN, 1.77%, 6/5/08 (LOC: Wells Fargo Bank N.A.) 5,240,000 4,000,000 Port of Corpus Christi Auth. of Nueces County Solid Waste Disposal Rev., (Flint Hills Resources, LP), VRDN, 2.00%, 6/4/08 4,000,000 4,500,000 Port of Corpus Christi Auth. of Nueces County Solid Waste Disposal Rev., (Flint Hills Resources, LP), VRDN, 2.00%, 6/4/08 4,500,000 13,000,000 Texas GO, (Tax & Revenue Anticipation Notes), 4.50%, 8/28/08 13,024,263 ------------ 58,664,262 ------------ Principal Amount Value VIRGINIA -- 1.7% $ 1,755,000 Bristol Industrial Development Auth. Rev., (Bristol Health Care Center Inc.), VRDN, 2.80%, 6/1/08 (LOC: Regions Bank) $ 1,755,000 3,575,000 Chesapeake Bay Bridge & Tunnel District Rev., Series 2003 A39, VRDN, 4.18%, 6/4/08 (MBIA) (SBBPA: Wachovia Bank N.A.) (Acquired 5/9/08, Cost $3,575,000)(1) 3,575,000 ------------ 5,330,000 ------------ WASHINGTON -- 4.7% 2,500,000 Snohomish County GO, (Marysville School District No. 25), 4.00%, 12/1/08 (FSA) 2,507,550 4,200,000 Washington Economic Development Finance Auth. Rev., Series 2007 E, (Mesa Dairy, LLC), VRDN, 1.82%, 6/5/08 (LOC: Wells Fargo Bank N.A.) 4,200,000 7,950,000 Washington Health Care Facilities Auth. Rev., (Swedish Health Services), VRDN, 1.65%, 6/4/08 (LOC: Citibank N.A.) (Acquired 3/9/07, Cost $7,950,000)(1) 7,950,000 ------------ 14,657,550 ------------ WEST VIRGINIA -- 1.3% 4,000,000 West Virginia Economic Development Auth. Rev., (Collins Hardwood Co.), VRDN, 1.82%, 6/5/08 (LOC: Bank of America N.A.) 4,000,000 ------------ TOTAL INVESTMENT SECURITIES -- 100.9% 316,298,458 ------------ OTHER ASSETS AND LIABILITIES -- (0.9)% (2,756,335) ------------ TOTAL NET ASSETS -- 100.0% $313,542,123 ============ - ------ 9 Tax-Free Money Market Notes to Schedule of Investments AGC = Assured Guaranty Corporation Ambac = Ambac Assurance Corporation COP = Certificates of Participation FHLB = Federal Home Loan Bank FHLMC = Federal Home Loan Mortgage Corporation 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 May 31, 2008. (1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at May 31, 2008 was $36,935,000, which represented 11.8% of total net assets. None of the restricted securities were considered illiquid. See Notes to Financial Statements. - ------ 10 PERFORMANCE Tax-Free Bond Total Returns as of May 31, 2008 Average Annual Returns 10 Since Inception 1 year 5 years years Inception Date INVESTOR CLASS 4.66% 2.97% 4.54% 5.32% 3/2/87 LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 6.71% 3.12% 4.60% 5.51%(1) -- AVERAGE RETURN OF LIPPER'S INTERMEDIATE MUNICIPAL DEBT FUNDS(2) 3.80% 2.52% 4.05% 5.45%(3) -- Invester Class Lipper Ranking(2) as of 5/31/08 42 of 158 24 of 120 11 of 76 8 of 12 -- as of 6/30/08 50 of 159 27 of 124 11 of 77 8 of 12 -- Institutional Class 4.88% 3.17% -- 3.72% 4/15/03 (1) Since 2/28/87, the date nearest the Investor Class's inception for which data are available. (2) Data provided by Lipper Inc. -- A Reuters Company. © 2008 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. (3) 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. - ------ 11 Tax-Free Bond Growth of $10,000 Over 10 Years $10,000 investment made May 31, 1998
One-Year Returns Over 10 Years Periods ended May 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 4.07% 0.44% 10.77% 6.45% 9.31% -0.79% 5.16% 1.87% 4.08% 4.66% Lehman Brothers Municipal 5-Year GO Index 4.90% 0.65% 10.17% 6.33% 8.72% -0.22% 4.47% 1.24% 3.55% 6.71% 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. - ------ 12 PORTFOLIO COMMENTARY Tax-Free Bond Lead Portfolio Managers: Alan Kruss and Steven Permut Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY Tax-Free Bond returned 4.66%* for the 12 months ended May 31, 2008. By comparison, its broad market index--the Lehman Brothers Municipal 5-Year General Obligation Bond Index--returned 6.71%, while the average return of the 158 intermediate municipal debt funds tracked by Lipper Inc. was 3.80%. The portfolio's average annual returns also exceeded those of its Lipper group average for the five- and 10-year periods ended May 31, 2008 (see page 11). The portfolio's absolute return reflected the general bond market rally during the period as the economy weakened and the Federal Reserve slashed interest rates (see the Market Perspective on page 2). The fund and Lipper group average underperformed the Lehman Index because the short-term general obligation bonds that comprise the index were the best-performing segment of the market. In terms of contribution to the portfolio's return, our holdings in insured bonds limited results, while our duration and yield curve position helped performance. INSURED BONDS LAGGED A key factor limiting the portfolio's return was our exposure to insured bonds, which made up about 45% of assets at the end of May. We held a large position in insured bonds because we spent much of 2007 trading up in credit quality in anticipation of an economic slowdown. These securities underperformed because of concerns that losses on subprime loans in other parts of the bond insurers' business would affect the backing they provide for many municipal bonds. It's important to point out that municipal bonds historically have been an exceptionally safe investment with default rates much lower than those on corporate bonds. In addition, our experienced municipal credit research team performs a thorough review of all the bonds we purchase. As a result, we have faith in the underlying credit quality of the bonds in the portfolio and viewed the dip in prices as a buying opportunity. For example, we were able to add insured bonds with yields equal to or greater than those on comparable uninsured bonds--in other words, we effectively got the insurance for free. Yields as of May 31, 2008 30-Day SEC Yield Investor Class 3.36% Institutional Class 3.55% Investor Class 30-Day Tax-Equivalent Yields(1) 25.00% Tax Bracket 4.48% 28.00% Tax Bracket 4.67% 33.00% Tax Bracket 5.01% 35.00% Tax Bracket 5.17% (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. - ------ 13 Tax-Free Bond CURVE, SECTOR TRADES CONTRIBUTED On a positive note, we helped performance relative to the index and peer group by positioning the portfolio for a steeper yield curve. We did that by reducing our allocation to long-term bonds, which underperformed, and increasing our exposure to intermediate-term municipals. In the municipal market, the difference in yield between two- and 10-year notes went from 24 to 140 basis points (a basis point equals 0.01%) during the period. We also used Treasury futures to implement this trade, because they're a pure play on changes in the shape of the curve. For the 12 months, the difference in yield between two- and 10-year Treasury securities went from -3 basis points (the yield curve was inverted) to +141 basis points (a more normal, upward slope). The market climate also presented us with some attractive sector trades. For example, we were able to add some less economically sensitive education and hospital bonds at what we believe were very attractive yields relative to the credit quality of the issuers--in effect, we got income comparable to high-yield bonds but with investment-grade quality. MANAGEMENT CHANGE In March, Portfolio Manager Robert Miller left American Century Investments to pursue other opportunities. Two experienced members of the municipal portfolio management team--Steven Permut, a senior portfolio manager and head of the municipal bond team, and Alan Kruss, a municipal bond portfolio manager--will continue as lead managers on Tax-Free Bond. We believe this continuity is a key advantage of our team approach to managing portfolios. OUTLOOK "We're cautious because we don't see the economic and technical (supply and demand) issues in the municipal market going away anytime soon," said Permut. "Nevertheless, municipal bonds remain very attractive compared with fully taxable investments, so we're looking for opportunities to add bonds in select sectors or states that we believe represent compelling long-term values." Portfolio Composition by Credit Rating % of fund % of fund investments investments as of as of 5/31/08 11/30/07 AAA 57% 67% AA 20% 11% A 12% 9% BBB 10% 11% Lower than BBB -- 1% Not Rated 1% 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 May 31, 2008 % of net % of net assets as of assets as of 5/31/08 11/30/07 California 11.8% 10.0% New York 10.3% 3.1% Arizona 6.8% 8.6% Pennsylvania 5.7% 5.9% Washington 5.3% 5.6% - ------ 14 SCHEDULE OF INVESTMENTS Tax-Free Bond MAY 31, 2008 Principal Amount Value Municipal Securities -- 101.0% ALABAMA -- 0.5% $ 865,000 Alabama Water Pollution Control Auth., 5.75%, 8/15/18 (Ambac) $913,561 190,000 East Central Industrial Development Auth. Rev., 5.25%, 9/1/08, Prerefunded at 100% of Par (Ambac)(1) 191,596 810,000 East Central Industrial Development Auth. Rev., 5.25%, 9/1/13 (Ambac) 814,641 1,035,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1) 1,148,793 840,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1) 932,350 645,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1) 715,911 790,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1) 876,852 -------------- 5,593,704 -------------- ALASKA -- 0.2% 2,125,000 Aleutians East Borough Project Rev., (Aleutian Pribilof Islands Inc.), 5.00%, 6/1/20 (ACA) 1,945,884 -------------- ARIZONA -- 6.8% 1,505,000 Arizona Board of Regents COP, Series 2002 A, (University of Arizona), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(1) 1,644,258 1,935,000 Arizona Board of Regents COP, Series 2006 A, (University of Arizona), 5.00%, 6/1/18 (Ambac) 2,086,046 1,275,000 Arizona Health Facilities Auth. Rev., (Blood Systems Inc.), 4.00%, 4/1/12 1,284,652 1,175,000 Arizona Health Facilities Auth. Rev., (Blood Systems Inc.), 4.50%, 4/1/16 1,180,922 1,000,000 Arizona Health Facilities Auth. Rev., (Blood Systems Inc.), 5.00%, 4/1/21 1,005,960 7,500,000 Arizona Health Facilities Auth. Rev., Series 2007 B, (Banner Health), VRDN, 2.68%, 7/1/08 5,924,999 1,750,000 Arizona School Facilities Board Rev., (State School Improvement), 5.50%, 7/1/11, Prerefunded at 100% of Par(1) 1,896,003 Principal Amount Value $ 1,000,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/11 $ 1,025,810 1,000,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/12 1,024,430 1,880,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/13 1,925,665 2,000,000 Arizona Tourism & Sports Auth. Rev., Series 2003 A, (Multipurpose Stadium Facility), 5.25%, 7/1/17 (MBIA) 2,148,700 1,910,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/11 (MBIA) 2,009,358 2,130,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/12 (MBIA) 2,253,647 500,000 Glendale Industrial Development Auth. Rev., Series 2001 A, (Midwestern University), 5.75%, 5/15/11, Prerefunded at 101% of Par(1) 544,110 1,155,000 Maricopa County Gilbert Unified School District No. 41 GO, 5.75%, 7/1/11 (FSA) 1,257,887 1,445,000 Maricopa County Phoenix Union High School District No. 210 GO, 4.75%, 7/1/11 (FSA) 1,531,671 1,955,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.00%, 7/1/10 2,021,411 2,415,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/11 2,534,663 2,000,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/12 2,112,600 1,000,000 Maricopa County Scottsdale Elementary School District No. 48 GO, 6.60%, 7/1/12 1,138,680 1,265,000 Mohave County Community College District Rev., 5.75%, 3/1/14 (Ambac) 1,322,773 2,150,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/10, Prerefunded at 100% of Par (MBIA)(1) 2,287,407 - ------ 15 Tax-Free Bond Principal Amount Value $ 2,155,000 Mohave County Industrial Development Auth., Series 2004 A, (Mohave Prison), 5.00%, 4/1/14 (XLCA) $ 2,265,832 1,815,000 Navajo County Unified School District No. 20 Rev., Series 2006 A, 5.00%, 7/1/17 (MBIA) 1,967,188 1,000,000 Phoenix Civic Improvement Corp. Airport Rev., Series 2008 A, 5.00%, 7/1/38(2) 1,002,310 1,000,000 Phoenix Civic Improvement Corp. Waste System Rev., (Junior Lien), 6.25%, 7/1/10, Prerefunded at 101% of Par (FGIC)(1)(3) 1,087,050 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.50%, 7/1/19 (FGIC) 1,065,500 1,070,000 Phoenix GO, Series 1995 A, 6.25%, 7/1/17 1,293,587 1,750,000 Phoenix Industrial Development Auth. Government Office Lease Rev., (Capitol Mall LLC), 5.00%, 9/15/26 (Ambac) 1,791,738 1,200,000 Pima County Indian Oasis-Baboquivari Unified School District No. 40 Rev., Series 2002 A, 4.60%, 7/1/13 (MBIA) 1,256,340 1,710,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/18 (Ambac) 1,871,800 1,800,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/19 (Ambac) 1,963,584 1,125,000 Pima County Marana Unified School District No. 6 GO, 5.50%, 7/1/15 (FGIC) 1,186,256 2,600,000 Pima County Tucson Unified School District No. 1 GO, 4.625%, 7/1/13 (FSA) 2,753,062 775,000 Pinal County Apache Junction Unified School District No. 43 GO, Series 2006 B, (School Improvement), 5.00%, 7/1/16, Prerefunded at 100% of Par (FGIC)(1) 859,398 820,000 Pinal County COP, 4.75%, 6/1/13 (Ambac) 856,720 3,970,000 Pinal County COP, 5.00%, 12/1/25 4,013,907 1,000,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/11 1,022,080 Principal Amount Value $ 1,000,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/16 $ 1,006,200 1,600,000 Scottsdale GO, 6.25%, 7/1/09, Prerefunded at 100% of Par(1) 1,673,280 1,000,000 Sedona COP, 5.75%, 7/1/09, Prerefunded at 101% of Par(1) 1,049,690 3,085,000 South Tucson Municipal Property Corp. Rev., 5.50%, 6/1/24 3,157,713 -------------- 73,304,887 -------------- CALIFORNIA -- 11.8% 3,445,000 ABAG Tax Allocation Rev., Series 2007 A, 5.00%, 9/1/33 (Ambac) 3,526,784 10,000,000 California Department of Water Resources Power Supply Rev., Series 2008 H, 5.00%, 5/1/21 10,568,399 3,000,000 California Department of Water Resources Rev., Series 2008 AE, (Central Valley Water System), 5.00%, 12/1/22 3,222,270 5,000,000 California Economic Recovery GO, Series 2008 B, 3.50%, 7/1/11 5,051,700 10,000,000 California GO, 5.00%, 8/1/22 10,321,400 7,500,000 California GO, 5.00%, 6/1/26 7,632,900 7,500,000 California GO, 5.00%, 11/1/26 7,669,350 2,300,000 California Health Facilities Financing Auth. Rev., Series 2008 A3, (Stanford Hospital), VRDN, 3.45%, 11/15/08(2) 2,297,746 5,725,000 California Health Facilities Financing Auth. Rev., Series 2008 I, (Catholic Healthcare West), 5.125%, 7/1/22 5,784,025 1,000,000 California Public Works Board Lease, Series 1994 A, (Various University of California Projects), 6.20%, 10/1/08 1,003,190 2,000,000 California Statewide Communities Development Auth. Rev., Series 2001 B, (Kaiser Permanente), 3.90%, 8/1/31 1,990,840 1,000,000 California Statewide Communities Development Auth. Rev., Series 2002 E, (Kaiser Permanente), 4.70%, 6/1/09 1,023,810 6,500,000 California Statewide Communities Development Auth. Rev., Series 2008 B, (Sutter Health), 5.25%, 11/15/48 6,484,660 - ------ 16 Tax-Free Bond Principal Amount Value $ 845,000 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.00%, 10/1/12 (FSA) $916,419 230,000 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.00%, 10/1/12 (FSA)(1) 249,782 430,000 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) 480,693 1,570,000 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.25%, 10/1/19 (FSA) 1,700,090 3,000,000 Chino Basin Regional Financing Auth. Rev., Series 2008 A, (Inland Empire Utilities Agency), 5.00%, 11/1/38 (Ambac) 3,060,870 7,000,000 City of Vista COP, (Community Projects), 5.00%, 5/1/37 (MBIA) 7,080,081 3,510,000 Foothill-De Anza Community College District GO, Series 2007 B, (Election of 2006), 5.00%, 8/1/17 (Ambac) 3,869,073 2,000,000 Foothill-De Anza Community College District GO, Series 2007 B, (Election of 2006), 5.00%, 8/1/27 (Ambac) 2,080,440 3,600,000 Glendale Electric Rev., 5.00%, 2/1/38 (AGC) 3,708,324 5,000,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2007 A1, 5.75%, 6/1/47 4,363,700 1,070,000 Hesperia Unified School District COP, (2007 Capital Improvement), 5.00%, 2/1/17 (Ambac) 1,136,875 3,000,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (Ambac) 3,112,980 180,000 Long Beach Unified School District COP, VRDN, 4.30%, 6/5/08 (Ambac) (SBBPA: Dexia Credit Local) 180,000 Principal Amount Value $ 2,200,000 Manteca Unified School District GO, 5.25%, 8/1/14, Prerefunded at 100% of Par (FSA)(1) $ 2,463,384 1,500,000 Pasadena Electric Rev., 5.00%, 6/1/37 (AGC) 1,549,275 3,185,000 Peninsula Corridor Joint Powers Board Farebox Rev., Series 2007 A, 5.00%, 10/1/37 (Ambac) 3,208,410 1,000,000 Plumas Unified School District GO, 5.25%, 8/1/20 (FSA) 1,122,940 3,790,000 San Francisco City & County Airports Commission Rev., Series 2008-34F, (San Francisco International Airport), 5.00%, 5/1/16 (AGC/FSA) 4,091,153 5,000,000 San Francisco City & County Airports Commission Rev., Series 2008-34F, (San Francisco International Airport), 5.00%, 5/1/17 (AGC/FSA) 5,388,950 2,145,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 5.50%, 7/1/15 (MBIA) 2,318,788 1,000,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/20 (MBIA) 1,090,930 2,000,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/31 (MBIA) 2,150,360 1,575,000 San Marcos Public Facilities Auth. Tax Allocation Rev., Series 2006 A (Project Area No. 3), 5.00%, 8/1/20 (Ambac) 1,628,345 2,875,000 Southern California Public Power Auth. Rev., Series 2008 A, (Southern Transmission), 5.00%, 7/1/22(2) 3,016,565 -------------- 126,545,501 -------------- COLORADO -- 2.0% 1,100,000 Arapahoe County Water & Wastewater Public Improvement District GO, Series 2002 B, 5.75%, 12/1/17 (MBIA) 1,208,141 40,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University), 4.60%, 11/1/10, Prerefunded at 102% of Par(1) 42,642 - ------ 17 Tax-Free Bond Principal Amount Value $ 170,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University), 4.75%, 11/1/10(1) $178,628 730,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University), 4.75%, 11/1/10 744,593 760,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University), 4.60%, 11/1/16 741,578 1,280,000 Colorado Health Facilities Auth. Rev., (Yampa Valley Medical Center), 5.00%, 9/15/11 1,311,962 1,000,000 Colorado Health Facilities Auth. Rev., Series 2006 B, (Longmont United Hospital), 5.00%, 12/1/20 (RADIAN) 1,009,650 450,000 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/10, Prerefunded at 100% of Par(1) 488,219 50,000 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/16 53,924 1,350,000 Compark Business Campus Metropolitan District, GO, Series 2007 A, 5.30%, 12/1/22 (RADIAN) 1,385,477 1,000,000 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) 1,116,700 1,020,000 El Paso County School District No 8 & Fountain-Fort Carson School District Finance Corp. COP, 4.25%, 12/15/13 (Ambac) 1,041,267 1,250,000 Interlocken Consolidated Metropolitan District GO, Series 1999 B, 5.625%, 12/15/16 (RADIAN) 1,306,488 1,250,000 Midcities Metropolitan District No. 2 GO, 5.125%, 12/1/30 (RADIAN) 1,240,925 1,500,000 SBC Metropolitan District GO, 5.00%, 12/1/20 (ACA) 1,501,394 5,000,000 University of Colorado Regents COP, 6.00%, 12/1/22 (MBIA-IBC) 5,300,649 Principal Amount Value $ 1,000,000 Vista Ridge Metropolitan District GO, Series 2006 A, 5.00%, 12/1/21 (RADIAN) $998,050 1,400,000 Vista Ridge Metropolitan District, GO, Series 2006 A, 5.00%, 12/1/26 (RADIAN) 1,370,236 -------------- 21,040,523 -------------- CONNECTICUT -- 2.7% 2,150,000 City of Bridgeport GO, Series 2004 A, 5.25%, 8/15/14, Prerefunded at 100% of Par (MBIA)(1) 2,394,369 4,000,000 Connecticut GO, Series 2001 C, 5.50%, 12/15/13 (MBIA-IBC) 4,490,080 5,000,000 Connecticut GO, Series 2006 C, 5.00%, 6/1/14 5,492,300 1,595,000 Connecticut GO, Series 2006 D, 5.00%, 11/1/15 1,767,691 4,500,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2003 X3, (Yale University), 4.85%, 7/1/37 4,599,360 1,000,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 C, (Hospital for Special Care Issue), 5.25%, 7/1/27 (RADIAN) 1,020,960 2,660,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/16 (MBIA) 2,900,650 1,000,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/17 (MBIA) 1,089,440 5,000,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 Z1, (Yale University), 5.00%, 7/1/42 5,137,000 -------------- 28,891,850 -------------- DISTRICT OF COLUMBIA -- 0.5% 1,385,000 District of Columbia GO, Series 1999 B, 5.50%, 6/1/09 (FSA) 1,433,350 1,155,000 District of Columbia Rev., (Gonzaga College High School), 5.20%, 7/1/12 (FSA) 1,196,996 2,500,000 District of Columbia Water & Sewer Auth. Public Utility Rev., Series 2008 A, 5.00%, 10/1/34 (AGC) 2,562,750 -------------- 5,193,096 -------------- - ------ 18 Tax-Free Bond Principal Amount Value FLORIDA -- 4.5% $ 400,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.00%, 4/1/14 $410,140 500,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/15 522,250 525,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/16 545,370 1,475,000 Collier County School Board COP, 5.50%, 2/15/12 (FSA) 1,589,077 1,150,000 Duval County School Board COP, 5.75%, 7/1/16 (FSA) 1,194,310 1,000,000 Florida Municipal Loan Council GO, Series 2002 C, 5.25%, 11/1/21 (MBIA) 1,054,090 4,500,000 Florida Rural Utility Financing Commission Rev., Series 2008 A, (Public Projects Construction), 3.25%, 2/1/11 4,507,559 1,000,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/16 1,026,940 1,000,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/18 1,009,750 1,235,000 Indian River County Rev., (Spring Training Facility), 5.25%, 4/1/15 (FGIC) 1,303,073 2,870,000 JEA St. Johns River Power Park System Rev., Series 2, Issue 3, 5.00%, 10/1/37 2,923,411 850,000 Lee County Industrial Development Auth. Healthcare Facilities Rev., Series 1999 A, (Shell Point Village), 5.50%, 11/15/09(1) 889,151 1,000,000 Miami Beach Stormwater Rev., 5.75%, 9/1/17 (FGIC) 1,057,810 1,910,000 Miami Beach Water & Sewer Rev., 5.625%, 9/1/16 (Ambac) 2,030,712 650,000 Miami Parking Facilities Rev., 5.25%, 10/1/15 (MBIA) 709,508 4,650,000 Miami-Dade County Aviation Rev., Series 2007 D, (Miami International Airport), 5.25%, 10/1/26 (FSA) 4,869,805 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/11, Prerefunded at 100% of Par (FSA)(1) 1,087,880 Principal Amount Value $ 1,875,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/12, Prerefunded at 100% of Par (MBIA)(1) $ 2,059,819 450,000 Orlando and Orange County Expressway Auth. Rev., (Junior Lien), 6.50%, 7/1/11 (FGIC) 495,662 1,000,000 Orlando Utilities Commission Water & Electric Rev., Series 1989 D, 6.75%, 10/1/17(1) 1,185,930 1,375,000 Pinellas County Health Facility Auth. Rev., (Pooled Hospital Loan Program), VRDN, 4.00%, 6/2/08 (Ambac) (SBBPA: Wachovia Bank N.A.) 1,375,000 1,500,000 Putnam County Development Auth. Pollution Control Rev., Series 2007 B, (Seminole Electric Cooperative, Inc.), 5.35%, 5/1/18 (Ambac) 1,511,415 1,000,000 Sumter County School Board COP, 5.50%, 7/2/12, Prerefunded at 100% of Par (MBIA)(1) 1,096,910 1,000,000 Sunrise Utility System Rev., 5.20%, 10/1/22 (Ambac) 1,063,240 1,500,000 Sunshine State Governmental Financing Commission Rev., VRDN, 4.00%, 6/2/08 (Ambac) (SBBPA: Dexia Credit Local) 1,500,000 7,900,000 Sunshine State Governmental Financing Commission Rev., VRDN, 4.25%, 6/2/08 (Ambac) (SBBPA: Dexia Credit Local) 7,899,999 2,000,000 Tampa Bay Water Utility System Rev., 5.00%, 10/1/38(2) 2,051,840 400,000 Tampa Guaranteed Entitlement Rev., 6.00%, 10/1/18 (Ambac)(3) 456,164 1,000,000 Tampa Water & Sewer Rev., 6.00%, 10/1/17 (FSA) 1,179,680 -------------- 48,606,495 -------------- GEORGIA -- 0.7% 3,210,000 Burke County Development Auth. Pollution Control Rev., Series 2007 B, (Oglethorpe Power Corp. Vogtle), 4.75%, 4/1/11 (MBIA) 3,260,430 1,250,000 Fulton County Development Auth. Rev., Series 2001 A, (TUFF/Atlanta Housing, LLC Project at Georgia State University), 5.50%, 9/1/18 (Ambac) 1,344,675 - ------ 19 Tax-Free Bond Principal Amount Value $ 130,000 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)(3) $133,250 15,000 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/11, Prerefunded at 100% of Par (MBIA-IBC)(1) 16,052 110,000 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC)(1) 120,572 560,000 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC) 605,634 2,000,000 LaGrange Water & Sewerage Rev., 5.00%, 1/1/12 (Ambac) 2,130,780 -------------- 7,611,393 -------------- HAWAII -- 0.1% 500,000 Maui County GO, Series 2000 A, 6.50%, 3/1/10, Prerefunded at 101% of Par (FGIC)(1) 540,945 -------------- IDAHO -- 0.1% 1,000,000 Blaine County Hailey School District No. 61 GO, 5.00%, 7/30/10 (Ambac) (School Bond Guarantee) 1,056,090 -------------- ILLINOIS -- 4.8% 2,000,000 Bedford Park GO, Series 2004 A, 5.25%, 12/15/20 (FSA) 2,170,160 5,000,000 Chicago Board of Education GO, Series 2008 C, 5.25%, 12/1/23 5,341,351 4,000,000 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 5.00%, 1/1/12 (MBIA-IBC) 4,264,360 3,000,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/12 (FSA) 3,195,120 4,000,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/13 (FSA) 4,304,760 4,000,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/14 (FSA) 4,337,840 775,000 Chicago O'Hare International Airport Rev., Series 2008 C, 4.00%, 1/1/16 (FSA) 793,848 600,000 Chicago O'Hare International Airport Rev., Series 2008 C, 4.00%, 1/1/17 (FSA) 610,470 1,015,000 City of Chicago Rev., Series 2006 A, 5.00%, 11/1/13 (Ambac) 1,091,612 Principal Amount Value $ 4,915,000 Cook County Township High School District No. 211 GO, (Palatine and Schaumburg Townships), 5.00%, 12/1/10 (FSA) $ 5,218,698 2,000,000 Illinois Dedicated Tax Rev., (Civic Center), 6.25%, 12/15/20 (Ambac) 2,320,100 655,000 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.125%, 5/15/10 678,868 400,000 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.75%, 5/15/11, Prerefunded at 101% of Par(1) 438,152 1,775,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/09 1,795,430 2,785,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/11 2,813,880 940,000 Illinois Health Facilities Auth. Rev., Series 1992 C, (Evangelical Hospital), 6.75%, 4/15/12(1) 1,016,563 1,000,000 Illinois Regional Transportation Auth. Rev., Series 1990 A, 7.20%, 11/1/20 (Ambac) 1,211,930 930,000 Kane County Community Unit School District No. 304 GO, 6.20%, 1/1/24 (FSA) 1,038,847 1,145,000 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (MBIA)(1) 1,267,286 1,035,000 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (MBIA)(1) 1,145,538 75,000 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/18 (MBIA) 81,143 1,000,000 Rock Island, Mercer et al Counties Community College District No. 503 GO, Series 2008 A, (Black Hawk College), 4.00%, 12/1/11 (Ambac) 1,036,520 1,000,000 Southwestern Illinois Development Auth. Rev., (Triad School District No. 2), 5.00%, 10/1/18 (MBIA/GO of District) 1,067,540 - ------ 20 Tax-Free Bond Principal Amount Value $ 1,250,000 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/20 (XLCA) $ 1,308,675 1,000,000 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/21 (XLCA) 1,041,720 1,000,000 University of Illinois COP, (Utility Infrastructure), 5.75%, 8/15/08 (MBIA)(1) 1,007,870 1,000,000 University of Illinois COP, Series 2006 A, (Academic Facilities), 5.00%, 3/15/16 (Ambac) 1,093,480 -------------- 51,691,761 -------------- INDIANA -- 1.8% 1,000,000 Hamilton Southeastern Consolidated School Building Corp. Rev., (Hamilton County), 4.25%, 7/15/20 (FSA/State Aid Withholding) 1,008,230 1,520,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/17 (FSA) 1,655,569 1,600,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/18 (FSA) 1,727,488 1,680,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/19 (FSA) 1,801,817 5,000,000 Indiana Finance Auth. Lease Rev., Series 2008 A1, 5.00%, 11/1/16 5,357,249 220,000 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15, Prerefunded at 100% of Par(1) 240,247 780,000 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15 902,351 1,435,000 Indianapolis Local Public Improvement Bond Bank Rev., Series 2002 A, 5.00%, 7/1/12 (MBIA) 1,542,840 1,500,000 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) 1,636,455 1,650,000 Valparaiso Middle Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (FGIC)(1) 1,800,101 1,000,000 Zionsville Community Schools Building Corp., (First Mortgage), 5.75%, 1/15/12, Prerefunded at 100% of Par (FGIC/State Aid Withholding)(1) 1,096,350 -------------- 18,768,697 -------------- Principal Amount Value IOWA -- 0.5% $ 1,485,000 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/13 $ 1,496,776 2,000,000 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/14 2,001,960 1,690,000 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/16 1,664,802 -------------- 5,163,538 -------------- KANSAS -- 0.3% 1,280,000 Wichita Hospital Facilities Rev., Series 2001 III, 5.25%, 11/15/13 1,351,680 1,195,000 Wichita Hospital Facilities Rev., Series 2001 III, 5.50%, 11/15/16 1,255,634 -------------- 2,607,314 -------------- LOUISIANA -- 0.5% 1,740,000 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Ascension Parish Library), 5.25%, 4/1/23 (Ambac) 1,815,951 1,105,000 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 4.00%, 7/1/13 (CIFG) 1,108,503 1,205,000 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 5.00%, 7/1/15 (CIFG) 1,264,648 1,465,000 Louisiana Public Facilities Auth. Rev., Series 2007 A, (Black & Gold Facilities), 5.00%, 7/1/22 (CIFG) 1,441,677 -------------- 5,630,779 -------------- MARYLAND -- 2.6% 10,000,000 Maryland GO, First Series 2005 A, (State and Local Facilities Loan), 5.25%, 2/15/15 11,198,200 10,000,000 Maryland GO, Second Series 2005 A, (State and Local Facilities Loan), 5.00%, 8/1/11 10,710,500 550,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 4.75%, 7/1/09 561,528 535,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 4.75%, 7/1/10 553,067 - ------ 21 Tax-Free Bond Principal Amount Value $ 825,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 5.00%, 7/1/12 $866,102 1,840,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 5.00%, 7/1/13 1,940,758 2,000,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 5.00%, 7/1/34 (AGC) 2,058,780 -------------- 27,888,935 -------------- MASSACHUSETTS -- 2.5% 10,000,000 Commonwealth of Massachusetts GO, Series 2002 C, (Consolidated Loan of 2002), 5.50%, 11/1/12 (FSA) 11,056,500 1,855,000 Massachusetts Development Finance Agency Rev., Series 2007 C, 5.00%, 10/1/17 1,917,235 2,500,000 Massachusetts GO, Series 2006 D, 5.00%, 8/1/14 2,743,425 760,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 1992 F, 6.25%, 7/1/12 (Ambac) 811,004 1,250,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 2008 E1, (CareGroup Issue), 5.125%, 7/1/38(2) 1,219,975 8,800,000 Massachusetts Water Resources Auth. Rev., Series 1997 A, (Multi-Modal), VRDN, 3.65%, 6/4/08 (Ambac) (SBBPA: Bank of Nova Scotia) 8,800,000 -------------- 26,548,139 -------------- MICHIGAN -- 3.5% 3,500,000 Detroit GO, Series 2004 A1, 5.25%, 4/1/23 (Ambac) 3,548,860 1,485,000 Grand Valley State University Rev., 5.75%, 12/1/10, Prerefunded at 100% of Par (FGIC)(1) 1,603,681 1,265,000 Kalamazoo Public Schools GO, 4.00%, 5/1/13 (FSA) 1,314,613 1,545,000 Kalamazoo Public Schools GO, 5.25%, 5/1/16 (FSA) 1,722,644 5,000,000 Michigan Building Auth. Rev., Series 2003 I, (Facilities Program), 5.25%, 10/15/11 (FSA) 5,391,400 2,345,000 Michigan Higher Education Facilities Auth. Rev., (Limited Obligation - Hillsdale College), 5.00%, 3/1/26 2,368,169 Principal Amount Value $ 200,000 Michigan Higher Education Facilities Auth. Rev., (Limited Obligation - Kalamazoo College), 5.00%, 12/1/33 $195,768 1,070,000 Pontiac City School District GO, 5.00%, 5/1/13 (XLCA) 1,139,443 1,110,000 Pontiac City School District GO, 5.00%, 5/1/14 (XLCA) 1,186,901 1,260,000 Pontiac City School District GO, 5.00%, 5/1/15 (XLCA) 1,349,145 1,425,000 Pontiac City School District GO, 5.00%, 5/1/16 (XLCA) 1,525,163 1,595,000 Pontiac City School District GO, 5.00%, 5/1/17 (XLCA) 1,692,742 575,000 Taylor GO, 5.00%, 9/1/11 (MBIA) 610,489 2,010,000 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/11 (FGIC) 2,107,023 2,215,000 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/13 (FGIC) 2,358,598 2,335,000 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/14 (FGIC) 2,473,395 3,000,000 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/18 (FGIC) 3,127,680 2,000,000 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/19 (FGIC) 2,066,320 1,250,000 Western Michigan University Rev., 5.00%, 11/15/32 (FSA) 1,289,563 -------------- 37,071,597 -------------- MINNESOTA -- 0.2% 1,500,000 Minnesota Higher Education Facilities Auth. Rev., Series 2005-6G, (Saint John University), 5.00%, 10/1/12 1,603,740 -------------- MISSISSIPPI -- 1.3% 1,150,000 Harrison County School District, GO, 5.00%, 10/1/24 (FSA) 1,209,490 1,565,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/15 (Ambac) 1,691,217 1,645,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/16 (Ambac) 1,777,028 - ------ 22 Tax-Free Bond Principal Amount Value $ 1,000,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Municipal Energy Agency Power Supply), 5.00%, 3/1/17 (XLCA) $ 1,014,170 4,620,000 Mississippi Development Bank Special Obligation Rev., Series 2007 A, 5.00%, 7/1/19 (Ambac) 4,925,752 1,195,000 University of Southern Mississippi Educational Building Corp. Rev., Series 2006 A, 5.00%, 3/1/17 (FSA) 1,299,144 1,940,000 University of Southern Mississippi Educational Building Corp. Rev., Series 2006 A, 5.00%, 3/1/18 (FSA) 2,092,794 -------------- 14,009,595 -------------- MISSOURI -- 1.4% 1,425,000 Jackson County Public Building Corp. Rev., Series 2006 A, (Capital Improvements), 5.00%, 12/1/15 (MBIA) 1,569,609 2,775,000 Missouri Development Finance Board, Series 2000 A, (Midtown Redevelopment), 5.75%, 4/1/10, Prerefunded at 100% of Par (MBIA)(1) 2,946,828 2,145,000 Missouri Health & Educational Facilities Auth. Rev., Series 1998 A, (Park Lane Medical Center), 5.60%, 1/1/15 (MBIA)(1) 2,297,660 3,145,000 Missouri Joint Municipal Electric Utility Commission Rev., (Plum Point), 5.00%, 1/1/16 (MBIA) 3,359,551 3,030,000 Missouri State Highways & Transit Commission Rev., Series 2006 A, 5.00%, 5/1/13 3,294,610 1,000,000 Platte County Industrial Development Auth. Rev., (Zona Rosa Retail), 5.00%, 12/1/32 (County Guaranteed) 1,015,120 1,000,000 St. Louis Municipal Finance Corp. Rev., Series 2006 A, (Carnahan Courthouse), 4.00%, 2/15/17 (Ambac) 1,002,190 -------------- 15,485,568 -------------- NEBRASKA -- 0.5% 2,000,000 Nebraska Public Power District Rev., Series 2007 B, 5.00%, 1/1/13 (FSA) 2,159,460 3,000,000 Omaha Public Power District Electric System Rev., Series 2007 A, 5.00%, 2/1/21 3,176,970 -------------- 5,336,430 -------------- Principal Amount Value NEVADA -- 0.6% $ 1,000,000 Clark County Economic Development Rev., (University of Southern Nevada), 5.00%, 4/1/22 (RADIAN) $ 1,000,640 1,410,000 Clark County Economic Development Rev., (University of Southern Nevada), 5.00%, 4/1/27 (RADIAN) 1,377,951 1,550,000 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(1) 1,695,871 1,865,000 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(1) 2,040,514 -------------- 6,114,976 -------------- NEW HAMPSHIRE -- 0.6% 1,660,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/11 1,718,100 680,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/12 702,685 1,030,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/13 1,064,495 3,000,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/18 3,012,720 -------------- 6,498,000 -------------- NEW JERSEY -- 3.7% 1,000,000 New Jersey Economic Development Auth. Rev., Series 2008 Y, (School Facilities Contruction), 5.00%, 9/1/33(2) 1,011,930 4,235,000 New Jersey Transit Corporation COP, 5.00%, 10/1/12 (FSA) 4,542,927 5,595,000 New Jersey Transit Corporation COP, 5.00%, 10/1/13 (FSA)(3) 6,039,579 7,400,000 New Jersey Transportation Trust Fund Auth. Rev., Series 2004 B, 5.25%, 12/15/12 (FGIC) 8,050,090 - ------ 23 Tax-Free Bond Principal Amount Value $15,000,000 New Jersey Transportation Trust Fund Auth. Rev., Series 2006 A, 5.25%, 12/15/20(3) $ 16,662,450 4,000,000 Tobacco Settlement Financing Corp. Rev., Series 2007-1A, 5.00%, 6/1/41 3,104,680 -------------- 39,411,656 -------------- NEW MEXICO -- 1.0% 2,340,000 City of Clayton Rev., (Jail Project), 5.00%, 11/1/10 (CIFG) 2,386,332 6,675,000 Los Alamos County Inc. Rev., Series 2004 A, 5.00%, 7/1/11 (FSA) 7,118,353 1,415,000 San Juan County Gross Receipts Tax Rev., Series 2001 A, 5.75%, 9/15/11, Prerefunded at 101% of Par (Ambac)(1) 1,561,297 -------------- 11,065,982 -------------- NEW YORK -- 10.3% 2,975,000 City of New York GO, Series 2002 B, 5.25%, 8/1/09 (CIFG)(3) 3,083,439 2,885,000 City of New York GO, Series 2002 C, 5.25%, 8/1/09 (CIFG) 2,990,158 5,000,000 City of New York GO, Series 2003 I, 5.75%, 3/1/13, Prerefunded at 100% of Par(1)(3) 5,606,700 5,195,000 City of New York GO, Series 2004 D, 5.00%, 11/1/17 (FSA)(3) 5,629,146 4,000,000 City of New York GO, Series 2006 J1, 5.00%, 6/1/18(3) 4,262,600 2,000,000 City of New York GO, Series 2008 J1, 5.00%, 8/1/12 2,138,180 5,855,000 City of New York GO, Series 2008 J1, 5.00%, 8/1/13(3) 6,313,564 4,000,000 Metropolitan Transportation Auth. Rev., Series 2008 B, 5.00%, 11/15/13 4,270,080 10,000,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2006 A, 5.00%, 6/15/39(3) 10,210,900 1,350,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2008 C, 5.00%, 6/15/17 1,487,835 10,000,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2008 DD, 5.00%, 6/15/32(2) 10,342,999 Principal Amount Value $ 8,500,000 New York City Transitional Finance Auth. Rev., Series 2004 D2, 5.00%, 11/1/12(3) $ 9,209,495 2,000,000 New York City Transitional Finance Auth. Rev., Series 2005 A1, 5.00%, 11/1/10 2,121,140 1,440,000 New York State Dormitory Auth. Rev., Series 1990 A, (UNIC Educational Facilities), 7.50%, 5/15/13 (MBIA-IBC) 1,724,717 1,000,000 New York State Dormitory Auth. Rev., Series 2005 F, 5.00%, 3/15/12 (FSA) 1,073,210 3,500,000 New York State Dormitory Auth. Rev., Series 2008 A, (Columbia University), 4.00%, 7/1/13 (GO of University) 3,660,510 5,000,000 New York State Dormitory Auth. Rev., Series 2008 A, (Columbia University), 5.00%, 7/1/38 (GO of University)(3) 5,196,600 7,025,000 New York State Dormitory Auth. Rev., Series 2008 A1, (Memorial Sloan-Kettering Cancer Center), 5.00%, 7/1/36(3) 7,243,759 6,250,000 New York State Dormitory Auth. Rev., Series 2008 A2, (Memorial Sloan-Kettering Cancer Center), 5.00%, 7/1/26(3) 6,526,688 10,000,000 New York State Dormitory Auth. State Personal Income Tax Rev., Series 2007 A, (Education), 5.00%, 3/15/32(3) 10,344,399 1,000,000 Niagara Falls Bridge Commission Toll Rev., Series 1993 B, 5.25%, 10/1/15 (FGIC) 1,061,750 5,000,000 Triborough Bridge & Tunnel Auth. Rev., Series 2008 B3, 5.00%, 11/15/15 (GO of Authority) 5,318,950 -------------- 109,816,819 -------------- NORTH CAROLINA -- 1.7% 1,000,000 Charlotte COP, Series 2008 A, (Transit Project/Phase II), 5.00%, 6/1/33(2) 1,024,520 2,000,000 Charlotte GO, 5.00%, 8/1/19(2) 2,211,080 2,060,000 Greensboro Rev., (Combined Enterprise System), 5.25%, 6/1/20 2,311,093 1,750,000 North Carolina Eastern Municipal Power Agency System Rev., Series 2008 A, 5.00%, 1/1/24 1,751,243 - ------ 24 Tax-Free Bond Principal Amount Value $ 2,500,000 North Carolina Medical Care Commission Retirement Facilities Rev., Series 2007 A, (Southminster), 5.625%, 10/1/27 $ 2,515,125 1,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., 6.00%, 1/1/10 (MBIA) 1,049,120 2,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 5.50%, 1/1/13 2,159,260 2,500,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 C, 5.25%, 1/1/19 2,672,725 2,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 C, 5.25%, 1/1/20 2,118,880 -------------- 17,813,046 -------------- NORTH DAKOTA -- 0.2% 1,500,000 Grand Forks Health Care System Rev., (Altru Health System Obligation Group), 7.125%, 8/15/10, Prerefunded at 101% of Par(1) 1,661,100 -------------- OHIO -- 2.6% 10,000,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A-2, (Asset-Backed Senior Current Interest Turbo Term), 6.50%, 6/1/47 9,372,199 1,150,000 Mad River Local School District GO, (Classroom Facilities), 5.75%, 12/1/12, Prerefunded at 100% of Par (FGIC)(1) 1,283,205 1,700,000 Milford Exempt Village School District GO, (School Improvement), 6.00%, 12/1/11, Prerefunded at 100% of Par (FSA)(1) 1,881,560 1,005,000 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/11 1,075,923 1,365,000 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/12 1,475,046 750,000 Ohio Higher Educational Facility Commission Rev., Series 1990 B, (Case Western Reserve University), 6.50%, 10/1/20 904,073 2,000,000 Ohio Water Development Auth. Rev., (Drinking Water Assistance Fund), 5.00%, 6/1/28 2,099,560 Principal Amount Value $ 5,895,000 Ohio Water Development Auth. Rev., (Water Pollution Control Loan Fund), 5.00%, 12/1/13(3) $ 6,471,059 1,505,000 Summit County GO, 5.75%, 12/1/12, Prerefunded at 101% of Par (FGIC)(1) 1,692,493 1,550,000 Tri Valley Local School District GO, 5.75%, 6/1/12, Prerefunded at 100% of Par (FGIC)(1) 1,712,239 -------------- 27,967,357 -------------- OKLAHOMA -- 1.1% 1,000,000 Comanche County Hospital Auth. Rev., 5.00%, 7/1/11 (RADIAN) 1,035,780 1,525,000 Comanche County Hospital Auth. Rev., 5.00%, 7/1/12 (RADIAN) 1,583,652 1,300,000 Oklahoma County Finance Auth. Rev., (Western Heights Public Schools), 4.00%, 9/1/10 (AGC) 1,343,290 1,610,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/13 1,686,797 1,730,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/14 1,803,127 1,710,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/15 1,774,125 2,130,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/16 2,199,203 -------------- 11,425,974 -------------- OREGON -- 0.6% 2,015,000 Clackamas County School District No. 62 GO, 5.50%, 6/15/10 (School Bond Guarantee) 2,139,406 4,040,000 Tri-County Metropolitan Transportation District Rev., (Payroll Tax & Grant Receipt), 4.00%, 5/1/14 (MBIA)(3) 4,058,180 -------------- 6,197,586 -------------- PENNSYLVANIA -- 5.7% 5,000,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/11 5,242,550 6,210,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/12 6,527,145 - ------ 25 Tax-Free Bond Principal Amount Value $ 1,500,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/18 $ 1,555,965 2,250,000 Allegheny County Industrial Development Auth. Rev., (Residential Resources, Inc.), 4.75%, 9/1/14 2,237,220 2,500,000 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.10%, 7/1/14 2,538,950 1,150,000 Central Dauphin School District GO, 7.00%, 2/1/16, Prerefunded at 100% of Par (MBIA/State Aid Withholding)(1) 1,418,790 15,805,000 City of Pittsburgh GO, Series 2006 B, 5.25%, 9/1/16 (FSA)(3) 17,611,194 2,580,000 East Stroudsburg Area School District GO, 7.75%, 9/1/16, Prerefunded at 100% of Par (FSA/State Aid Withholding)(1) 3,356,632 1,155,000 Exeter Township GO, 5.25%, 7/15/15 (Ambac) 1,285,827 1,830,000 Exeter Township GO, 5.30%, 7/15/19 (Ambac) 2,050,405 5,000,000 Geisinger Auth. Health System Rev., VRDN, 2.70%, 8/1/08, resets quarterly at 67% of the 3-month LIBOR plus 0.77% with no caps 3,950,000 1,000,000 Oxford Area School District GO, Series 2001 A, 5.50%, 2/15/12, Prerefunded at 100% of Par (FGIC/State Aid Withholding)(1) 1,089,460 1,125,000 Pennsylvania GO, 5.375%, 7/1/18 (FSA) 1,279,339 2,975,000 Philadelphia School District GO, Series 2002 A, 5.25%, 2/1/11 (FSA/State Aid Withholding) 3,169,803 2,570,000 Scranton Parking Auth. Rev., 5.00%, 6/1/22 (RADIAN) 2,579,252 4,500,000 Westmoreland County Municipal Auth. Rev., 5.25%, 8/15/15, Prerefunded at 100% of Par (FSA)(1)(3) 5,053,410 -------------- 60,945,942 -------------- PUERTO RICO -- 3.7% 4,000,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 5.00%, 7/1/12(3) 4,112,800 Principal Amount Value $12,550,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 5.00%, 7/1/14(3) $ 12,876,927 1,750,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 6.00%, 7/1/44 1,854,493 2,000,000 Puerto Rico GO, Series 2006 B, 5.00%, 12/1/16 2,019,860 5,000,000 Puerto Rico GO, Series 2006 B, 5.25%, 7/1/17(3) 5,107,100 575,000 Puerto Rico Highway & Transportation Auth. Rev., Series 2007 CC, 5.00%, 7/1/14 604,820 2,000,000 Puerto Rico Infrastructure Financing Auth. Special Tax Rev., Series 2006 B, 5.00%, 7/1/13 2,055,000 3,700,000 Puerto Rico Municipal Finance Agency GO, Series 2005 A, 5.00%, 8/1/11 3,804,821 5,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2004 I, (Government Facilities), 5.50%, 7/1/14, Prerefunded at 100% of Par(1) 5,527,850 2,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2007 M, (Government Facilities), 5.50%, 7/1/12 2,090,500 -------------- 40,054,171 -------------- RHODE ISLAND -- 0.4% 1,000,000 Cranston GO, 6.375%, 11/15/09, Prerefunded at 101% of Par (FGIC)(1) 1,070,320 2,000,000 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 A, 6.25%, 8/1/16 (MBIA)(1) 2,386,180 1,265,000 Rhode Island Health & Educational Building Corp. Rev., (Landmark Medical Center), 5.00%, 10/1/17 (RADIAN) 1,295,335 -------------- 4,751,835 -------------- SOUTH CAROLINA -- 2.0% 5,455,000 Charleston Educational Excellence Finance Corp. Rev., (Charleston County School District), 5.00%, 12/1/19 5,701,620 1,700,000 Florence Water & Sewer Rev., 7.50%, 3/1/18 (Ambac) 1,837,003 1,060,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/17 (CIFG) 1,108,845 - ------ 26 Tax-Free Bond Principal Amount Value $ 2,260,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/18 (CIFG) $ 2,341,360 2,000,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/19 (CIFG) 2,054,920 3,000,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/20 (CIFG) 3,061,230 625,000 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC)(1) 782,888 875,000 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC) 1,040,130 375,000 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC) 432,360 485,000 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1) 583,518 140,000 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1) 168,438 1,095,000 Spartanburg County Health Services District Inc. Hospital Rev., 5.50%, 4/15/16 (FSA) 1,160,744 1,345,000 Sumter Waterworks and Sewer System Improvement Rev., 5.00%, 12/1/22 (XLCA) 1,382,902 -------------- 21,655,958 -------------- TENNESSEE -- 4.4% 3,570,000 Blount County Public Building Auth. Rev., Series 2001 A1C, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac) (LOC: KBC Bank N.V. and Landesbank Baden-Wuerttemberg) 3,570,000 9,150,000 Blount County Public Building Auth. Rev., Series 2005 D1B, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac/Municipal Government Guaranteed) (SBBPA: Depfa Bank plc)(3) 9,150,000 3,730,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 A, (Campus Development Foundation, Inc. Phase I LLC), 5.00%, 10/1/15 3,737,684 3,700,000 Sevier County Public Building Auth. Rev., Series 2000 IV-F3, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac) (SBBPA: JPMorgan Chase Bank) 3,700,000 Principal Amount Value $ 3,600,000 Sevier County Public Building Auth. Rev., Series 2002 IV-I3, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac) (SBBPA: JPMorgan Chase Bank) $ 3,600,000 7,500,000 Sevier County Public Building Auth. Rev., Series 2002 IV-J1, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac) (SBBPA: JPMorgan Chase Bank) 7,500,000 7,350,000 Sevier County Public Building Auth. Rev., Series 2004 VI-D3, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac) (SBBPA: Depfa Bank plc) 7,350,000 6,400,000 Sevier County Public Building Auth. Rev., Series 2007 VI-I1, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac/Municipal Government Guaranteed) (SBBPA: Depfa Bank plc) 6,400,000 2,000,000 Shelby County Health Educational & Housing Facilities Board Rev., Series 2008 C, 5.25%, 6/1/18(2) 2,093,480 -------------- 47,101,164 -------------- TEXAS -- 3.8% 1,000,000 Canadian River Municipal Water Auth. Rev., (Conjunctive Use Groundwater), 5.00%, 2/15/19 (Ambac) 1,066,260 2,035,000 Cash Special Utility District Rev., 5.25%, 9/1/24 (MBIA) 2,131,357 340,000 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) 369,842 1,475,000 Clint Independent School District GO, (Unlimited Tax School Building and Refunding Bonds), 6.00%, 2/15/17 (PSF-GTD) 1,590,168 500,000 Corpus Christi Independent School District GO, 4.00%, 8/15/13 (PSF-GTD) 500,330 2,000,000 Donna Independent School District GO, 5.00%, 2/15/15 (PSF-GTD) 2,188,280 1,115,000 Edcouch-Elsa Independent School District GO, 5.00%, 2/15/14 (PSF-GTD) 1,214,837 400,000 Garza County Public Facility Corp. Rev., 4.75%, 10/1/08 400,772 - ------ 27 Tax-Free Bond Principal Amount Value $ 420,000 Garza County Public Facility Corp. Rev., 4.75%, 10/1/09 $422,486 585,000 Garza County Public Facility Corp. Rev., 4.75%, 10/1/10 588,884 610,000 Garza County Public Facility Corp. Rev., 5.00%, 10/1/11 614,337 2,015,000 Garza County Public Facility Corp. Rev., 5.00%, 10/1/13 2,003,232 1,115,000 Garza County Public Facility Corp. Rev., 5.25%, 10/1/14 1,125,381 1,225,000 Garza County Public Facility Corp. Rev., 5.25%, 10/1/15 1,229,716 1,145,000 Garza County Public Facility Corp. Rev., 5.25%, 10/1/16 1,140,718 1,000,000 Garza County Public Facility Corp. Rev., 5.50%, 10/1/16 1,012,920 1,000,000 Gregg County Health Facilities Development Corp. Rev., Series 2006 A, (Good Shepherd Medical Center), 5.00%, 10/1/16 1,014,230 570,000 Harris County Housing Finance Corporation Rev., (Las Americas Apartments), 4.90%, 3/1/11 (FNMA) 585,743 2,300,000 Hays Consolidated Independent School District GO, 5.20%, 8/15/11 (PSF-GTD)(4) 2,080,557 700,000 Hays Consolidated Independent School District GO, 5.20%, 8/15/11 (PSF-GTD)(1)(4) 636,419 1,295,000 Hidalgo County GO, 5.50%, 8/15/12, Prerefunded at 100% of Par (FGIC)(1) 1,422,040 1,750,000 Hidalgo County GO, 5.50%, 8/15/12, Prerefunded at 100% of Par (FGIC)(1) 1,921,675 1,630,000 Live Oak GO, 5.25%, 8/1/22 (MBIA) 1,736,749 1,740,000 Montgomery County GO, 5.50%, 3/1/14, Prerefunded at 100% of Par (Ambac)(1) 1,948,469 550,000 Pasadena Independent School District GO, Series 2001 A, 6.05%, 2/15/16 (PSF-GTD) 640,893 1,500,000 Pearland Independent School District GO, 6.00%, 2/15/09, Prerefunded at 100% of Par (PSF-GTD)(1) 1,543,065 2,000,000 San Antonio Electric and Gas Rev., 7.10%, 2/1/09 (FGIC)(1)(3)(4) 1,972,880 2,120,000 Southside Independent School District GO, Series 2004 A, 5.25%, 8/15/25 (PSF-GTD) 2,234,248 Principal Amount Value $ 1,000,000 Tarrant County Cultural Education Facilities Finance Corp. Retirement Facility Rev., (Air Force Village Obligated Group), 5.00%, 5/15/16 $ 1,015,720 650,000 Texas Public Finance Auth. Building Rev., (Technical College), 6.25%, 8/1/09 (MBIA) 665,100 500,000 Texas Public Finance Auth. Charter School Finance Corp. Rev., Series 2006 A, (KIPP, Inc.), 5.25%, 2/15/14 (ACA) 503,510 1,000,000 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) 1,061,090 1,265,000 West Oso Independent School District GO, 5.50%, 8/15/13, Prerefunded at 100% of Par (PSF-GTD)(1) 1,409,273 1,000,000 Williamson County GO, Series 2004 A, (Unlimited Tax Road & Refunding Bonds), 5.00%, 2/15/19 (MBIA) 1,091,640 -------------- 41,082,821 -------------- U.S. VIRGIN ISLANDS -- 0.3% 2,000,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, (Senior Lien), 5.20%, 10/1/09 2,030,380 1,500,000 Virgin Islands Water & Power Auth. Electric System Rev., Series 2007 A, 5.00%, 7/1/24 1,505,370 -------------- 3,535,750 -------------- UTAH -- 1.5% 2,550,000 Eagle Mountain City Gas & Electric Rev., 5.00%, 6/1/19 (RADIAN) 2,598,246 3,500,000 Intermountain Power Agency Rev., Series 2008 A, 5.25%, 7/1/20 3,646,264 890,000 Salt Lake City Hospital Rev., Series 1988 A, (Intermountain Health Corporation), 8.125%, 5/15/15(1) 1,032,676 1,495,000 Utah County Municipal Building Auth. Lease Rev., 5.00%, 11/1/09 (Ambac)(1) 1,554,950 1,820,000 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,964,890 - ------ 28 Tax-Free Bond Principal Amount Value $ 1,915,000 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1) $ 2,067,453 1,000,000 Utah County Municipal Building Auth. Lease Rev., 5.50%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,087,710 1,130,000 West Valley City Municipal Building Auth. Lease Rev., Series 2002 A, 5.00%, 8/1/10 (Ambac) 1,183,393 1,305,000 West Valley City Utility Sales Tax Rev., Series 2001 A, 5.50%, 7/15/11, Prerefunded at 100% of Par (MBIA)(1) 1,414,007 -------------- 16,549,589 -------------- VERMONT -- 0.4% 4,290,000 University of Vermont & State Agricultural College GO, 5.00%, 10/1/19 (Ambac) 4,625,778 -------------- VIRGINIA -- 0.5% 1,500,000 Fairfax County COP, 5.30%, 4/15/23 1,553,430 1,115,000 Pittsylvania County GO, Series 2001 B, 5.75%, 3/1/18 (MBIA/State Aid Withholding) 1,197,287 2,000,000 Virginia Commonwealth Transportation Board Rev., Series 2004 B, (U.S. Route 58 Corridor Development Program), 5.00%, 5/15/17 2,165,080 -------------- 4,915,797 -------------- WASHINGTON -- 5.3% 1,000,000 Benton County Public Utility District No. 1 Rev., Series 2001 A, 5.625%, 11/1/19 (FSA) 1,072,060 1,000,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 6/1/12, Prerefunded at 100% of Par (FSA) (School Bond Guarantee)(1) 1,104,670 1,750,000 Energy Northwest Rev., 4.75%, 7/1/20 (MBIA) 1,779,050 3,500,000 Energy Northwest Rev., Series 2002 A, (Columbia Generating), 5.75%, 7/1/18 (MBIA) 3,766,210 10,000,000 Energy Northwest Rev., Series 2002 B, (Columbia Generating), 6.00%, 7/1/18 (Ambac)(3) 10,870,401 2,375,000 Energy Northwest Rev., Series 2008 D, (Columbia Generating), 5.00%, 7/1/12 2,541,226 Principal Amount Value $ 1,555,000 King County Lake Washington School District No. 414 GO, 5.75%, 12/1/12, Prerefunded at 100% of Par(1) $ 1,735,116 1,000,000 King County Public Hospital District No. 2 GO, (Evergreen Healthcare), 5.00%, 12/1/14 (MBIA) 1,074,820 1,000,000 Kitsap County School District No. 303 Bainbridge Island GO, 5.00%, 12/1/17 (MBIA/School Bond Guarantee) 1,088,110 1,260,000 Mason County Shelton School District No. 309 GO, 5.625%, 12/1/11, Prerefunded at 100% of Par (FGIC/School Bond Guarantee)(1) 1,378,906 1,000,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,106,800 1,120,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,239,616 6,715,000 Snohomish County Edmonds School District No. 15 GO, 5.00%, 12/1/17 (FGIC/School Bond Guarantee)(3) 7,267,980 1,720,000 University of Washington Rev., (Student Facilities Fee), 5.875%, 6/1/10, Prerefunded at 101% of Par (FSA)(1) 1,855,691 1,000,000 Washington GO, Series 1990 A, 6.75%, 2/1/15 1,149,170 4,500,000 Washington Health Care Facilities Auth. Rev., Series 2006 D, (Providence Health & Services), 5.25%, 10/1/33 (FSA) 4,648,095 1,935,000 Washington Higher Education Facilities Auth. Rev., (Pacific Lutheran University), 5.00%, 11/1/22 (RADIAN) 1,917,275 1,895,000 Washington Higher Education Facilities Auth. Rev., (Pacific Lutheran University), 5.00%, 11/1/23 (RADIAN) 1,864,926 1,290,000 Washington Higher Education Facilities Auth. Rev., (Pacific Lutheran University), 5.00%, 11/1/24 (RADIAN) 1,268,676 4,570,000 Washington Public Power Supply System Rev., Series 1998 A, (Nuclear Project No. 2), 5.00%, 7/1/08 (FSA) 4,672,825 - ------ 29 Tax-Free Bond Principal Amount Value $ 1,500,000 Whitman County Pullman School District No. 267 GO, 5.625%, 12/1/16 (FSA/School Bond Guarantee) $ 1,632,585 1,675,000 Yakima County School District No. 208 West Valley GO, 5.00%, 12/1/18 (MBIA/School Bond Guarantee) 1,813,925 -------------- 56,848,133 -------------- WISCONSIN -- 0.8% 3,000,000 Milwaukee Redevelopment Auth. Rev., Series 2003 A, (Milwaukee Public Schools - Neighborhood Schools Initiative), 5.125%, 8/1/13, Prerefunded at 100% of Par (Ambac)(1) 3,282,299 1,990,000 Wisconsin Clean Water Rev., 6.875%, 6/1/11 2,156,006 2,590,000 Wisconsin Health & Educational Facilities Auth. Rev., (Aurora Medical Group), 6.00%, 11/15/10 (FSA) 2,795,465 750,000 Wisconsin Health & Educational Facilities Auth. Rev., (Blood Center Southeastern), 5.75%, 6/1/34 756,428 -------------- 8,990,198 -------------- TOTAL MUNICIPAL SECURITIES (Cost $1,063,568,317) 1,081,166,093 -------------- Shares Value Temporary Cash Investments(5) 42,000 Federated California Municipal Cash Trust $42,000 (Cost $42,000) -------------- TOTAL INVESTMENT SECURITIES -- 101.0% (Cost $1,063,610,317) 1,081,208,093 -------------- OTHER ASSETS AND LIABILITIES -- (1.0)% (10,664,581) -------------- TOTAL NET ASSETS -- 100.0% $1,070,543,512 ============== Futures Contracts Expiration Underlying Face Unrealized Gain Contracts Purchased Date Amount at Value (Loss) 630 U.S. Treasury September 2-Year Notes 2008 $132,693,750 $(247,511) ============ ========== Expiration Underlying Face Unrealized Gain Contracts Sold Date Amount at Value (Loss) 182 U.S. Long Bond September 2008 $20,657,000 $390,606 ============ ======== - ------ 30 Tax-Free Bond Notes to Schedule of Investments ABAG = Association of Bay Area Governments ACA = American Capital Access AGC = Assured Guaranty Corporation Ambac = Ambac Assurance Corporation CIFG = CDC IXIS Financial Guaranty North America COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. GO = General Obligation LIBOR = London Interbank Offered Rate LOC = Letter of Credit MBIA = MBIA Insurance Corporation MBIA-IBC = MBIA Insured Bond Certificates PSF - GTD = Permanent School Fund - Guaranteed RADIAN = Radian Asset Assurance, Inc. 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 May 31, 2008. XLCA = XL Capital Ltd. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) When-issued security. (3) Security, or a portion thereof, has been segregated for futures contracts and/or when-issued securities. (4) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are issued at a substantial discount from their value at maturity. (5) Category is less than 0.05% of total net assets. See Notes to Financial Statements. - ------ 31 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 December 1, 2007 to May 31, 2008. 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 Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments 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 Investments 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 Investments 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. - ------ 32 Beginning Expenses Paid Account Ending During Period* Annualized Value Account Value 12/1/07 - Expense 12/1/07 5/31/08 5/31/08 Ratio* Tax-Free Money Market ACTUAL Investor Class $1,000 $1,012.80 $2.57 0.51% HYPOTHETICAL Investor Class $1,000 $1,022.45 $2.58 0.51% Tax-Free Bond ACTUAL Investor Class $1,000 $1,020.00 $2.47 0.49% Institutional Class $1,000 $1,021.00 $1.47 0.29% HYPOTHETICAL Investor Class $1,000 $1,022.55 $2.48 0.49% Institutional Class $1,000 $1,023.55 $1.47 0.29% * 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. - ------ 33 STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2008 Tax-Free Money Market Tax-Free Bond ASSETS Investment securities, at value (cost of $316,298,458 and $1,063,610,317, respectively) $316,298,458 $1,081,208,093 Cash 614,386 1,531,702 Receivable for investments sold 10,000,000 8,541,368 Interest receivable 1,757,522 14,891,766 Prepaid portfolio insurance 36,764 -- ------------ -------------- 328,707,130 1,106,172,929 ------------ -------------- LIABILITIES Payable for investments purchased 15,040,000 34,787,819 Payable for variation margin on futures contracts -- 15,093 Accrued management fees 124,567 416,186 Dividends payable 440 410,319 ------------ -------------- 15,165,007 35,629,417 ------------ -------------- NET ASSETS $313,542,123 $1,070,543,512 ============ ============== NET ASSETS CONSIST OF: Capital paid in $313,593,349 $1,054,589,424 Accumulated net realized loss on investment transactions (51,226) (1,786,783) Net unrealized appreciation on investments -- 17,740,871 ------------ -------------- $313,542,123 $1,070,543,512 ============ ============== INVESTOR CLASS Net assets $313,542,123 $1,002,648,441 Shares outstanding 313,593,350 93,374,332 Net asset value per share $1.00 $10.74 INSTITUTIONAL CLASS Net assets N/A $67,895,071 Shares outstanding N/A 6,322,929 Net asset value per share N/A $10.74 See Notes to Financial Statements. - ------ 34 STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 2008 Tax-Free Money Market Tax-Free Bond INVESTMENT INCOME (LOSS) INCOME: Interest $9,627,897 $39,288,851 ---------- ----------- EXPENSES: Management fees 1,375,666 4,178,887 Distribution fees -- Advisor Class -- 174 Service fees -- Advisor Class -- 174 Distribution and service fees -- Advisor Class -- 130 Trustees' fees and expenses 10,874 40,707 Portfolio insurance 48,144 -- Other expenses 1,922 4,447 ---------- ----------- 1,436,606 4,224,519 ---------- ----------- NET INVESTMENT INCOME (LOSS) 8,191,291 35,064,332 ---------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions 68 (6,662,632) Futures and swaps transactions -- 8,311,340 ---------- ----------- 68 1,648,708 ---------- ----------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments -- 4,069,510 Futures and swaps -- (254,928) ---------- ----------- -- 3,814,582 ---------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) 68 5,463,290 ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $8,191,359 $40,527,622 ========== =========== See Notes to Financial Statements. - ------ 35 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED MAY 31, 2008 AND MAY 31, 2007 Tax-Free Money Market Tax-Free Bond Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $ 8,191,291 $ 8,800,655 $ 35,064,332 $ 25,677,184 Net realized gain (loss) 68 (4,077) 1,648,708 (2,501,830) Change in net unrealized appreciation (depreciation) -- -- 3,814,582 1,235,138 ------------ ------------ -------------- ------------ Net increase (decrease) in net assets resulting from operations 8,191,359 8,796,578 40,527,622 24,410,492 ------------ ------------ -------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (8,191,291) (8,800,523) (33,554,485) (25,320,011) Institutional Class -- -- (1,529,931) (348,260) Advisor Class -- -- (4,501) (8,913) ------------ ------------ -------------- ------------ Decrease in net assets from distributions (8,191,291) (8,800,523) (35,088,917) (25,677,184) ------------ ------------ -------------- ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions 37,808,998 3,529,033 344,147,689 48,924,828 ------------ ------------ -------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS 37,809,066 3,525,088 349,586,394 47,658,136 NET ASSETS Beginning of period 275,733,057 272,207,969 720,957,118 673,298,982 ------------ ------------ -------------- ------------ End of period $313,542,123 $275,733,057 $1,070,543,512 $720,957,118 ============ ============ ============== ============ Undistributed net investment income -- -- -- $24,585 ============ ============ ============== ============ See Notes to Financial Statements. - ------ 36 NOTES TO FINANCIAL STATEMENTS MAY 31, 2008 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 and the Institutional Class. Prior to December 3, 2007, Tax-Free Bond was authorized to issue the Advisor Class (see Note 8). 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 net 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. Securities traded primarily on a principal securities exchange are valued at the last reported sales price, or at the mean of the latest bid and asked prices where no last sales price is available. Debt securities maturing in greater than 60 days at the time of purchase 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 at the time of purchase 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 the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees, 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. - ------ 37 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 anticipates 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 2005. At this time, management has not identified any uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. 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 generally 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. - ------ 38 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 operating expense ratio of the class. MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment, 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 Investments family of funds. The rates for the Investment Category Fee range from 0.1570% to 0.2700% for Tax-Free Money Market. The rates for the Investment Category Fee range from 0.1625% to 0.2800% for Tax-Free Bond. Rates for the Complex Fee range from 0.2500% to 0.3100% for the Investor Class. The Institutional Class is 0.2000% less at each point within the Complex Fee range. Prior to September 4, 2007, the Advisor Class was 0.2500% less at each point within the Complex Fee range. The effective annual management fee for each of the Investor Classes of Tax-Free Money Market and Tax-Free Bond for the year ended May 31, 2008 was 0.49% and 0.48%, respectively. The effective annual management fee for the Institutional Class of Tax-Free Bond for the year ended May 31, 2008 was 0.28%. 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 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 Class 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 fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plan during the year ended May 31, 2008, 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 year ended May 31, 2008, 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. Prior to December 12, 2007, Tax-Free Bond had 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. - ------ 39 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Tax-Free Bond, excluding short-term investments, for the year ended May 31, 2008, were $767,763,396 and $488,714,509, respectively. All investment transactions for Tax-Free Money Market were considered short-term during the year ended May 31, 2008. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): Year ended May 31, 2008 Year ended May 31, 2007 Shares Amount Shares Amount Tax-Free Money Market INVESTOR CLASS Sold 253,755,789 $ 253,755,789 219,384,454 $ 219,384,454 Issued in reinvestment of distributions 8,015,936 8,015,936 8,652,684 8,652,684 Redeemed (223,962,727) (223,962,727) (224,508,105) (224,508,105) ------------- ------------- ------------- ------------- Net increase (decrease) 37,808,998 $ 37,808,998 3,529,033 $ 3,529,033 ============= ============= ============= ============= Tax-Free Bond INVESTOR CLASS Sold 35,687,999 $ 382,982,672 23,605,167 $ 254,184,942 Issued in connection with acquisition (Note 7) 7,774,102 82,359,758 -- -- Issued in connection with reclassification (Note 8) 21,853 234,652 -- -- Issued in reinvestment of distributions 2,594,739 27,751,493 1,862,064 20,025,174 Redeemed (19,213,634) (205,984,323) (21,328,143) (228,429,956) ------------- ------------- ------------- ------------- 26,865,059 287,344,252 4,139,088 45,780,160 ------------- ------------- ------------- ------------- INSTITUTIONAL CLASS Sold 6,270,528 67,276,110 342,405 3,692,668 Issued in reinvestment of distributions 139,087 1,489,799 31,428 329,043 Redeemed (1,076,544) (11,561,403) (116,479) (1,257,827) ------------- ------------- ------------- ------------- 5,333,071 57,204,506 257,354 2,763,884 ------------- ------------- ------------- ------------- ADVISOR CLASS Sold 5,316 57,026 34,754 371,887 Issued in reinvestment of distributions 344 3,658 826 8,897 Redeemed in connection with reclassification (Note 8) (21,853) (234,652) -- -- Redeemed (21,465) (227,101) -- -- ------------- ------------- ------------- ------------- (37,658) (401,069) 35,580 380,784 ------------- ------------- ------------- ------------- Net increase (decrease) 32,160,472 $ 344,147,689 4,432,022 $ 48,924,828 ============= ============= ============= ============= - ------ 40 5. BANK LINE OF CREDIT Effective December 12, 2007, Tax-Free Bond, along with certain other funds managed by ACIM or American Century Global Investment Management, Inc., (ACGIM) has a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, Tax-Free Bond, along with certain other funds managed by ACIM or ACGIM, had a $500,000,000 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. Tax-Free Bond did not borrow from the line during the year ended May 31, 2008. 6. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended May 31, 2008 and May 31, 2007 were as follows: Tax-Free Money Market Tax-Free Bond 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Exempt income $8,191,291 $8,800,523 $35,088,917 $25,677,184 Long-term capital gains -- -- -- -- 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 May 31, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Tax-Free Money Market Tax-Free Bond Federal tax cost of investments $316,298,458 $1,063,610,277 ============ ============== Gross tax appreciation of investments -- $24,005,292 Gross tax depreciation of investments -- (6,407,476) ------------ -------------- Net tax appreciation (depreciation) of investments -- $ 17,597,816 ============ ============== Net tax appreciation (depreciation) on derivatives -- $68 ------------ -------------- Net tax appreciation (depreciation) -- $17,597,884 ============ ============== Accumulated capital losses $(51,226) $(1,643,796) The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the realization for tax purposes of unrealized gains (losses) for certain futures contracts. 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: 2009 2010 2011 2012 2013 2014 2015 2016 Tax-Free Money Market $(32,696) $(8,870) -- $(3,706) $(1,346) -- $(1,691) $(2,917) Tax-Free Bond -- -- -- -- -- -- $(1,643,796) -- - ------ 41 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 of 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 4,494,080 Investor Class 4,498,324 Arizona Municipal - Tax-Free Bond - A Class 164,193 Investor Class 164,348 Arizona Municipal - Tax-Free Bond - B Class 3,944 Investor Class 3,948 Arizona Municipal - Tax-Free Bond - C Class 51,040 Investor Class 51,088 Shares Shares Original Fund/Class Exchanged New Fund/Class Received Florida Municipal - Tax-Free Bond - Investor Class 2,922,084 Investor Class 2,880,695 Florida Municipal - Tax-Free Bond - A Class 85,128 Investor Class 83,923 Florida Municipal - Tax-Free Bond - B Class 930 Investor Class 917 Florida Municipal - Tax-Free Bond - C Class 92,165 Investor Class 90,859 The net assets of Arizona Municipal, Florida Municipal and Tax-Free Bond immediately before the acquisition were $49,968,836, $32,390,922 and $744,181,750, respectively. Arizona Municipal and Florida Municipal unrealized appreciation of $1,047,515 and $720,616 was combined with that of Tax-Free Bond. Immediately after the acquisition, the combined net assets were $826,541,508. 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. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds designate exempt interest dividends for the fiscal year ended May 31, 2008, as follows: Tax-Free Money Market Tax-Free Bond Exempt interest dividends $8,202,856 $35,092,965 - ------ 42 10. 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. The adoption of FAS 157 does not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 with have on the financial statement disclosures. - ------ 43 FINANCIAL HIGHLIGHTS Tax-Free Money Market Investor Class For a Share Outstanding Throughout the Years Ended May 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.03 0.03 0.02 0.01 0.01 ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.03) (0.03) (0.02) (0.01) (0.01) ------ ------ ------ ------ ------ Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 ====== ====== ====== ====== ====== TOTAL RETURN(1) 2.97% 3.26% 2.51% 1.33% 0.64% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.51% 0.52% 0.52% 0.51% 0.51% Ratio of Net Investment Income (Loss) to Average Net Assets 2.91% 3.22% 2.47% 1.31% 0.65% Net Assets, End of Period (in thousands) $313,542 $275,733 $272,208 $284,851 $276,245 (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ------ 44 Tax-Free Bond Investor Class For a Share Outstanding Throughout the Years Ended May 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.67 $10.88 $10.71 $11.19 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.43 0.42 0.40 0.38 0.37 Net Realized and Unrealized Gain (Loss) 0.06 0.01 (0.20) 0.17 (0.45) ------ ------ ------ ------ ------ Total From Investment Operations 0.49 0.43 0.20 0.55 (0.08) ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.43) (0.42) (0.40) (0.38) (0.37) From Net Realized Gains -- -- (0.01) -- (0.03) ------ ------ ------ ------ ------ Total Distributions (0.43) (0.42) (0.41) (0.38) (0.40) ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.74 $10.68 $10.67 $10.88 $10.71 ====== ====== ====== ====== ====== TOTAL RETURN(1) 4.66% 4.08% 1.87% 5.16% (0.79)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.49% 0.49% 0.49% 0.50% 0.51% Ratio of Net Investment Income (Loss) to Average Net Assets 4.00% 3.91% 3.73% 3.46% 3.34% Portfolio Turnover Rate 62% 43% 79% 77% 60% Net Assets, End of Period (in thousands) $1,002,648 $709,988 $665,458 $610,420 $583,689 (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 45 Tax-Free Bond Institutional Class For a Share Outstanding Throughout the Years Ended May 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.67 $10.88 $10.71 $11.19 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.45 0.44 0.42 0.40 0.39 Net Realized and Unrealized Gain (Loss) 0.06 0.01 (0.20) 0.17 (0.45) ------ ------ ------ ------ ------ Total From Investment Operations 0.51 0.45 0.22 0.57 (0.06) ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.45) (0.44) (0.42) (0.40) (0.39) From Net Realized Gains -- -- (0.01) -- (0.03) ------ ------ ------ ------ ------ Total Distributions (0.45) (0.44) (0.43) (0.40) (0.42) ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.74 $10.68 $10.67 $10.88 $10.71 ====== ====== ====== ====== ====== TOTAL RETURN(1) 4.88% 4.28% 2.07% 5.37% (0.60)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.29% 0.29% 0.29% 0.30% 0.31% Ratio of Net Investment Income (Loss) to Average Net Assets 4.20% 4.11% 3.93% 3.66% 3.54% Portfolio Turnover Rate 62% 43% 79% 77% 60% Net Assets, End of Period (in thousands) $67,895 $10,567 $7,815 $8,796 $7,711 (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 46 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Trustees of the American Century Municipal Trust and Shareholders of the Tax-Free Money Market Fund and the Tax-Free Bond Fund: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Tax-Free Money Market Fund and Tax-Free Bond Fund (two of the four funds comprising the American Century Municipal Trust, hereafter referred to as the "Funds") at May 31, 2008, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri July 17, 2008 - ------ 47 MANAGEMENT The individuals listed below serve as trustees or officers of the funds. Each trustee serves until his or her successor is duly elected and qualified or until he or she retires. Effective March 2004, mandatory retirement age for independent trustees is 73. However, the mandatory retirement age may be extended for a period not to exceed two years with the approval of the remaining independent trustees. Those listed as interested trustees are "interested" primarily by virtue of their engagement as directors and/or officers of, or ownership interest in, American Century Companies, Inc. (ACC) or its wholly owned, direct or indirect, subsidiaries, including the funds' investment advisor, American Century Investment Management, Inc. (ACIM or the advisor); the funds' principal underwriter, American Century Investment Services, Inc. (ACIS); and the funds' transfer agent, American Century Services, LLC (ACS). The other trustees (more than three-fourths of the total number) are independent; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, ACIS, and ACS. The trustees serve in this capacity for eight registered investment companies in the American Century Investments family of funds. All persons named as officers of the funds also serve in similar capacities for the other 14 investment companies in the American Century Investments family of funds advised by ACIM or American Century Global Investment Management, Inc. (ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. INTERESTED TRUSTEE JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1963 POSITION(S) HELD WITH FUNDS: Trustee (since 2007) and President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: President, Chief Executive Officer and Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM, ACGIM, ACIS and other ACC subsidiaries. Managing Director, Morgan Stanley (March 2000 to November 2005) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 111 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None INDEPENDENT TRUSTEES JOHN FREIDENRICH, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1937 POSITION(S) HELD WITH FUNDS: Trustee (since 2005) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member and Manager, Regis Management Company, LLC (money management firm) (April 2004 to present); Partner and Founder, Bay Partners (venture capital firm, 1976 to 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - ------ 48 RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Trustee (since 1995) and Chairman of the Board (since 2005) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None FREDERICK L.A. GRAUER, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Trustee (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Advisor, Barclays Global Investors (asset manager) (2003 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None PETER F. PERVERE, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1947 POSITION(S) HELD WITH FUNDS: Trustee (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Vice President and Chief Financial Officer, Commerce One, Inc. (software and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Intraware, Inc. MYRON S. SCHOLES, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1941 POSITION(S) HELD WITH FUNDS: Trustee (since 1980) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Platinum Grove Asset Management, L.P. (asset manager), and a Partner, Oak Hill Capital Management (asset manager) (1999 to present); Frank E. Buck Professor of Finance-Emeritus, Stanford Graduate School of Business (1996 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Chicago Mercantile Exchange (2000 to present) JOHN B. SHOVEN, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1947 POSITION(S) HELD WITH FUNDS: Trustee (since 2002) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1973 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present) JEANNE D. WOHLERS, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1945 POSITION(S) HELD WITH FUNDS: Trustee (since 1984) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - ------ 49 OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUNDS: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1956 POSITION(S) HELD WITH FUNDS: Chief Compliance Officer (since 2006) and Senior Vice President (since 2000) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM, ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century Investments funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1957 POSITION(S) HELD WITH FUNDS: General Counsel (since 2007) and Senior Vice President (since 2006) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present); General Counsel, ACC (March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1966 POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial Officer (all since 2006) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000 to present); and Controller, various American Century Investments funds (1997 to September 2006) JON ZINDEL, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUNDS: Tax Officer (since 2000) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October 2001 to present); Vice President, certain ACC subsidiaries (October 2001 to August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006). Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief Accounting Officer and Senior Vice President, ACIS The SAI has additional information about the funds' trustees and is available without charge, upon request, by calling 1-800-345-2021. - ------ 50 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 Investments' 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. - ------ 51 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 are investment-grade and have maturities between two and four years. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. The LEHMAN BROTHERS 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. - ------ 52 [back cover] [american century investments logo and text logo ®] 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 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. 0807 CL-ANN-60829N [front cover] ANNUAL REPORT MAY 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS LONG-TERM TAX-FREE FUND HIGH-YIELD MUNICIPAL FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor, At American Century Investments®, we are committed to helping you reach your financial goals. Your success is the ultimate measure of our performance. That's why we focus on achieving superior investment results and building long-term relationships with investors like you. Part of that relationship is to clearly communicate investment results and what influenced them. To help you monitor your investment with us, we take pride in providing you with the annual report for the American Century® Long-Term Tax-Free and High-Yield Municipal funds for the 12 months ended May 31, 2008. We also recommend americancentury.com, where we provide company news, quarterly portfolio commentaries, investment views, and other useful information. As noted on the website, 2008 marks the 50th anniversary of American Century Investments. Since 1958, we've worked to make wise decisions with your interests as our guide. Fifty years also means that we've met the challenges of previous economic downturns. As we've crossed those hurdles and earned your trust, our assets under management have grown to nearly $100 billion, putting us in the top 5% of our industry. This growth has given us the resources to offer a wide array of financial products and services, including a well-diversified line-up of portfolios that provide you with many choices in these uncertain times. Though our offerings are diverse, they share several key qualities, including our disciplined investment approach and active, team-based management. Strict adherence to our processes and long-term strategies allows us to stay focused during volatile periods. Investors in our portfolios also benefit from the sum of our investment teams' expertise as they share research and information. We'll continue to work hard to earn your trust. Thank you for your continued support. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments TABLE OF CONTENTS Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . 2 U.S. Fixed-Income Total Returns. . . . . . . . . . . . . . . . . 2 LONG-TERM TAX-FREE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 5 Portfolio at a Glance. . . . . . . . . . . . . . . . . . . . . . 5 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Portfolio Composition By Credit Rating . . . . . . . . . . . . . 6 Top Five Sectors . . . . . . . . . . . . . . . . . . . . . . . . 6 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 7 HIGH-YIELD MUNICIPAL Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 13 Portfolio at a Glance. . . . . . . . . . . . . . . . . . . . . . 13 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Portfolio Composition By Credit Rating . . . . . . . . . . . . . 14 Top Five Sectors . . . . . . . . . . . . . . . . . . . . . . . . 14 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 15 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . 21 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . 23 Statement of Operations . . . . . . . . . . . . . . . . . . . . . 25 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . 26 Notes to Financial Statements . . . . . . . . . . . . . . . . . . 27 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . 34 Report of Independent Registered Public Accounting Firm . . . . . 43 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments 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 Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments 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 Investments by third party vendors. To the best of American Century Investments' 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 POSITIVE BOND RETURNS IN VOLATILE CLIMATE Despite rising commodity prices and deteriorating conditions in some credit sectors, the broad investment-grade U.S. bond market enjoyed mostly positive results for the 12 months ended May 31, 2008. Credit-related risk-aversion, however, hurt high-yield sectors of the market. Credit fallout, plus soaring oil and other commodity prices, pushed the U.S. economy to the brink of recession. To stimulate the economy and reassure financial markets, the Federal Reserve (the Fed) took extraordinary action. In 2007 it launched an aggressive easing campaign, shaving a total of 3.25 percentage points off the federal funds target rate by the end of the reporting period. The Fed also enacted a series of emergency lending programs targeting a wider spectrum of borrowers, including major brokers. HISTORIC MUNICIPAL UNDERPERFORMANCE IN FEBRUARY In a 12-month period characterized by credit, liquidity, and volatility concerns, investors favored quality. Treasuries significantly outperformed non-Treasury securities, including municipals. Relative newcomers to the municipal market, including hedge funds, were forced to sell their municipal holdings due to margin calls, putting more pressure on the market. Municipals suffered further as investors questioned the health of municipal bond insurers due to exposure to subprime losses in other areas of their business. Margin calls and insurer woes produced the perfect selloff and illiquidity storm in February 2008, when municipals experienced historic underperformance relative to Treasuries. Investment-grade municipal yields shot well over 100% of those of comparable Treasuries. (Long-term municipal yields historically equal 80% to 85% of Treasury yields.) MUNICIPALS REBOUNDED AFTER FEBRUARY A rally in riskier assets was triggered by the Fed's intervention in the meltdown of a major broker-dealer. This, in addition to increasing inflation worries, caused Treasury market prices to decline during the final two months of the reporting period. Municipal bond performance rebounded after February, but municipal yields remained well above their historic range. U.S. Fixed-Income Total Returns For the 12 months ended May 31, 2008 LEHMAN BROTHERS MUNICIPAL MARKET INDICES Municipal Bond 3.87% 3-Year Municipal Bond 6.36% 5-Year General Obligation (GO) Bond 6.71% Long-Term Municipal Bond - -0.45% Non-Investment-Grade Municipal Bond -6.28% TAXABLE MARKET RETURNS Lehman Brothers U.S. Aggregate Index 6.89% Lehman Brothers U.S. Treasury Index 9.42% 3-Month Treasury Bill 4.04% 10-Year Treasury Note 10.77% - ------ 2 PERFORMANCE Long-Term Tax-Free Total Returns as of May 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date A CLASS No sales charge* 1.73% 2.63%(1) 4.68%(1) 5.32%(1) With sales charge* -2.86% 1.69%(1) 4.20%(1) 4.88%(1) 3/31/97 LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) 3.87% 3.67% 5.06% 5.58% -- LIPPER GENERAL MUNICIPAL 3% 4.56% RETURNS(2) 1.22% 2.82% 3.93% 4.56% -- A Class's Lipper Ranking(2) as of 5/31/08 119 of 234 119 of 209 17 of 152 16 of 126 -- as of 6/30/08 120 of 235 113 of 210 20 of 153 17 of 127 -- Investor Class 1.99% -- -- 3.34% 4/3/06 Institutional Class 2.19% -- -- 3.55% 4/3/06 B Class No sales charge* 0.87% 1.90%(1) 3.97%(1) 4.59%(1) With sales charge* -3.13% 1.71%(1) 3.97%(1) 4.59%(1) 3/31/97 C Class 0.98% -- -- 2.32% 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%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Class returns would have been lower if fees had not been waived. (2) Data provided by Lipper Inc. -- A Reuters Company. © 2008 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. 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 May 31, 1998*
One-Year Returns Over 10 Years Periods ended May 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 A Class** (no sales charge) 5.12% -1.09% 12.57% 7.21% 10.64% -0.81% 6.66% 1.18% 4.58% 1.73% Lehman Brothers Municipal Bond Index 4.67% -0.86% 12.14% 6.50% 10.36% -0.03% 7.96% 1.89% 4.84% 3.87% * 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 Managers: Alan Kruss and Steven Permut Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY Long-Term Tax-Free returned 1.73%* for the 12 months ended May 31, 2008. By comparison, its broad market index--the Lehman Brothers Municipal Bond Index--returned 3.87%, while the average return of the 234 general municipal debt funds tracked by Lipper Inc. was 1.22%. The portfolio's absolute return reflected the difficult investment climate for long-term municipal bonds in 2008, characterized by credit and liquidity concerns (see the Market Perspective on page 2). Relative to the Lehman index, the portfolio's performance was limited by our credit allocation; however, some of our yield curve and sector trades helped relative results. CREDIT POSITIONING HURT The leading detractors from portfolio performance were our roughly 20% allocations to A and BBB rated bonds on the one hand, and AAA rated insured bonds on the other. The lower-rated bonds lagged because of risk aversion that followed the global credit crisis. Over time, these higher-yielding, lower-rated bonds should outperform higher-quality securities. But for short time periods, price changes can overwhelm the income advantage enjoyed by A and BBB securities. At the same time, insured bonds underperformed because of concern that losses on subprime loans in other parts of the bond insurers' business would affect the backing they provide for many municipal bonds. However, we should point out that municipal bonds historically have been an exceptionally safe investment with default rates much lower than those on corporate bonds. In addition, our experienced municipal credit research team performs a thorough review of all the bonds we purchase. As a result, we have faith in the underlying credit quality of the bonds in the portfolio and viewed the dip in prices as a buying opportunity. Portfolio at a Glance As of As of 5/31/08 11/30/07 Weighted Average Maturity 13.5 years 10.3 years Average Duration (Modified) 6.5 years 6.8 years Yields as of May 31, 2008 30-Day SEC Yield Investor Class 3.73% Institutional Class 3.92% A Class 3.32% B Class 2.73% C Class 2.73% Investor Class 30-Day Tax-Equivalent Yields(1) 25.00% Tax Bracket 4.97% 28.00% Tax Bracket 5.18% 33.00% Tax Bracket 5.57% 35.00% Tax Bracket 5.74% (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 have been lower than those shown. - ------ 5 Long-Term Tax-Free CURVE, SECTOR TRADES CONTRIBUTED On a positive note, we helped performance relative to the index and peer group by positioning the portfolio for a steeper yield curve. We did that by reducing our allocation to the longest-term bonds, which underperformed, and increasing our exposure to intermediate-term municipals. In the municipal market, the difference in yield between two- and 10-year notes went from 24 to 140 basis points (a basis point equals 0.01%) during the period. We also used Treasury futures to implement this trade, because they're a pure play on changes in the shape of the curve. For the 12 months, the difference in yield between two- and 10-year Treasury securities went from -3 basis points (the yield curve was inverted) to +141 basis points (a more normal, upward slope). The market climate also presented us with some attractive sector trades. For example, we were able to add some less economically sensitive education and hospital bonds at what we believe were very attractive yields relative to the credit quality of the issuers--in effect, we got income comparable to high-yield bonds but with investment-grade quality. MANAGEMENT CHANGE In March, Portfolio Manager Robert Miller left American Century Investments to pursue other opportunities. Two experienced members of the municipal portfolio management team--Steven Permut, a senior portfolio manager and head of the municipal bond team, and Alan Kruss, a municipal bond portfolio manager--will continue as lead managers on Long-Term Tax-Free. We believe this continuity is a key advantage of our team approach to managing portfolios. OUTLOOK "We're cautious because we don't see the economic and technical (supply and demand) issues in the municipal market going away anytime soon," said Permut. "Nevertheless, municipal bonds remain very attractive compared with fully taxable investments, so we're looking for opportunities to add bonds in select sectors or states that we believe represent compelling long-term values." Portfolio Composition By Credit Rating % of fund % of fund investments investments as of as of 5/31/08 11/30/07 AAA 53% 64% AA 27% 10% A 9% 11% BBB 11% 15% Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. Top Five Sectors as of May 31, 2008 % of fund investments General Obligation (GO) 15% Water/Sewer/Gas Revenue 14% Hospital Revenue 14% Electric Revenue 9% Special Tax Revenue 8% - ------ 6 SCHEDULE OF INVESTMENTS Long-Term Tax-Free MAY 31, 2008 Principal Amount Value Municipal Securities -- 100.0% ALABAMA -- 1.6% $ 500,000 East Alabama Health Care Facilities Auth. Rev., Series 2008 B, 5.00%, 9/1/13 $ 498,135 ----------- CALIFORNIA -- 10.4% 500,000 California Department of Water Resources Power Supply Rev., Series 2008 H, 5.00%, 5/1/22 525,530 565,000 Chaffey Community College District GO, Series 2007 C, (Election of 2002), 5.00%, 6/1/32 (MBIA) 582,768 310,000 Chino Basin Regional Financing Auth. Rev., Series 2008 A, (Inland Empire Utilities Agency), 5.00%, 11/1/23 (Ambac) 326,160 500,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2007 A-1, 5.125%, 6/1/47 391,455 150,000 Metropolitan Water District of Southern California GO, Series 2002 A, 3.50%, 3/1/10(1) 153,186 150,000 Metropolitan Water District of Southern California Rev., Series 2004 B-3, 3.25%, 10/1/11 (MBIA) 152,780 500,000 Pasadena Electric Rev., 5.00%, 6/1/37 (AGC)(1) 516,425 500,000 San Francisco Bay Area Toll Bridge Auth. Rev., Series 2007 F-1, 5.00%, 4/1/31 515,825 ----------- 3,164,129 ----------- CONNECTICUT -- 4.0% 500,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2003 X-3, (Yale University), 4.85%, 7/1/37 511,040 150,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 C, (Hospital for Special Care Issue), 5.25%, 7/1/27 (RADIAN) 153,144 500,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/17 (MBIA) 544,720 ----------- 1,208,904 ----------- Principal Amount Value DISTRICT OF COLUMBIA -- 1.7% $ 500,000 District of Columbia Water & Sewer Auth. Public Utility Rev., Series 2008 A, 5.00%, 10/1/34 (AGC) $ 512,550 ----------- FLORIDA -- 9.5% 500,000 Florida Board of Education Capital Outlay GO, Series 2007 G, 4.75%, 6/1/37 (MBIA) 494,560 500,000 Florida Rural Utility Financing Commission Rev., Series 2008 A, (Public Projects Construction), 3.25%, 2/1/11 500,840 500,000 JEA St. Johns River Power Park System Rev., Series 2, Issue 3, 5.00%, 10/1/37 509,305 500,000 Miami-Dade County Educational Facilities Auth. Rev., Series 2008 A, (University of Miami), 5.50%, 4/1/38 504,710 350,000 Sunshine State Governmental Financing Commission Rev., VRDN, 4.25%, 6/2/08 (Ambac) (SBBPA: Dexia Credit Local) 350,000 500,000 Tampa Water & Sewer Systems Rev., 5.00%, 10/1/37 511,959 ----------- 2,871,374 ----------- GEORGIA -- 9.1% 500,000 Burke County Development Auth. Pollution Control Rev., Series 2006 C-1, (Oglethorpe Power Corp. Vogtle), 4.625%, 4/1/10 (Ambac) 504,045 500,000 Fulton County Development Auth. Rev., Series 2001 A, (TUFF/Atlanta Housing, LLC Project at Georgia State University), 5.50%, 9/1/18 (Ambac) 537,870 40,000 Georgia Municipal Electric Power Auth. Rev., Series 1998 Y (Project One Special Obligation), 6.40%, 1/1/13 (Ambac) 44,281 500,000 Georgia State Road & Tollway Auth. Rev., Series 2008 A, (Federal Highway Grant Anticipation Bonds), 5.00%, 6/1/11 532,465 250,000 Gwinnett County School District GO, 5.00%, 2/1/24 266,770 810,000 LaGrange Water & Sewerage Rev., 5.00%, 1/1/12 (Ambac)(1) 862,966 ----------- 2,748,397 ----------- - ------ 7 Long-Term Tax-Free Principal Amount Value ILLINOIS -- 6.2% $ 500,000 Chicago Board of Education GO, Series 2008 C, 5.25%, 12/1/23 $ 534,135 500,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/12 (FSA) 532,520 700,000 Winnebago, Boone et al Counties Community College District No. 511 GO, (Rock Valley Community College), 6.30%, 10/1/15 (FGIC)(1) 811,715 ----------- 1,878,370 ----------- INDIANA -- 1.8% 500,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/20 (FSA) 532,515 ----------- MARYLAND -- 4.8% 500,000 Maryland GO, First Series 2005 B, (State and Local Facilities Loan), 5.25%, 2/15/12 541,520 400,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 4.75%, 7/1/11 415,744 480,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 5.00%, 7/1/34 (AGC) 494,107 ----------- 1,451,371 ----------- MASSACHUSETTS -- 2.5% 250,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 2008 E1, (CareGroup Issue), 5.125%, 7/1/38(2) 243,995 500,000 Massachusetts Water Resources Auth. Rev., Series 2006 B, 5.00%, 8/1/31 (Ambac) 514,835 ----------- 758,830 ----------- MINNESOTA -- 2.8% 300,000 Minneapolis-St. Paul Metropolitan Airports Commission Rev., Series 2007 B, 5.00%, 1/1/25 (FGIC) 298,314 500,000 Minnesota GO, 5.00%, 6/1/18 546,590 ----------- 844,904 ----------- Principal Amount Value NEW JERSEY -- 2.5% $ 500,000 Monmouth County GO, (County College Bonds), 4.00%, 9/15/19 $ 509,550 250,000 Town of Kearney GO, 4.00%, 1/15/19 (FSA/State Aid Withholding) 254,173 ----------- 763,723 ----------- NEW YORK -- 11.1% 500,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2004 C, 5.00%, 6/15/35 509,905 500,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2006 A, 5.00%, 6/15/39 510,545 500,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2008 DD, 5.00%, 6/15/37(2) 515,120 215,000 New York City Transitional Finance Auth. Rev., Series 2004 D-2, 5.00%, 11/1/12 232,946 500,000 New York State Dormitory Auth. Rev., Series 2008 A, (Columbia University), 4.00%, 7/1/13 (GO of University) 522,930 500,000 New York State Dormitory Auth. Rev., Series 2008 A1, (Memorial Sloan- Kettering Cancer Center), 5.00%, 7/1/36(1) 515,570 540,000 New York Urban Development Corp. State Personal Income Tax Rev., Series 2008 A1, (Economic Development & Housing), 5.00%, 12/15/22(1) 576,730 ----------- 3,383,746 ----------- NORTH CAROLINA -- 2.6% 250,000 North Carolina Eastern Municipal Power Agency System Rev., Series 2008 A, 5.00%, 1/1/24 250,178 500,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 A, 5.25%, 1/1/16 541,210 ----------- 791,388 ----------- OHIO -- 1.5% 500,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A2, (Asset-Backed Senior Current Interest Turbo Term), 6.50%, 6/1/47 468,610 ----------- - ------ 8 Long-Term Tax-Free Principal Amount Value PENNSYLVANIA -- 7.0% $ 500,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/18 $ 518,655 1,000,000 Allegheny County Industrial Development Auth. Rev., (Residential Resources, Inc.), 4.50%, 9/1/11(1) 1,002,790 500,000 Central Dauphin School District GO, 7.00%, 2/1/16, Prerefunded at 100% of Par (MBIA/State Aid Withholding)(3) 616,865 ----------- 2,138,310 ----------- PUERTO RICO -- 4.3% 500,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 5.00%, 7/1/14(1) 513,025 750,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 6.00%, 7/1/44(1) 794,783 ----------- 1,307,808 ----------- TENNESSEE -- 2.9% 425,000 Nashville and Davidson County Metropolitan Government Health & Educational Facilities Board Rev., Series 2008 A, (The Vanderbilt University), 5.00%, 10/1/15 (GO of University) 467,934 400,000 Shelby County Health Educational & Housing Facilities Board Rev., Series 2008 C, 5.25%, 6/1/17(2) 421,400 ----------- 889,334 ----------- TEXAS -- 4.3% 250,000 Lower Colorado River Auth. Rev., 5.75%, 5/15/37(2) 261,348 500,000 Texas Transportation Commission State Highway Fund First Tier Rev., Series 2006 A, 5.00%, 4/1/20 534,295 500,000 Waco Education Finance Corp. Rev., Series 2008 C, (Baylor University), 5.00%, 3/1/36 511,590 ----------- 1,307,233 ----------- Principal Amount Value UTAH -- 3.6% $ 500,000 Utah State Board of Regents Hospital Rev., Series 2006 A, (University of Utah), 5.25%, 8/1/21 (MBIA) $ 537,440 500,000 Utah Transit Auth. Sales Tax Rev., Series 2008 A, 5.00%, 6/15/20 542,515 ----------- 1,079,955 ----------- WASHINGTON -- 4.1% 250,000 Energy Northwest Rev., Series 2008 D, (Columbia Generating), 5.00%, 7/1/12 267,498 440,000 Seattle Solid Waste Rev., 5.00%, 2/1/24 457,864 500,000 Washington Health Care Facilities Auth. Rev., Series 2006 D, (Providence Health & Services), 5.25%, 10/1/33 (FSA) 516,455 ----------- 1,241,817 ----------- WISCONSIN -- 1.7% 475,000 Milwaukee Redevelopment Auth. Rev., Series 2003 A, (Milwaukee Public Schools - Neighborhood Schools Initiative), 5.125%, 8/1/13, Prerefunded at 100% of Par (Ambac)(3) 519,698 ----------- TOTAL MUNICIPAL SECURITIES (Cost $30,266,609) 30,361,101 ----------- Municipal Derivatives -- 1.4% TEXAS -- 1.4% 360,000 Texas GO, VRDN, Inverse Floater, 8.39%, 9/30/11(4) 433,832 (Cost $401,331) ----------- Shares Temporary Cash Investments -- 2.2% 664,000 Federated California Municipal Cash Trust(1) 664,000 (Cost $664,000) ----------- TOTAL INVESTMENT SECURITIES -- 103.6% (Cost $31,331,940) 31,458,933 ----------- OTHER ASSETS AND LIABILITIES -- (3.6)% (1,095,975) ----------- TOTAL NET ASSETS -- 100.0% $30,362,958 =========== - ------ 9 Long-Term Tax-Free Futures Contracts Expiration Underlying Face Unrealized Gain Contracts Purchased Date Amount at Value (Loss) 19 U.S. Treasury September 2-Year Notes 2008 $4,001,875 $(7,465) ========== ======== Expiration Underlying Face Unrealized Gain Contracts Sold Date Amount at Value (Loss) 6 U.S. Long Bond September 2008 $681,000 $12,877 ======== ======= Notes to Schedule of Investments AGC = Assured Guaranty Corporation Ambac = Ambac Assurance Corporation FGIC = Financial Guaranty Insurance Co. FSA = Financial Sec urity Assurance, Inc. GO = General Obligation 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 May 31, 2008. (1) Security, or a portion thereof, has been segregated for futures contracts and/or when-issued securities. (2) When-issued security. (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. - ------ 10 PERFORMANCE High-Yield Municipal Total Returns as of May 31, 2008 Average Annual Returns 5 Since Inception 1 year years 10 years Inception Date INVESTOR CLASS -5.01% 3.77% 4.84%(1) 4.95%(1) 3/31/98 LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX -0.45% 4.28% 5.40% 5.45% -- LIPPER HIGH-YIELD MUNICIPAL DEBT FUNDS AVERAGE RETURNS(2) -5.32% 3.66% 3.60% 3.65% -- Investor Class's Lipper Ranking(2) as of 5/31/08 56 of 104 33 of 77 2 of 48 2 of 48 -- as of 6/30/08 56 of 104 28 of 77 2 of 48 2 of 48 -- A Class No sales charge* -5.25% 3.52% -- 3.98% With sales charge* -9.49% 2.57% -- 3.09% 1/31/03 B Class No sales charge* -5.96% 2.74% -- 3.23%(3) With sales charge* -9.96% 2.56% -- 3.06%(3) 1/31/03 C Class -5.96% 2.77% -- 3.41% 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%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Investor Class returns and rankings would have been lower if management fees had not been waived from 3/31/98 to 4/30/99. Beginning on 5/1/99, management fees were phased in at a rate of 0.10% each month until 10/31/99. (2) Data provided by Lipper Inc. -- A Reuters Company. © 2008 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. (3) 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. - ------ 11 High-Yield Municipal Growth of $10,000 Over 10 Years $10,000 investment made May 31, 1998
One-Year Returns Over 10 Years Periods ended May 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 6.18%* -2.81% 9.13% 8.25% 9.40% 3.07% 9.84% 4.91% 6.70% -5.01% Lehman Brothers Long-Term Municipal Bond Index 4.35% -4.45% 15.38% 6.64% 11.84% -0.26% 13.25% 3.20% 6.28% -0.45% * 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. - ------ 12 PORTFOLIO COMMENTARY High-Yield Municipal Lead Portfolio Manager and Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY High-Yield Municipal returned -5.01* for the 12 months ended May 31, 2008. By comparison, its broad market index--the investment-grade Lehman Brothers Long-Term Municipal Bond Index--returned -0.45%, while the average return of the 104 high-yield municipal debt funds tracked by Lipper Inc. was -5.32%. Longer-term, the portfolio's average annual returns also exceeded those of its Lipper group average for the five- and 10-year periods ended May 31, 2008 (see page 11). The portfolio's absolute return and performance relative to the Lehman index reflected the difficult investment climate for lower-rated and non-rated municipal bonds, which lagged investment-grade securities by a wide margin (see the Market Perspective on page 2). For the year, the key positive contributions to performance came from our yield curve, sector, and state allocations, as well as individual security selection decisions. CREDIT SELECTION KEY The fiscal year covered a remarkable period for municipals that included some of the worst months in market history amid big changes in the participation of insurers, investment banks, and hedge funds, among others. Aversion to risk in the wake of the credit crisis hit hard the lower-rated and non-rated bonds in which High-Yield Municipal typically invests, explaining the fund's negative absolute return. But in terms of relative returns, our emphasis on individual security selection and credit research helped the portfolio hold up better than the Lipper group average. In particular, we avoided a number of poor-performing land-based and health care deals. These are two sectors to which we have significant exposure, but our credit selection pointed us away from the most troubled issuers. In addition, because of dislocations in the market, we were able to add select investment-grade bonds rated A and BBB at levels typically reserved for high-yield securities. We think these bonds have very attractive risk/reward profiles, with the secondary benefit of improving the fund's credit quality with little give-up in yield. Portfolio at a Glance As of As of 5/31/08 11/30/07 Weighted Average Maturity 17.4 years 16.2 years Average Duration (Modified) 8.3 years 8.2 years Yields as of May 31, 2008 30-Day SEC Yield Investor Class 5.09% A Class 4.63% B Class 4.08% C Class 4.08% Investor Class 30-Day Tax Equivalent Yields(1) 25.00% Tax Bracket 6.79% 28.00% Tax Bracket 7.07% 33.00% Tax Bracket 7.60% 35.00% Tax Bracket 7.83% (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. - ------ 13 High-Yield Municipal STATE, SECTOR ALLOCATIONS HELPED We believe the fund benefited from a number of trades we made in 2006-07 in anticipation of an economic slowdown. We diversified the portfolio more broadly by sector and state, and made some changes to the portfolio's coupon structure, trading up in coupon where possible into bonds we think have greater total return potential. In terms of our sector allocations, we held an underweight position in tobacco bonds and had no exposure to airline securities, two of the more volatile and poorly performing segments of the market. Our state allocation also contributed, as we were underweight in Florida, which performed poorly because of a number of large, troubled land deals to which we had no exposure. We should probably also mention that we believe the land-based deals we continued to hold are relatively healthy, mature credits in well-structured deals. We believe the sector has been oversold in part for technical (supply and demand) reasons, and that these securities can do very well when the economy and housing market begin to recover. YIELD-CURVE TRADES CONTRIBUTED In addition, we maintained a yield-curve steepening bias using 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. For the fiscal year, 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 +141 basis points (a more normal, upward slope). However, the fund's contribution from its yield-curve positioning would have been even greater but for some long-term municipal bonds we held--long bonds underperformed as the municipal yield curve experienced a similar, if less pronounced, steepening. OUTLOOK "We're cautious because we don't see the economic and technical issues in the municipal market going away anytime soon," says Lead Portfolio Manager Steven Permut. "Nevertheless, municipal bonds remain very attractive compared with fully taxable investments. High-yield municipals in particular look like a beaten-up asset class that we believe represents compelling long-term value." Portfolio Composition By Credit Rating % of fund % of fund investments investments as of as of 5/31/08 11/30/07 AAA 11% 14% AA 11% 2% A 7% -- BBB 7% 18% BB 4% 4% Unrated 60% 62% Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. Top Five Sectors as of May 31, 2008 % of fund investments Land Secured 33% Hospital Revenue 12% Continuing Care Retirement Facility 10% Electric Revenue 7% Project Finance Revenue 7% - ------ 14 SCHEDULE OF INVESTMENTS High-Yield Municipal MAY 31, 2008 Principal Amount Value Municipal Securities -- 103.6% ARIZONA -- 6.1% $2,500,000 Arizona Health Facilities Auth. Rev., Series 2007 B, (Banner Health), VRDN, 2.68%, 7/1/08 $ 1,975,000 4,050,000 Phoenix Civic Improvement Corp. Airport Rev., Series 2008 D, 5.25%, 7/1/17(1) 4,229,779 1,000,000 Phoenix Civic Improvement Corp. Airport Rev., Series 2008 D, 5.25%, 7/1/18(1) 1,038,440 3,015,000 Pronghorn Ranch Community Facilities District GO, 6.40%, 7/15/29 3,021,512 1,120,000 Quailwood Meadows Community Facilities District GO, 6.00%, 7/15/22 1,098,507 2,000,000 Quailwood Meadows Community Facilities District GO, 6.125%, 7/15/29 1,893,480 750,000 Scottsdale Industrial Development Auth. Hospital Rev., Series 2008 A, (Scottsdale Healthcare), 5.25%, 9/1/30(1) 734,513 897,000 Sundance Community Facilities Assessment District No. 2 Rev., 7.125%, 7/1/27 933,329 748,000 Sundance Community Facilities Assessment District No. 3 Rev., 6.50%, 7/1/29 752,226 395,000 Sundance Community Facilities District GO, 6.25%, 7/15/29 393,361 ------------ 16,070,147 ------------ ARKANSAS -- 0.4% 1,000,000 Pulaski County Public Facilities Board Rev., Series 2006 A, (Philander Smith College), 5.60%, 6/1/36 991,200 ------------ CALIFORNIA -- 7.8% 2,000,000 California Economic Recovery GO, Series 2004 A, 5.25%, 7/1/14 (FGIC) 2,209,911 2,000,000 California Health Facilities Financing Auth. Rev., Series 2008 G, (Catholic Healthcare West), 5.50%, 7/1/25 2,073,560 2,000,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B, (Palomar Estates E&W), 7.00%, 9/15/36 2,045,700 Principal Amount Value $ 715,000 California Statewide Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/11, Prerefunded at 101% of Par(2) $ 821,020 855,000 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/10, Prerefunded at 102% of Par(2) 951,384 2,235,000 Independent Cities Lease Finance Auth. Rev., Series 2004 A, (Morgan Hill - Hacienda Valley Mobile Estates), 5.90%, 11/15/34 2,209,856 1,000,000 Morongo Band of Mission Indians Rev., Series 2008 B, (Enterprise Casino), 6.50%, 3/1/28 1,008,700 250,000 Palm Springs Airport Passenger Facility Charge Rev., (Palm Springs International Airport), 6.40%, 7/1/23 249,480 275,000 Palm Springs Airport Passenger Facility Charge Rev., (Palm Springs International Airport), 6.50%, 7/1/27 273,672 3,000,000 Perris Public Financing Auth. Special Tax Rev., Series 2003 A, 6.25%, 9/1/33 3,052,920 3,000,000 Rancho Cordova Community Facilities District No. 2004-1 Special Tax Rev., (Sunridge Park Area), 6.125%, 9/1/37 2,914,290 1,000,000 Soledad Improvement Bond Act of 1915 Special Assessment, (Diamond Ridge Assessment District No. 2002-01), 6.75%, 9/2/33 1,041,930 1,570,000 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 (Acquired 12/12/02, Cost $1,699,352)(3) 1,719,166 ------------ 20,571,589 ------------ COLORADO -- 7.6% 10,000,000 Denver Health & Hospital Auth. Healthcare Rev., Series 2007 B, VRDN, 3.16%, 6/1/08, resets quarterly at 67% of the 3-month LIBOR plus 1.10% with no caps(4) 7,000,000 5,725,000 Granby Ranch Metropolitan District GO, 6.75%, 12/1/36 5,200,991 - ------ 15 High-Yield Municipal Principal Amount Value $3,000,000 One Horse Business Improvement District Rev., 6.00%, 6/1/24 $ 2,969,310 1,500,000 Plaza Metropolitan District No. 1 Rev., 8.00%, 12/1/25 1,586,340 2,000,000 Todd Creek Farms Metropolitan District No. 1 Rev., 5.60%, 12/1/14 1,939,160 1,500,000 Todd Creek Farms Metropolitan District No. 1 Rev., 6.125%, 12/1/19 1,461,420 ------------ 20,157,221 ------------ CONNECTICUT -- 0.4% 1,000,000 Connecticut Development Auth. Industrial Rev., (Afco Cargo BDL - LLC), 8.00%, 4/1/30 1,035,270 ------------ DISTRICT OF COLUMBIA -- 0.7% 1,000,000 District of Columbia COP, (Public Safety & Emergency), 5.50%, 1/1/19 (Ambac) 1,057,970 750,000 Metropolitan Washington D.C. Airports Auth. General Rev., Series 2001 A, 5.50%, 10/1/18 (MBIA) 776,003 ------------ 1,833,973 ------------ FLORIDA -- 10.3% 4,680,000 Arborwood Community Development District Special Assessment Rev., Series 2006 B, (Centex Homes), 5.25%, 5/1/16 4,152,938 2,190,000 Concorde Estates Community Development District Rev., Series 2004 B, 5.00%, 5/1/11 2,099,027 140,000 Covington Park Community Development District Rev., Series 2004 B, (Capital Improvement), 5.30%, 11/1/09 138,018 960,000 Double Branch Community Development District Special Assessment, Series 2002 A, 6.70%, 5/1/34 997,603 2,040,000 Dupree Lakes Community Development District Rev., 5.00%, 11/1/10 1,970,844 520,000 Fleming Island Plantation Community Development District Special Assessment, Series 2000 B, 7.375%, 5/1/10, Prerefunded at 101% of Par(2) 574,361 5,000,000 JEA St. Johns River Power Park System Rev., Series 2, Issue 3, 5.00%, 10/1/37(4) 5,093,050 Principal Amount Value $2,000,000 Miami-Dade County Health Facilities Auth. Hospital Rev., Series 2006 A, (Miami Children's Hospital), 4.55%, 8/1/13 (MBIA) $ 1,993,960 170,000 Middle Village Community Development District Special Assessment, Series 2004 B, 5.00%, 5/1/09 167,965 2,500,000 Midtown Miami Community Development District Special Assessment, Series 2004 A, 6.25%, 5/1/37 2,328,350 1,500,000 Putnam County Development Auth. Pollution Control Rev., Series 2007 B, (Seminole Electric Cooperative, Inc.), 5.35%, 5/1/18 (Ambac) 1,511,415 1,245,000 South-Dade Venture Community Development District Rev., 6.125%, 5/1/34 1,253,279 530,000 Sterling Hill Community Development District Special Assessment, Series 2003 B, 5.50%, 11/1/10 525,315 360,000 Stoneybrook West Community Development District Special Assessment, Series 2000 A, 7.00%, 5/1/32 371,639 3,150,000 Sunshine State Governmental Financing Commission Rev., VRDN, 4.25%, 6/2/08 (Ambac) (SBBPA: Dexia Credit Local) 3,150,000 920,000 Waterchase Community Development District Rev., Series 2001 A, 6.70%, 5/1/11, Prerefunded at 101% of Par(2) 1,013,601 ------------ 27,341,365 ------------ GEORGIA -- 0.4% 1,235,000 City of Atlanta Tax Allocation Rev., (Princeton Lakes), 5.50%, 1/1/31 1,118,799 ------------ GUAM -- 0.6% 1,500,000 Guam Government Waterworks Auth. Rev., 6.00%, 7/1/25 1,521,390 ------------ ILLINOIS -- 18.8% 1,325,000 Bedford Park Tax Allocation Rev., 5.125%, 12/30/18 1,247,435 3,000,000 Chicago Park District GO, Series 2006 C, 5.00%, 1/1/12 (FGIC)(4) 3,200,370 3,000,000 Chicago Tax Increment Allocation Rev., Series 2004 B, (Pilsen Redevelopment), (Junior Lien), 6.75%, 6/1/22(4) 3,159,810 - ------ 16 High-Yield Municipal Principal Amount Value $5,995,000 City of Yorkville Special Service Area No. 2005-109 Special Tax Rev., (Bristol Bay I), 5.875%, 3/1/36 $ 5,309,651 13,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Monarch Landing, Inc. Facility), 7.00%, 12/1/37 12,959,699 5,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Sedgebrook, Inc. Facility), 6.00%, 11/15/37(4) 4,603,300 5,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Sedgebrook, Inc. Facility), 6.00%, 11/15/42(4) 4,571,750 3,345,000 Pingree Grove Special Service Area No. 7 Special Tax Rev., Series 2006-1, (Cambridge Lakes), 6.00%, 3/1/36 3,014,481 1,000,000 Village of Bolingbrook Sales Tax Rev., 6.25%, 1/1/24 988,370 5,000,000 Village of Hampshire Special Service Area No. 13 Special Tax Rev., (Tuscany Woods), 5.75%, 3/1/37(4) 4,126,750 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 3,575,619 3,500,000 Volo Village Special Service Area No. 3 Special Tax Rev., Series 2006-1, (Symphony Meadows), 6.00%, 3/1/36 3,154,165 ------------ 49,911,400 ------------ LOUISIANA -- 0.7% 2,000,000 Colonial Pinnacle Community Development District Rev., 7.00%, 5/1/37 1,981,240 ------------ MARYLAND -- 3.7% 1,240,000 Anne Arundel County Special Obligation Rev., (Arundel Mills), 7.10%, 7/1/09, Prerefunded at 102% of Par(2) 1,329,726 1,000,000 Anne Arundel County Special Obligation Rev., (National Business Park), 7.375%, 7/1/10, Prerefunded at 102% of Par(2) 1,115,440 5,000,000 Baltimore Special Obligation Rev., Series 2008 A, (East Baltimore Research Park), 7.00%, 9/1/38 5,030,100 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 $ 1,003,020 1,195,000 Prince Georges County Rev., (Woodview Village Phase II - Subdistrict), 7.00%, 7/1/12, Prerefunded at 102% of Par(2) 1,393,860 ------------ 9,872,146 ------------ MASSACHUSETTS -- 0.4% 1,000,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 2008 E1, (CareGroup Issue), 5.125%, 7/1/33(1) 981,950 ------------ MINNESOTA -- 2.1% 840,000 Meeker County Hospital Facilities Rev., (Memorial Hospital), 5.75%, 11/1/27 828,845 1,720,000 Meeker County Hospital Facilities Rev., (Memorial Hospital), 5.75%, 11/1/37 1,638,059 3,000,000 North Oaks Senior Housing Rev., (Presbyterian Homes), 6.50%, 10/1/47 3,038,370 ------------ 5,505,274 ------------ MISSOURI -- 0.4% 860,000 Missouri Bottom Transportation Development District Hazelwood Rev., 7.20%, 5/1/33 893,600 225,000 Missouri Housing Development Commission Mortgage Rev., Series 1998 B2, (Single Family), 6.40%, 9/1/29 231,233 ------------ 1,124,833 ------------ NEVADA -- 5.6% 660,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.25%, 2/1/12 665,313 695,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.375%, 2/1/13 702,944 670,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.40%, 2/1/14 674,985 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) 1,186,534 - ------ 17 High-Yield Municipal Principal Amount Value $2,955,000 Clark County Improvement District No. 142 Special Assessment, 5.50%, 8/1/12 $ 2,943,357 1,375,000 Henderson Local Improvement District No. T-15 Special Assessment, 6.10%, 3/1/24 1,322,681 1,105,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.10%, 10/1/22 1,157,255 350,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.20%, 10/1/25 362,621 1,240,000 Las Vegas Improvement District No. 607 Special Assessment, (Providence), 5.50%, 6/1/13 1,180,902 3,500,000 Las Vegas Improvement Districts No. 808 & 810 Special Assessment, (Summerlin Village 23B), 6.125%, 6/1/31 3,168,971 700,000 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.20%, 12/1/10 707,567 735,000 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.45%, 12/1/11 743,511 ------------ 14,816,641 ------------ NEW JERSEY -- 6.2% 2,150,000 New Jersey COP, Series 2008 A, (Equipment Lease Purchase), 5.00%, 6/15/21 2,217,790 5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 A, (Gloucester Marine Terminal), 6.625%, 1/1/37 4,979,250 5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 B, (Gloucester Marine Terminal), 6.875%, 1/1/37 5,025,349 2,000,000 New Jersey Economic Development Auth. Rev., Series 2006 C, (Gloucester Marine Terminal), 6.50%, 1/1/15 1,977,980 2,175,000 New Jersey Educational Facilities Auth. Rev., Series 2008 D, (The College of New Jersey), 5.00%, 7/1/35 (FSA) 2,251,604 ------------ 16,451,973 ------------ NEW MEXICO -- 1.7% 1,490,000 Cabezon Public Improvement District Special Tax Rev., 6.30%, 9/1/34 1,451,603 1,000,000 Mariposa East Public Improvement District GO, 6.00%, 9/1/32 886,590 Principal Amount Value $1,190,000 Montecito Estates Public Improvement District Special Levy Rev., (City of Albuquerque), 7.00%, 10/1/37 $ 1,115,649 1,000,000 Ventana West Public Improvement District Special Levy Rev., 6.875%, 8/1/33 1,007,850 ------------ 4,461,692 ------------ NEW YORK -- 6.8% 2,500,000 Nassau County Industrial Development Agency Continuing Care Retirement Community Rev., Series 2007 A, (Amsterdam at Harborside), 6.50%, 1/1/27 2,466,675 4,250,000 New York State Dormitory Auth. Rev., (Orange Regional Medical Center), 6.25%, 12/1/37(4) 4,287,443 1,000,000 New York State Dormitory Auth. Rev., Series 2008 A, (Columbia University), 5.00%, 7/1/13 (GO of University) 1,092,680 6,250,000 New York State Dormitory Auth. Rev., Series 2008 A2, (Memorial Sloan-Kettering Cancer Center), 5.00%, 7/1/26(4) 6,526,687 1,000,000 Onondaga County Industrial Development Auth. Rev., (Air Cargo), 7.25%, 1/1/32 1,019,360 2,500,000 Triborough Bridge & Tunnel Auth. Rev., Series 2008 B3, 5.00%, 11/15/15 (GO of Authority) 2,659,475 ------------ 18,052,320 ------------ NORTH CAROLINA -- 3.5% 4,645,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 A, 5.25%, 1/1/16(4) 5,027,841 4,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 A, 5.25%, 1/1/17(4) 4,314,960 ------------ 9,342,801 ------------ NORTHERN MARIANA ISLANDS(5) 100,000 Northern Mariana Islands GO, Series 2003 A, 6.75%, 10/1/33 102,615 ------------ OHIO -- 3.4% 4,255,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A-2, 5.875%, 6/1/30 3,863,029 1,080,000 Hebron Waterworks Rev., 5.875%, 12/1/25 1,123,384 - ------ 18 High-Yield Municipal Principal Amount Value $ 745,000 Hebron Waterworks Rev., 6.125%, 12/1/29 $ 782,488 285,000 New Albany Plain Local School District GO, 5.50%, 12/1/19 (FGIC) 304,198 1,800,000 Pinnacle Community Infrastructure Financing Facilities Auth. Rev., Series 2004 A, 6.25%, 12/1/36 1,707,408 1,100,000 Port of Greater Cincinnati Development Auth. Special Assessment, (Cooperative Public Parking Infrastructure), 6.40%, 2/15/34 1,108,833 ------------ 8,889,340 ------------ OKLAHOMA -- 0.3% 750,000 Oklahoma City Industrial & Cultural Facilities Trust Rev., 6.75%, 1/1/23 751,320 ------------ OREGON -- 1.0% 2,830,000 Forest Grove Student Housing Rev., (Oak Tree Foundation), 5.50%, 3/1/37 (Acquired 6/28/07, Cost $2,830,000)(3) 2,539,331 ------------ PENNSYLVANIA -- 3.7% 4,375,000 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.10%, 7/1/14 4,443,162 1,500,000 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.60%, 7/1/23 1,478,160 1,000,000 Langhorne Manor Boro Higher Education Auth. Rev., (Philadelphia Biblical University), 5.50%, 4/1/25 974,750 185,000 New Morgan Municipal Auth. Office Rev., Series 1999 A, (Commonwealth Office), 5.375%, 6/1/08 184,993 3,000,000 Peninsula Town Center Community Development Auth. Special Obligation Rev., 6.45%, 9/1/37 2,783,130 ------------ 9,864,195 ------------ RHODE ISLAND -- 0.2% 500,000 Cranston GO, 6.375%, 11/15/09, Prerefunded at 101% of Par (FGIC)(2)(4) 535,160 ------------ Principal Amount Value TENNESSEE -- 5.2% $ 80,000 Blount County Public Building Auth. Rev., Series 2001 A1-C, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac) (LOC: KBC Bank N.V. and Landesbank Baden-Wuerttemberg) $80,000 2,450,000 Blount County Public Building Auth. Rev., Series 2005 D1-B, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac/Municipal Government Guaranteed) (SBBPA: Depfa Bank plc) 2,450,000 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 1,272,544 3,565,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 B, (Campus Development Foundation, Inc. Phase I LLC), 6.00%, 10/1/35 3,268,178 1,250,000 Sevier County Public Building Auth. Rev., Series 2002 IV-J1, (Local Government Public Improvement), VRDN, 3.00%, 6/2/08 (Ambac) (SBBPA: JPMorgan Chase Bank) 1,250,000 1,700,000 Sevier County Public Building Auth. Rev., Series VI-E4, (Local Government Public Improvement Bonds), VRDN, 3.00%, 6/2/08 (Ambac/Municipal Government Guaranteed) (SBBPA: Depfa Bank plc) 1,700,000 3,695,000 Shelby County Health Educational & Housing Facilities Board Rev., Series 2008 C, 5.25%, 6/1/17(1) 3,892,683 ------------ 13,913,405 ------------ TEXAS -- 2.8% 390,000 Abia Development Corp. Airport Facilities Rev., (Aero Austin L.P.), 6.75%, 1/1/11 391,065 2,250,000 Lower Colorado River Auth. Rev., 5.75%, 5/15/37(1) 2,352,128 5,000,000 Lufkin Health Facilities Development Corp. Rev., (Memorial Health System of East Texas), 5.50%, 2/15/37(4) 4,665,649 ------------ 7,408,842 ------------ - ------ 19 High-Yield Municipal Principal Amount Value WASHINGTON -- 1.4% $ 860,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 6/1/12, Prerefunded at 100% of Par (FSA) (School Bond Guarantee)(2) $ 950,016 2,375,000 Energy Northwest Rev., Series 2008 D, (Columbia Generating), 5.00%, 7/1/12 2,541,226 250,000 Port of Seattle Rev., Series 2000 B, 6.00%, 2/1/15 (MBIA) 270,723 ------------ 3,761,965 ------------ Principal Amount Value WISCONSIN -- 1.4% $2,000,000 Wisconsin Health & Educational Facilities Auth. Rev., Series 2004 A, (Southwest Health Center), 6.25%, 4/1/34 $ 1,905,220 1,750,000 Wisconsin Health & Educational Facilities Auth. Rev., Series 2006 A, (Marshfield Clinic), 5.375%, 2/15/34 1,689,590 ------------ 3,594,810 ------------ TOTAL INVESTMENT SECURITIES -- 103.6% (Cost $284,400,006) 274,504,207 ------------ OTHER ASSETS AND LIABILITIES -- (3.6)% (9,462,598) ------------ TOTAL NET ASSETS -- 100.0% $265,041,609 ============ Futures Contracts Expiration Underlying Face Unrealized Gain Contracts Purchased Date Amount at Value (Loss) 176 U.S. Treasury 2-Year Notes September 2008 $37,070,000 $(69,146) =========== ========= Expiration Underlying Face Unrealized Gain Contracts Sold Date Amount at Value (Loss) 48 U.S. Long Bond September 2008 $5,448,000 $103,017 ========== ======== 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 LOC = Letter of Credit MBIA = MBIA Insurance Corporation 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 May 31, 2008. (1) When-issued security. (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 May 31, 2008 was $4,258,497, which represented 1.6% of total net assets. (4) Security, or a portion thereof, has been segregated for futures contracts and/or when issued securities. (5) Category is less than 0.05% of total net assets. See Notes to Financial Statements. - ------ 20 SHAREHOLDER FEE EXAMPLES (UNAUDITED) Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from December 1, 2007 to May 31, 2008. 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 Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments 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 Investments 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 Investments 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. - ------ 21 Beginning Expenses Paid Account Ending During Period* Annualized Value Account Value 12/1/07 - Expense 12/1/07 5/31/08 5/31/08 Ratio* Long-Term Tax-Free Bond ACTUAL Investor Class $1,000 $1,015.90 $2.47 0.49% Institutional Class $1,000 $1,016.90 $1.46 0.29% A Class $1,000 $1,014.60 $3.73 0.74% B Class $1,000 $1,009.80 $7.49 1.49% C Class $1,000 $1,010.90 $7.49 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 $982.50 $3.07 0.62% A Class $1,000 $981.20 $4.31 0.87% B Class $1,000 $977.60 $8.01 1.62% C Class $1,000 $977.60 $8.01 1.62% HYPOTHETICAL Investor Class $1,000 $1,021.90 $3.13 0.62% A Class $1,000 $1,020.65 $4.39 0.87% B Class $1,000 $1,016.90 $8.17 1.62% C Class $1,000 $1,016.90 $8.17 1.62% * Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. - ------ 22 STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2008 Long-Term High-Yield Tax-Free Municipal ASSETS Investment securities, at value (cost of $31,331,940 and $284,400,006, respectively) $31,458,933 $274,504,207 Cash 527 -- Receivable for capital shares sold -- 217,791 Interest receivable 360,754 4,187,222 ----------- ------------ 31,820,214 278,909,220 ----------- ------------ LIABILITIES Disbursements in excess of demand deposit cash -- 182,911 Payable for investments purchased 1,441,047 13,225,929 Payable for capital shares redeemed -- 2,232 Payable for variation margin on futures contracts 720 2,751 Accrued management fees 9,343 134,330 Distribution fees payable 1,442 23,586 Service fees (and distribution fees -- A Class) payable 2,437 37,145 Dividends payable 2,267 258,727 ----------- ------------ 1,457,256 13,867,611 ----------- ------------ NET ASSETS $30,362,958 $265,041,609 =========== ============ See Notes to Financial Statements. - ------ 23 MAY 31, 2008 Long-Term High-Yield Tax-Free Municipal NET ASSETS CONSIST OF: Capital paid in $31,164,558 $284,524,143 Undistributed net investment income 27,191 -- Accumulated net realized loss on investment transactions (961,196) (9,620,606) Net unrealized appreciation (depreciation) on investments 132,405 (9,861,928) ----------- ------------ $30,362,958 $265,041,609 =========== ============ INVESTOR CLASS Net assets $1,070,821 $87,127,129 Shares outstanding 101,439 9,046,689 Net asset value per share $10.56 $9.63 INSTITUTIONAL CLASS Net assets $17,661,261 N/A Shares outstanding 1,673,078 N/A Net asset value per share $10.56 N/A A CLASS Net assets $9,320,125 $140,037,288 Shares outstanding 882,896 14,539,673 Net asset value per share $10.56 $9.63 Maximum offering price (net asset value divided by 0.955) $11.06 $10.08 B CLASS Net assets $1,158,370 $3,804,954 Shares outstanding 109,746 395,032 Net asset value per share $10.56 $9.63 C CLASS Net assets $1,152,381 $34,072,238 Shares outstanding 109,167 3,539,433 Net asset value per share $10.56 $9.63 See Notes to Financial Statements. - ------ 24 STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 2008 Long-Term High-Yield Tax-Free Municipal INVESTMENT INCOME (LOSS) INCOME: Interest $1,280,240 $ 15,894,801 ---------- ------------- EXPENSES: Management fees 102,990 1,689,315 Distribution fees: B Class 9,301 31,662 C Class 2,679 265,662 Service fees: B Class 3,100 10,554 C Class 893 88,554 Distribution and service fees -- A Class 22,550 366,567 Trustees' fees and expenses 1,405 13,697 Other expenses 164 7,888 ---------- ------------- 143,082 2,473,899 ---------- ------------- NET INVESTMENT INCOME (LOSS) 1,137,158 13,420,902 ---------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (622,566) (9,876,271) Futures and swaps transactions 217,048 533,378 ---------- ------------- (405,518) (9,342,893) ---------- ------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (184,491) (19,757,700) Futures and swaps (20,145) 52,633 ---------- ------------- (204,636) (19,705,067) ---------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (610,154) (29,047,960) ---------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 527,004 $(15,627,058) ========== ============= See Notes to Financial Statements. - ------ 25 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED MAY 31, 2008 AND MAY 31, 2007 Long-Term Tax-Free High-Yield Municipal Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $ 1,137,158 $ 1,359,480 $ 13,420,902 $ 12,750,107 Net realized gain (loss) (405,518) 350,007 (9,342,893) 1,657,489 Change in net unrealized appreciation (depreciation) (204,636) (41,606) (19,705,067) 3,122,438 ----------- ----------- ------------ ------------ Net increase (decrease) in net assets resulting from operations 527,004 1,667,881 (15,627,058) 17,530,034 ----------- ----------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (17,308) (5,831) (4,566,108) (4,616,008) Institutional Class (730,716) (712,795) -- -- A Class (341,166) (588,921) (7,203,404) (6,636,230) B Class (37,439) (50,819) (175,879) (172,636) C Class (10,529) (1,115) (1,475,511) (1,325,233) ----------- ----------- ------------ ------------ Decrease in net assets from distributions (1,137,158) (1,359,481) (13,420,902) (12,750,107) ----------- ----------- ------------ ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (223,047) (6,952,148) (4,863,723) 45,266,593 ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS (833,201) (6,643,748) (33,911,683) 50,046,520 NET ASSETS Beginning of period 31,196,159 37,839,907 298,953,292 248,906,772 ----------- ----------- ------------ ------------ End of period $30,362,958 $31,196,159 $265,041,609 $298,953,292 =========== =========== ============ ============ Undistributed net investment income $27,191 $27,577 -- -- =========== =========== ============ ============ See Notes to Financial Statements. - ------ 26 NOTES TO FINANCIAL STATEMENTS MAY 31, 2008 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 nondiversified under the 1940 Act. Long-Term Tax-Free's investment objective is to seek high current income that is exempt from federal income taxes consistent with preservation of capital. Long-Term Tax-Free invests primarily in long-term investment-grade municipal obligations. High-Yield Municipal's investment objective is to seek high current income that is exempt from federal income taxes. Capital appreciation is a secondary objective. High-Yield Municipal invests primarily in long-term and intermediate-term municipal obligations. The following is a summary of the funds' significant accounting policies. MULTIPLE CLASS -- 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 funds represent an equal pro rata interest in the assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets. SECURITY VALUATIONS -- Securities traded primarily on a principal securities exchange are valued at the last reported sales price, or at the mean of the latest bid and asked prices where no last sales price is available. Debt securities maturing in greater than 60 days at the time of purchase 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 at the time of purchase 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 the Board of Trustees or its designee, in accordance with procedures adopted by the Board of Trustees, 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. - ------ 27 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. 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 2005. At this time, management has not identified any uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. 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. - ------ 28 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 Investments 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 year ended May 31, 2008, was 0.48% and 0.61%, respectively. The effective annual management fee for the Institutional Class of Long-Term Tax-Free for the year ended May 31, 2008, was 0.28%. 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 fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended May 31, 2008, 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. Prior to December 12, 2007, the funds had 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 year ended May 31, 2008, were as follows: Long-Term Tax-Free High-Yield Municipal Purchases $68,385,632 $181,084,618 Proceeds from sales $64,427,176 $177,757,056 - ------ 29 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): Year ended May 31, 2008 Year ended May 31, 2007 Shares Amount Shares Amount Long-Term Tax-Free INVESTOR CLASS Sold 123,013 $ 1,289,179 20,901 $ 226,301 Issued in reinvestment of distributions 1,412 14,875 526 5,718 Redeemed (43,591) (458,140) (3,168) (34,547) --------- ----------- --------- ------------ 80,834 845,914 18,259 197,472 --------- ----------- --------- ------------ INSTITUTIONAL CLASS --------- ----------- --------- ------------ Issued in reinvestment of distributions 69,445 730,716 65,697 712,471 --------- ----------- --------- ------------ A CLASS Sold 308,625 3,260,281 96,442 1,049,120 Issued in reinvestment of distributions 25,681 273,082 40,105 434,715 Redeemed (586,314) (6,216,798) (804,205) (8,715,672) --------- ----------- --------- ------------ (252,008) (2,683,435) (667,658) (7,231,837) --------- ----------- --------- ------------ B CLASS Sold 2,970 31,287 3,841 41,044 Issued in reinvestment of distributions 2,868 30,258 3,656 39,610 Redeemed (27,452) (290,176) (67,333) (727,027) --------- ----------- --------- ------------ (21,614) (228,631) (59,836) (646,373) --------- ----------- --------- ------------ C CLASS Sold 114,908 1,214,251 1,388 15,004 Issued in reinvestment of distributions 935 9,837 103 1,115 Redeemed (10,509) (111,699) -- -- --------- ----------- --------- ------------ 105,334 1,112,389 1,491 16,119 --------- ----------- --------- ------------ Net increase (decrease) (18,009) $ (223,047) (642,047) $(6,952,148) ========= =========== ========= ============ - ------ 30 Year ended May 31, 2008 Year ended May 31, 2007 Shares Amount Shares Amount High-Yield Municipal INVESTOR CLASS Sold 3,460,250 $ 34,684,853 3,551,483 $ 37,619,683 Issued in reinvestment of distributions 283,425 2,832,724 273,658 2,917,123 Redeemed (3,801,236) (38,290,517) (2,805,384) (29,932,323) ----------- ------------ ----------- ------------ (57,561) (772,940) 1,019,757 10,604,483 ----------- ------------ ----------- ------------ A CLASS Sold 6,642,501 66,611,899 6,497,555 69,268,767 Issued in reinvestment of distributions 606,875 6,057,678 530,236 5,653,892 Redeemed (7,558,740) (75,730,114) (4,528,018) (48,368,107) ----------- ------------ ----------- ------------ (309,364) (3,060,537) 2,499,773 26,554,552 ----------- ------------ ----------- ------------ B CLASS Sold 24,142 247,623 66,699 710,714 Issued in reinvestment of distributions 7,404 73,859 6,014 64,138 Redeemed (84,927) (860,513) (49,747) (528,051) ----------- ------------ ----------- ------------ (53,381) (539,031) 22,966 246,801 ----------- ------------ ----------- ------------ C CLASS Sold 1,164,913 11,675,088 1,203,132 12,795,715 Issued in reinvestment of distributions 60,290 600,802 43,904 468,377 Redeemed (1,269,899) (12,767,105) (506,615) (5,403,335) ----------- ------------ ----------- ------------ (44,696) (491,215) 740,421 7,860,757 ----------- ------------ ----------- ------------ Net increase (decrease) (465,002) $(4,863,723) 4,282,917 $ 45,266,593 =========== ============ =========== ============ 5. BANK LINE OF CREDIT Effective December 12, 2007, 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 Bank of America, N.A. Prior to December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The funds did not borrow from the line during the year ended May 31, 2008. 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. - ------ 31 7. FEDERAL TAX INFORMATION The tax character of distributions paid during the years May 31, 2008 and May 31, 2007 were as follows: Long-Term Tax-Free High-Yield Municipal 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Exempt income $1,137,158 $1,359,481 $13,420,902 $12,750,107 Long-term capital gains -- -- -- -- 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 May 31, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Long-Term High-Yield Tax-Free Municipal Federal tax cost of investments $31,331,940 $283,845,370 =========== ============ Gross tax appreciation of investments $343,136 $ 2,955,525 Gross tax depreciation of investments (216,143) (12,296,688) ----------- ------------ Net tax appreciation (depreciation) of investments $126,993 $ (9,341,163) =========== ============ Net tax appreciation (depreciation) on derivatives -- -- ----------- ------------ Net tax appreciation (depreciation) $126,993 $(9,341,163) =========== ============ Undistributed exempt income $27,191 -- Accumulated capital losses $(955,784) $(5,078,339) Capital loss deferrals -- $(5,063,032) The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the treatment of non-shareholder capital contributions and the realization for tax purposes of unrealized gains (losses) on certain futures contracts. 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. Future capital loss carryover utilization in any given year may be limited due to large shareholder redemptions. The capital loss carryovers expire as follows: 2010 2011 2012 2013 2014 2015 2016 Long-Term Tax-Free -- -- $(8,266) $(142,310) $(389,668) -- $(415,540) High-Yield Municipal $(4,876) -- $(145,918) $(700,317) -- -- $(4,227,228) The capital loss deferral listed above for High-Yield Municipal represents net capital losses incurred in the seven-month period ended May 31, 2008. High-Yield Municipal has elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. - ------ 32 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. The adoption of FAS 157 does not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. 9. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds designate exempt interest dividends for the fiscal year ended May 31, 2008, as follows: Long-Term Tax-Free High-Yield Municipal Exempt interest dividends $1,144,890 $13,494,885 - ------ 33 FINANCIAL HIGHLIGHTS Long-Term Tax-Free Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.43 0.43 0.06 Net Realized and Unrealized Gain (Loss) (0.22) 0.08 (0.02) ------ ------ ------ Total From Investment Operations 0.21 0.51 0.04 ------ ------ ------ Distributions From Net Investment Income (0.43) (0.43) (0.06) ------ ------ ------ Net Asset Value, End of Period $10.56 $10.78 $10.70 ====== ====== ====== TOTAL RETURN(2) 1.99% 4.84% 0.42% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.49% 0.49% 0.49%(3) Ratio of Net Investment Income (Loss) to Average Net Assets 4.02% 4.00% 3.85%(3) Portfolio Turnover Rate 257% 101% 62% Net Assets, End of Period (in thousands) $1,071 $222 $25 (1) April 3, 2006 (commencement of sale) through May 31, 2006. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (3) Annualized. See Notes to Financial Statements. - ------ 34 Long-Term Tax-Free Institutional Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.45 0.45 0.07 Net Realized and Unrealized Gain (Loss) (0.22) 0.08 (0.02) ------ ------ ------ Total From Investment Operations 0.23 0.53 0.05 ------ ------ ------ Distributions From Net Investment Income (0.45) (0.45) (0.07) ------ ------ ------ Net Asset Value, End of Period $10.56 $10.78 $10.70 ====== ====== ====== TOTAL RETURN(2) 2.19% 5.05% 0.45% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.29% 0.29% 0.29%(3) Ratio of Net Investment Income (Loss) to Average Net Assets 4.22% 4.20% 4.05%(3) Portfolio Turnover Rate 257% 101% 62% Net Assets, End of Period (in thousands) $17,661 $17,285 $16,456 (1) April 3, 2006 (commencement of sale) through May 31, 2006. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (3) Annualized. See Notes to Financial Statements. - ------ 35 Long-Term Tax-Free A Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008 2007 2006(1) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 $10.74 $11.06 $10.98 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.40 0.41 0.06 0.35(2) 0.33(2) 0.33(2) Net Realized and Unrealized Gain (Loss) (0.22) 0.08 (0.02) (0.03) (0.15) 0.24 ------ ------ ------ ------ ------ ------ Total From Investment Operations 0.18 0.49 0.04 0.32 0.18 0.57 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.40) (0.41) (0.06) (0.34) (0.33) (0.33) From Net Realized Gains -- -- -- -- (0.17) (0.16) ------ ------ ------ ------ ------ ------ Total Distributions (0.40) (0.41) (0.06) (0.34) (0.50) (0.49) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.56 $10.78 $10.70 $10.72 $10.74 $11.06 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) 1.73% 4.58% 0.40% 3.01% 1.63% 5.31% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.74% 0.74% 0.74%(4) 0.82% 0.84% 0.85% Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 0.74% 0.74% 0.74%(4) 0.82% 0.84% 0.89% Ratio of Net Investment Income (Loss) to Average Net Assets 3.77% 3.75% 3.60%(4) 3.21% 3.01% 3.01% Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 3.77% 3.75% 3.60%(4) 3.21% 3.01% 2.97% Portfolio Turnover Rate 257% 101% 62% 27% 43% 815%(5) Net Assets, End of Period (in thousands) $9,320 $12,233 $19,288 $36,834 $123,399 $120,606 (1) April 1, 2006 through May 31, 2006. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period. For the years before May 31, 2006, Long-Term Tax-Free's fiscal year end was March 31. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover 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. - ------ 36 Long-Term Tax-Free B Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008 2007 2006(1) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 $10.73 $11.06 $10.98 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.32 0.32 0.05 0.27(2) 0.26(2) 0.26(2) Net Realized and Unrealized Gain (Loss) (0.22) 0.08 (0.02) (0.01) (0.16) 0.24 ------ ------ ------ ------ ------ ------ Total From Investment Operations 0.10 0.40 0.03 0.26 0.10 0.50 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.32) (0.32) (0.05) (0.27) (0.26) (0.26) From Net Realized Gains -- -- -- -- (0.17) (0.16) ------ ------ ------ ------ ------ ------ Total Distributions (0.32) (0.32) (0.05) (0.27) (0.43) (0.42) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.56 $10.78 $10.70 $10.72 $10.73 $11.06 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) 0.87% 3.80% 0.28% 2.42% 0.89% 4.62% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.49% 1.49% 1.49%(4) 1.50% 1.50% 1.50% Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 1.49% 1.49% 1.49%(4) 1.54% 1.52% 1.54% Ratio of Net Investment Income (Loss) to Average Net Assets 3.02% 3.00% 2.85%(4) 2.49% 2.36% 2.39% Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 3.02% 3.00% 2.85%(4) 2.45% 2.34% 2.35% Portfolio Turnover Rate 257% 101% 62% 27% 43% 815%(5) Net Assets, End of Period (in thousands) $1,158 $1,416 $2,046 $2,081 $2,483 $2,674 (1) April 1, 2006 through May 31, 2006. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period. For the years before May 31, 2006, Long-Term Tax-Free's fiscal year was March 31. (2) Computed using average shares outstanding throughout the period. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover 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. - ------ 37 Long-Term Tax-Free C Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.32 0.32 0.05 Net Realized and Unrealized Gain (Loss) (0.22) 0.08 (0.02) ------ ------ ------ Total From Investment Operations 0.10 0.40 0.03 ------ ------ ------ Distributions From Net Investment Income (0.32) (0.32) (0.05) ------ ------ ------ Net Asset Value, End of Period $10.56 $10.78 $10.70 ====== ====== ====== TOTAL RETURN(2) 0.98% 3.80% 0.26% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.49% 1.49% 1.49%(3) Ratio of Net Investment Income (Loss) to Average Net Assets 3.02% 3.00% 2.85%(3) Portfolio Turnover Rate 257% 101% 62% Net Assets, End of Period (in thousands) $1,152 $41 $25 (1) April 3, 2006 (commencement of sale) through May 31, 2006. (2) 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. (3) Annualized. See Notes to Financial Statements. - ------ 38 High-Yield Municipal Investor Class For a Share Outstanding Throughout the Years Ended May 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.52 0.51 0.50 0.51 0.52 Net Realized and Unrealized Gain (Loss) (1.05) 0.18 --(1) 0.46 (0.21) ------ ------ ------ ------ ------ Total From Investment Operations (0.53) 0.69 0.50 0.97 0.31 ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.52) (0.51) (0.50) (0.51) (0.52) ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== TOTAL RETURN(2) (5.01)% 6.70% 4.91% 9.84% 3.07% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.62% 0.62% 0.62% 0.63% 0.64% Ratio of Net Investment Income (Loss) to Average Net Assets 5.16% 4.80% 4.80% 4.92% 5.06% Portfolio Turnover Rate 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $87,127 $97,254 $84,896 $62,945 $54,340 (1) Per-share amount was less than $0.005. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 39 High-Yield Municipal A Class For a Share Outstanding Throughout the Years Ended May 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.50 0.48 0.48 0.48 0.49 Net Realized and Unrealized Gain (Loss) (1.05) 0.18 --(1) 0.46 (0.21) ------ ------ ------ ------ ------ Total From Investment Operations (0.55) 0.66 0.48 0.94 0.28 ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.50) (0.48) (0.48) (0.48) (0.49) ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== TOTAL RETURN(2) (5.25)% 6.43% 4.65% 9.56% 2.81% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.87% 0.87% 0.87% 0.88% 0.89% Ratio of Net Investment Income (Loss) to Average Net Assets 4.91% 4.55% 4.55% 4.67% 4.81% Portfolio Turnover Rate 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $140,037 $158,622 $129,681 $79,154 $33,335 (1) Per-share amount was less than $0.005. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 40 High-Yield Municipal B Class For a Share Outstanding Throughout the Years Ended May 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.42 0.40 0.40 0.40 0.42 Net Realized and Unrealized Gain (Loss) (1.05) 0.18 --(1) 0.46 (0.21) ------ ------ ------ ------ ------ Total From Investment Operations (0.63) 0.58 0.40 0.86 0.21 ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.42) (0.40) (0.40) (0.40) (0.42) ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== TOTAL RETURN(2) (5.96)% 5.64% 3.87% 8.75% 2.05% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.62% 1.62% 1.62% 1.63% 1.64% Ratio of Net Investment Income (Loss) to Average Net Assets 4.16% 3.80% 3.80% 3.92% 4.06% Portfolio Turnover Rate 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $3,805 $4,790 $4,468 $3,573 $2,541 (1) Per-share amount was less than $0.005. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 41 High-Yield Municipal C Class For a Share Outstanding Throughout the Years Ended May 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.42 0.40 0.40 0.40 0.43 Net Realized and Unrealized Gain (Loss) (1.05) 0.18 --(1) 0.46 (0.21) ------ ------ ------ ------ ------ Total From Investment Operations (0.63) 0.58 0.40 0.86 0.22 ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.42) (0.40) (0.40) (0.40) (0.43) ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== TOTAL RETURN(2) (5.96)% 5.64% 3.86% 8.74% 2.20% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.62% 1.62% 1.62% 1.63% 1.54% Ratio of Net Investment Income (Loss) to Average Net Assets 4.16% 3.80% 3.80% 3.92% 4.16% Portfolio Turnover Rate 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $34,072 $38,287 $29,862 $16,967 $8,457 (1) Per-share amount was less than $0.005. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 42 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Trustees of the American Century Municipal Trust and Shareholders of the Long-Term Tax-Free Fund and High-Yield Municipal Fund: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Long-Term Tax-Free Fund and High-Yield Municipal Fund (two of the four funds comprising the American Century Municipal Trust, hereafter referred to as the "Funds") at May 31, 2008, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri July 17, 2008 - ------ 43 MANAGEMENT The individuals listed below serve as trustees or officers of the funds. Each trustee serves until his or her successor is duly elected and qualified or until he or she retires. Effective March 2004, mandatory retirement age for independent trustees is 73. However, the mandatory retirement age may be extended for a period not to exceed two years with the approval of the remaining independent trustees. Those listed as interested trustees are "interested" primarily by virtue of their engagement as directors and/or officers of, or ownership interest in, American Century Companies, Inc. (ACC) or its wholly owned, direct or indirect, subsidiaries, including the funds' investment advisor, American Century Investment Management, Inc. (ACIM or the advisor); the funds' principal underwriter, American Century Investment Services, Inc. (ACIS); and the funds' transfer agent, American Century Services, LLC (ACS). The other trustees (more than three-fourths of the total number) are independent; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, ACIS, and ACS. The trustees serve in this capacity for eight registered investment companies in the American Century Investments family of funds. All persons named as officers of the funds also serve in similar capacities for the other 14 investment companies in the American Century Investments family of funds advised by ACIM or American Century Global Investment Management, Inc. (ACGIM), a wholly owned subsidiary of ACIM, unless otherwise noted. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. INTERESTED TRUSTEE JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1963 POSITION(S) HELD WITH FUNDS: Trustee (since 2007) and President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: President, Chief Executive Officer and Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM, ACGIM, ACIS and other ACC subsidiaries. Managing Director, Morgan Stanley (March 2000 to November 2005) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 111 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None INDEPENDENT TRUSTEES JOHN FREIDENRICH, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1937 POSITION(S) HELD WITH FUNDS: Trustee (since 2005) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member and Manager, Regis Management Company, LLC (money management firm) (April 2004 to present); Partner and Founder, Bay Partners (venture capital firm, 1976 to 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - ------ 44 RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Trustee (since 1995) and Chairman of the Board (since 2005) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None FREDERICK L.A. GRAUER, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Trustee (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Advisor, Barclays Global Investors (asset manager) (2003 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None PETER F. PERVERE, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1947 POSITION(S) HELD WITH FUNDS: Trustee (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Vice President and Chief Financial Officer, Commerce One, Inc. (software and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Intraware, Inc. MYRON S. SCHOLES, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1941 POSITION(S) HELD WITH FUNDS: Trustee (since 1980) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Platinum Grove Asset Management, L.P. (asset manager), and a Partner, Oak Hill Capital Management (asset manager) (1999 to present); Frank E. Buck Professor of Finance-Emeritus, Stanford Graduate School of Business (1996 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Chicago Mercantile Exchange (2000 to present) JOHN B. SHOVEN, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1947 POSITION(S) HELD WITH FUNDS: Trustee (since 2002) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1973 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present) JEANNE D. WOHLERS, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1945 POSITION(S) HELD WITH FUNDS: Trustee (since 1984) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 41 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - ------ 45 OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUNDS: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1956 POSITION(S) HELD WITH FUNDS: Chief Compliance Officer (since 2006) and Senior Vice President (since 2000) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM, ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century Investments funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1957 POSITION(S) HELD WITH FUNDS: General Counsel (since 2007) and Senior Vice President (since 2006) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present); General Counsel, ACC (March 2007 to present). Also serves as: General Counsel, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM, ACGIM and ACS ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1966 POSITION(S) HELD WITH FUNDS: Vice President, Treasurer and Chief Financial Officer (all since 2006) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000 to present); and Controller, various American Century Investments funds (1997 to September 2006) JON ZINDEL, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUNDS: Tax Officer (since 2000) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October 2001 to present); Vice President, certain ACC subsidiaries (October 2001 to August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006). Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief Accounting Officer and Senior Vice President, ACIS The SAI has additional information about the funds' trustees and is available without charge, upon request, by calling 1-800-345-2021. - ------ 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 Investments' 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] [american century investments logo and text logo ®] 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 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. 0807 CL-ANN-60828N ITEM 2. CODE OF ETHICS. a. The registrant has adopted a Code of Ethics for Senior Financial Officers that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. b. No response required. c. None. d. None. e. Not applicable. f. The registrant's Code of Ethics for Senior Financial Officers was filed as Exhibit 12 (a)(1) to American Century Asset Allocation Portfolios, Inc.'s Annual Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005, and is incorporated herein by reference. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant's board has determined that the registrant has at least one audit committee financial expert serving on its audit committee. (a)(2) Peter F. Pervere, Jeanne D. Wohlers and Ronald J. Gilson are the registrant's designated audit committee financial experts. They are "independent" as defined in Item 3 of Form N-CSR. (a)(3) Not applicable. (b) No response required. (c) No response required. (d) No response required. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were as follows: FY 2007: $119,367 FY 2008: $ 84,891 (b) Audit-Related Fees. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were as follows: For services rendered to the registrant: FY 2007: $0 FY 2008: $0 Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2007: $0 FY 2008: $0 (c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were as follows: For services rendered to the registrant: FY 2007: $2,250* FY 2008: $0 * This amount has been restated as certain prior year services related to review of federal and state income tax forms and federal excise tax forms that were paid in advance were refunded as management changed service providers. Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2007: $0 FY 2008: $0 (d) All Other Fees. The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were as follows: For services rendered to the registrant: FY 2007: $0 FY 2008: $0 Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2007: $0 FY 2008: $0 (e)(1) In accordance with paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X, before the accountant is engaged by the registrant to render audit or non-audit services, the engagement is approved by the registrant's audit committee. Pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, the registrant's audit committee also pre-approves its accountant's engagements for non-audit services with the registrant's investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant. (e)(2) All services described in each of paragraphs (b) through (d) of this Item were pre-approved before the engagement by the registrant's audit committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X. Consequently, none of such services were required to be approved by the audit committee pursuant to paragraph (c)(7)(i)(C). (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than 50%. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were as follows: FY 2007: $140,897* FY 2008: $ 90,000 * This amount has been restated as certain prior year services related to review of federal and state income tax forms and federal excise tax forms that were paid in advance were refunded as management changed service providers. (h) The registrant's investment adviser and accountant have notified the registrant's audit committee of all non-audit services that were rendered by the registrant's accountant to the registrant's investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides services to the registrant, which services were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The notification provided to the registrant's audit committee included sufficient details regarding such services to allow the registrant's audit committee to consider the continuing independence of its principal accountant. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. INVESTMENTS. (a) The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. (b) Not applicable. 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) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of June 16, 2008, the registrant's principal executive officer and principal financial officer concluded that such disclosure controls and procedures were effective. (b) As previously disclosed in the registrant's amended Form N-CSR filing for the six-month period ended November 30, 2007, and Form N-Q filing for the quarter ended February 29, 2008, in April 2008 management discovered a material weakness in internal controls relating to the pricing of a specific type of investment grade municipal security held by the High-Yield Municipal Fund and the Tax-Free Bond Fund. This weakness resulted in an overstatement of the funds' net asset values per share. Upon discovery of this issue, the registrant's principal executive officer and principal financial officer re-evaluated the existing disclosure controls and procedures and concluded that they were not fully effective. Accordingly, in April 2008, management made changes that materially affected, or were reasonably likely to materially affect, the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940). Specifically, management enhanced the effectiveness of its controls and procedures relating to pricing to address the issue discussed above. ITEM 12. EXHIBITS. (a)(1) Registrant's Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, was filed as Exhibit 12(a)(1) to American Century Asset Allocation Portfolios, Inc.'s Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005. (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: July 30, 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: July 30, 2008 By: /s/ Robert J. Leach ---------------------------------------- Name: Robert J. Leach Title: Vice President, Treasurer, and Chief Financial Officer (principal financial officer) Date: July 30, 2008