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 811-04025 ---------------------------------------------- AMERICAN CENTURY MUNICIPAL TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) CHARLES A. ETHERINGTON, 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 816-531-5575 ----------------------------- Date of fiscal year end: 05-31 -------------------------------------------------------- Date of reporting period: 11-30-2008 -------------------------------------------------------ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] SEMIANNUAL REPORT NOVEMBER 30, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS TAX-FREE MONEY MARKET FUND TAX-FREE BOND FUND PROSPECTUS SUPPLEMENT ENCLOSED PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended November 30, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. 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 Yields . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 4 Portfolio Composition by Credit Rating . . . . . . . . . .. . . 4 Portfolio Composition by Maturity. . . . . . . . . . . . .. . . 4 TAX-FREE BOND Performance . . . . . . . . . . . . . . . . . . . . . . . .. . . 5 Portfolio Commentary. . . . . . . . . . . . . . . . . . . .. . . 7 Yields . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 7 Portfolio Composition by Credit Rating . . . . . . . . . .. . . 8 Top Five States. . . . . . . . . . . . . . . . . . . . . .. . . 8 Shareholder Fee Examples. . . . . . . . . . . . . . . . . .. . . 9 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . .. . . 11 Statement of Assets and Liabilities . . . . . . . . . . . .. . . 32 Statement of Operations . . . . . . . . . . . . . . . . . .. . . 33 Statement of Changes in Net Assets. . . . . . . . . . . . .. . . 34 Notes to Financial Statements . . . . . . . . . . . . . . .. . . 35 Financial Highlights. . . . . . . . . . . . . . . . . . . .. . . 42 OTHER INFORMATION Approval of Management Agreements for Tax-Free Money Market and Tax-Free Bond. . . . . . . . . . . . . . . . . . . . .. . . 45 Additional Information. . . . . . . . . . . . . . . . . . .. . . 50 Index Definitions . . . . . . . . . . . . . . . . . . . . .. . . 51 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 MARKETS FACED MOUNTING CHALLENGES Widespread credit and liquidity problems, along with unprecedented failures and takeovers of several major financial institutions, plagued the financial markets during the six-month period. Despite massive U.S. government intervention in the financial system, credit remained scarce, and growth prospects dimmed. Economic activity dropped precipitously in November, as data released during the month suggested President-elect Obama's team will face a severe global recession. In particular, the housing market continued to deteriorate, the unemployment rate hit 6.7%, and consumer spending experienced its largest slide in 50 years. Inflation represented the lone bright spot, as slower global growth sent commodity prices and near-term inflationary pressures tumbling late in the period. Headline inflation, as measured by the month-to-month change in the Consumer Price Index, sank -1.0% in October and -1.7% in November, to end the period at an annual rate of 1.1%. After holding the federal funds target rate steady at 2.0% for five months, the Federal Reserve (the Fed) took aggressive action in October with two 50-basis-point rate cuts. The Fed also reiterated its "whatever it takes" philosophy to restore economic growth, suggesting it would cut rates even further, if necessary. MUNICIPAL MARKET ANOMALY LED TO VALUE This extraordinary backdrop perpetuated a flight-to-quality sentiment among investors. Treasuries significantly outperformed non-Treasury securities, as credit-related risk-aversion hurt lower-quality bonds and the traditionally-stoic municipal bond market. Extensive financial-sector deleveraging and forced selling among hedge funds led to a severe supply/demand imbalance and historically poor performance for municipal bonds relative to Treasuries. In fact, late in the six-month period, certain investment-grade municipal yields reached 140% of comparable Treasury yields. (The ratio historically has been approximately 90%.) A positive consequence of this historic underperformance is municipals are attractively valued relative to Treasuries. Yields on AAA-rated municipals exceed those on comparable Treasury bonds even before taking taxes into account. We believe municipal yields at 100% or more of Treasuries offer sufficient long-term appreciation potential to overcome near-term economic, financial, and credit risks. U.S. Fixed-Income Total Returns For the six months ended November 30, 2008* BARCLAYS CAPITAL MUNICIPAL MARKET INDICES Municipal Bond -4.98% 3-Year Municipal Bond 2.04% 5-Year General Obligation (GO) Bond 1.61% Long-Term Municipal Bond -14.77% Non-Investment-Grade Municipal Bond -18.56% TAXABLE MARKET RETURNS Barclays Capital U.S. Aggregate Index 0.24% Barclays Capital U.S. Treasury Index 8.46% 3-Month Treasury Bill 0.62% 10-Year Treasury Note 11.62% * Total returns for periods less than one year are not annualized. - ------ 2 PERFORMANCE Tax-Free Money Market Total Returns as of November 30, 2008 Average Annual Returns Since Inception 6 months(1) 1 year 5 years 10 years Inception Date INVESTOR CLASS 1.06% 2.36% 2.29% 2.28% 3.27% 7/31/84 AVERAGE RETURN OF LIPPER'S TAX-EXEMPT MONEY MARKET FUNDS(2) 0.84% 1.88% 1.99% 2.03% 3.13%(3) -- Fund's Lipper Ranking(2) as of 8 of 11/30/08 9 of 109 108 5 of 85 5 of 67 5 of 23 -- as of 7 of 12/31/08 10 of 108 108 5 of 84 5 of 66 5 of 23 -- (1) Total returns for periods less than one year are not annualized. (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 8/31/84, the date nearest the fund's inception for which data are available. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit ammericancentury.com. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The 7-day current yield more closely reflects the current earnings of the fund than the total return. - ------ 3 Tax-Free Money Market Yields as of November 30, 2008(1) 7-Day Current Yield 1.32% 7-Day Effective Yield 1.33% 7-Day Tax-Equivalent Current Yields(2) 25.00% Tax Bracket 1.76% 28.00% Tax Bracket 1.83% 33.00% Tax Bracket 1.97% 35.00% Tax Bracket 2.03% (1) Yields would have been lower if a portion of fees had not been waived. (2) The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. Portfolio Composition by Maturity % of fund % of fund investments investments as of as of 11/30/08 5/31/08 1-30 days 83% 93% 31-90 days -- 6% 91-180 days 3% -- More than 180 days 14% 1% Portfolio Composition by Credit Rating % of fund % of fund investments investments as of as of 11/30/08 5/31/08 A-1+ 89% 87% A-1 11% 13% Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit ammericancentury.com. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The 7-day current yield more closely reflects the current earnings of the fund than the total return. - ------ 4 PERFORMANCE Tax-Free Bond Total Returns as of November 30, 2008 Average Annual Returns 10 Since Inception 6 months(1) 1 year 5 years years Inception Date INVESTOR CLASS -2.69% -0.74% 2.45% 3.89% 5.07% 3/2/87 BARCLAYS CAPITAL MUNICIPAL 5-YEAR GO BOND INDEX(2) 1.61% 4.43% 3.36% 4.42% 5.46%(3) -- AVERAGE RETURN OF LIPPER'S INTERMEDIATE MUNICIPAL DEBT FUNDS(4) -3.70% -2.32% 1.82% 3.30% 5.15%(5) -- Investor Class Lipper Ranking(4) as of 47 of 24 of 11/30/08 -- 157 123 9 of 75 8 of 12 -- as of 62 of 27 of 12 of 12/31/08 -- 160 128 75 7 of 12 -- Institutional Class -2.59% -0.54% 2.65% -- 2.90% 4/15/03 (1) Total returns for periods less than one year are not annualized. (2) Formerly Lehman Brothers Municipal 5-Year GO Index. (3) Since 2/28/87, the date nearest the Investor Class's inception for which data are available. (4) 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. (5) 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. - ------ 5 Tax-Free Bond Growth of $10,000 Over 10 Years
$10,000 investment made November 30, 1998
One-Year Returns Over 10 Years Periods ended November 30 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class -0.24% 7.29% 8.25% 6.02% 5.72% 2.14% 2.90% 5.23% 2.81% -0.74% Barclays Capital Municipal 5-Year GO Bond Index 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% 1.52% 4.07% 4.44% 4.43% 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. - ------ 6 PORTFOLIO COMMENTARY Tax-Free Bond Portfolio Managers: Alan Kruss, Joseph Gotelli, and Steven Permut PERFORMANCE SUMMARY Tax-Free Bond returned -2.69%* for the six months ended November 30, 2008. By comparison, the Barclays Capital Municipal 5-Year General Obligation Bond Index returned 1.61%. The average return of the 157 intermediate municipal debt funds tracked by Lipper Inc. was -3.70% for the same period. The portfolio's average annual returns also exceeded those of its Lipper group average for the one-, five-, and 10-year periods ended in November (see page 5). The portfolio's negative results can be attributed to a period of unprecedented market turmoil, resulting in massive supply/demand imbalances (see the Market Perspective on page 2). The fund and Lipper group average underperformed the Barclays Index because short-term general obligation bonds, whose performance the index measures, were among the best-performing segments of the market. However, the portfolio held up better than its Lipper peer group average thanks largely to our duration and yield curve positioning, as well as some of our sector allocation decisions. TAKING PROFITS FROM CURVE TRADE The portfolio continued to benefit from the yield curve steepening bias we had in place using municipal bonds and two- and 30-year Treasury futures (the trade is based on the expectation that the yield difference between two- and 30-year Treasury notes would widen, which they have). The difference in yield between two- and 30-year AAA municipal general obligation notes increased from 237 to 313 basis points (a basis point equals 0.01%) for the six months, while the Treasury curve steepened from 207 to 245 basis points. Late in the reporting period, we took profits from this long-running trade--closing out our Treasury futures position--and repositioned the portfolio for a flatter, rather than steeper, yield curve. The poor economic backdrop, tumbling commodity prices, and worries about deflation all suggest that longer-term municipal bond yields have considerable room to fall in absolute terms and relative to short-term bond yields. POSITIVE CONTRIBUTORS: DURATION, SECTOR ALLOCATION It helped to maintain a slightly short duration. While the forced selling in the market occurred across the maturity spectrum, shorter-term notes and bonds tend to be less price sensitive than longer-term securities. As a result, having a shorter duration as bond yields rose reduced the impact on the fund's share price. Yields as of November 30, 2008 30-Day SEC Yield Investor Class 3.94% Institutional Class 4.14% Investor Class 30-Day Tax-Equivalent Yields(1) 25.00% Tax Bracket 5.25% 28.00% Tax Bracket 5.47% 33.00% Tax Bracket 5.88% 35.00% Tax Bracket 6.06% (1) The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. * All fund returns referenced in this commentary are for Investor Class shares. Total returns for periods less than one year are not annualized. - ------ 7 Tax-Free Bond For some time now we've been underweight in corporate-linked municipal bonds in general, and airline and tobacco bonds in particular. This positioning has been a key source of outperformance relative to the Lipper group over time, because these bonds have performed poorly. While avoiding these securities, we favored high-quality essential service revenue bonds in less economically sensitive segments of the economy, such as water and sewer bonds. We also added highly rated and well-structured health care and education bonds in our ongoing effort to increase the portfolio's credit quality. Importantly, we were able to add these bonds at very attractive spreads due to the negative technical factors prevailing in the municipal bond market. MANAGEMENT CHANGE In July, Portfolio Manager Joseph Gotelli joined American Century Investments, bringing six years of municipal bond investment experience. He joins Steven Permut, a senior portfolio manager and head of the municipal bond team, and Alan Kruss, a municipal bond portfolio manager, as portfolio managers on Tax-Free Bond. OUTLOOK "We're in a remarkable period, with municipal bonds trading at unprecedented levels relative to fully taxable investments as a result of technical, rather than fundamental, reasons," said Steven Permut. "As a result, we view this as a historic investment opportunity for investors with a time horizon greater than a few years and the ability to stomach the volatility we're seeing in the market. That said, it's impossible to know when we'll return to some semblance of normal, functioning markets, which we view as a prerequisite for a municipal market rally." Portfolio Composition by Credit Rating % of fund % of fund investments investments as of as of 11/30/08 5/31/08 AAA 43% 57% AA 31% 20% A 12% 12% BBB 13% 10% 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 November 30, 2008 % of net % of net assets as of assets as of 11/30/08 5/31/08 New York 10.7% 10.3% California 7.8% 11.8% Arizona 7.3% 6.8% Illinois 5.6% 4.8% Florida 5.6% 4.5% - ------ 8 SHAREHOLDER FEE EXAMPLES (UNAUDITED) Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from June 1, 2008 to November 30, 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. - ------ 9 Expenses Paid During Beginning Ending Period(1) Annualized Account Account Value 6/1/08 - Expense Value 6/1/08 11/30/08 11/30/08 Ratio(1) Tax-Free Money Market ACTUAL Investor Class (after waiver)(2) $1,000 $1,010.60 $2.47 0.49% Investor Class (before waiver) $1,000 $1,010.60(3) $2.62 0.52% HYPOTHETICAL Investor Class (after waiver)(2) $1,000 $1,022.61 $2.48 0.49% Investor Class (before waiver) $1,000 $1,022.46 $2.64 0.52% Tax-Free Bond ACTUAL Investor Class $1,000 $973.10 $2.42 0.49% Institutional Class $1,000 $974.10 $1.44 0.29% HYPOTHETICAL Investor Class $1,000 $1,022.61 $2.48 0.49% Institutional Class $1,000 $1,023.61 $1.47 0.29% (1) Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. (2) During the six months ended November 30, 2008, the class received a partial waiver of its management fees. (3) Ending account value assumes the return earned after waiver. The return would have been lower had fees not been waived and would have resulted in a lower ending account value. - ------ 10 SCHEDULE OF INVESTMENTS Tax-Free Money Market NOVEMBER 30, 2008 (UNAUDITED) Principal Amount Value Municipal Securities -- 100.5% ALABAMA -- 1.1% $ 800,000 Mobile Industrial Development Board Rev., (Holnam, Inc.), VRDN, 1.10%, 12/3/08 (LOC: Bayerische Landesbank) $ 800,000 2,700,000 Mobile Industrial Development Board Rev., Series 1999 A, (Holnam, Inc.), VRDN, 1.10%, 12/3/08 (LOC: Bayerische Landesbank) 2,700,000 ------------ 3,500,000 ------------ ARIZONA -- 5.3% 10,185,000 Greater Arizona Development Auth. Infrastructure Rev., Series 2007-2056, VRDN, 1.11%, 12/4/08 (BHAC-CR) (LIQ FAC: JPMorgan Chase Bank)(1) 10,185,000 6,750,000 Maricopa County Industrial Development Auth. Rev., (Michael Pylman Dairies), VRDN, 1.57%, 12/4/08 (LOC: LaSalle Bank N.A.) 6,750,000 ------------ 16,935,000 ------------ CALIFORNIA -- 6.3% 4,400,000 Alameda County Industrial Development Auth. Rev., (BAT Properties LLC), VRDN, 1.35%, 12/4/08 (LOC: Bank of the West) 4,400,000 10,000,000 California Anticipation Notes Rev., Series 2008 A, 5.50%, 5/20/09 10,079,713 883,364 California Economic Development Financing Auth. Rev., (Wesflex Pipe Manufacturing), VRDN, 1.50%, 12/4/08 (LOC: Wells Fargo Bank N.A.) 883,364 3,665,000 California Enterprise Development Auth. Rev., Series 2008 A, (Pocino Foods Co.), VRDN, 1.57%, 12/4/08 (LOC: City National Bank) 3,665,000 1,335,000 California Infrastructure & Economic Development Bank Rev., Series 2008 A, (iWorks, Inc.), VRDN, 1.60%, 12/4/08 (LOC: City National Bank) 1,335,000 ------------ 20,363,077 ------------ Principal Amount Value COLORADO -- 6.2% $ 2,745,000 Avon Industrial Development Rev., (Kroger Co.), VRDN, 1.11%, 12/4/08 (LOC: U.S. Bank N.A.) $ 2,745,000 5,250,000 Colorado Educational & Cultural Facilities Auth. Rev., (Capital Christian School), VRDN, 1.05%, 12/4/08 (LOC: Union Bank of California N.A.) 5,250,000 5,800,000 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 1.11%, 12/4/08 (LOC: U.S. Bank N.A.) 5,800,000 1,815,000 Fort Collins Economic Development Rev., Series 2001 A, (The Residence at Oakridge), VRDN, 1.30%, 12/4/08 (LOC: U.S. Bank N.A.) 1,815,000 1,500,000 Hotchkiss Industrial Development Rev., (Kroger Co.), VRDN, 1.11%, 12/4/08 (LOC: U.S. Bank N.A.) 1,500,000 2,900,000 Thornton Industrial Development Rev., (Kroger Co.), VRDN, 1.11%, 12/4/08 (LOC: U.S. Bank N.A.) 2,900,000 ------------ 20,010,000 ------------ FLORIDA -- 3.1% 3,600,000 Florida Municipal Power Agency Rev., Series 2008 C, VRDN, 0.90%, 12/1/08 (LOC: Bank of America N.A.) 3,600,000 500,000 Seminole County Industrial Development Health Facility Auth. Rev., (Florida Living Nursing), VRDN, 1.23%, 12/4/08 (LOC: Bank of America N.A.) 500,000 1,300,000 Tampa Rev., Series 2005 A2, VRDN, 1.00%, 12/4/08 (LOC: Royal Bank of Canada) 1,300,000 4,500,000 Volusia County Housing Finance Auth. Rev., Series 2007 B, (Cape Morris Apartments), VRDN, 1.30%, 12/3/08 (LOC: JPMorgan Chase Bank) 4,500,000 ------------ 9,900,000 ------------ GEORGIA -- 1.6% 5,000,000 Cobb County Hospital Auth. Rev., (Equipment Pool), VRDN, 1.18%, 12/4/08 (LOC: Suntrust Bank) 5,000,000 ------------ - ------ 11 Tax-Free Money Market Principal Amount Value HAWAII -- 0.8% $ 450,000 Hawaii Pacific Health Special Purpose Rev., Series 2004 B, (Department Budget & Finance), VRDN, 0.96%, 12/3/08 (LOC: Bank of Nova Scotia) $ 450,000 2,000,000 Hawaii Pacific Health Special Purpose Rev., Series 2004 B2, (Department Budget & Finance), VRDN, 0.96%, 12/3/08 (LOC: Bank of Nova Scotia) 2,000,000 ------------ 2,450,000 ------------ IDAHO -- 1.9% 6,000,000 Idaho Tax Anticipation Notes GO, 3.00%, 6/30/09 6,043,615 ------------ ILLINOIS -- 1.9% 1,860,000 Austin Trust Various States GO, Series 2008-3025X, VRDN, 1.53%, 12/4/08 (FSA) (LIQ FAC: Bank of America N.A.)(1) 1,860,000 1,985,000 Illinois Housing Development Auth. Multi-Family Housing Rev., (Rome Meadows), VRDN, 1.28%, 12/4/08 (LOC: FHLB) 1,985,000 2,270,000 Illinois Sales Tax Rev., 5.00%, 6/15/09 2,306,743 ------------ 6,151,743 ------------ INDIANA -- 0.9% 2,800,000 Jasper County Industrial Development Rev., (Newberry Farms LLC), VRDN, 1.57%, 12/4/08 (LOC: Bank of the West) 2,800,000 ------------ IOWA -- 3.1% 5,250,000 Buffalo Pollution Control Rev., Series 1991 B, (Lafarge Corp.), VRDN, 1.20%, 12/4/08 (LOC: BNP Paribas) 5,250,000 2,000,000 Iowa Finance Auth. Rev., Series 2001 A, (Cedarwood Hills), VRDN, 1.00%, 12/4/08 (LOC: Freddie Mac) 2,000,000 2,800,000 Orange City Industrial Development Rev., (Vogel Enterprises Ltd.), VRDN, 1.30%, 12/4/08 (LOC: U.S. Bank N.A.) 2,800,000 ------------ 10,050,000 ------------ KANSAS -- 0.3% 1,000,000 Hutchinson Industrial Development Rev., (Kroger Co.), VRDN, 1.13%, 12/4/08 (LOC: U.S. Bank N.A.) 1,000,000 ------------ Principal Amount Value KENTUCKY -- 1.6% $ 3,000,000 Kentucky Asset/Liability Commission Tax and Rev. Anticipation Notes, Series 2008 A, 3.00%, 6/25/09 $ 3,020,296 1,000,000 Murray Industrial Building Rev., (Kroger Co.), VRDN, 1.11%, 12/4/08 (LOC: U.S. Bank N.A.) 1,000,000 1,000,000 Winchester Industrial Building Rev., (Kroger Co.), VRDN, 1.11%, 12/4/08 (LOC: U.S. Bank N.A.) 1,000,000 ------------ 5,020,296 ------------ LOUISIANA -- 1.4% 4,500,000 Parish of St. James Pollution Control Facilities Refunding Rev.,(Occidental Petroleum Corp.), VRDN, 0.90%, 12/3/08 (LOC: Bayerische Landesbank) 4,500,000 ------------ MAINE -- 0.9% 2,800,000 Town of York Rev., (Stonewall Realty LLC). VRDN, 1.33%, 12/4/08 (LOC: Citizens Bank of Rhode Island) 2,800,000 ------------ MARYLAND -- 2.8% 9,050,000 Baltimore Industrial Development Auth. Rev., (Baltimore Capital Acquisition), VRDN, 0.95%, 12/3/08 (LOC: Bayerische Landesbank) 9,050,000 ------------ MICHIGAN -- 4.8% 3,405,000 City of Southfield Economic Development Corp. Rev., (Lawrence Technological University), VRDN, 0.90%, 12/3/08 (GO of University) (LOC: JPMorgan Chase Bank) 3,405,000 12,000,000 Michigan GO, Series 2008 A, 3.00%, 9/30/09 12,092,996 ------------ 15,497,996 ------------ MINNESOTA -- 3.8% 2,260,000 Minnesota Higher Education Facilities Auth. Rev., Series 2002-5 N2, VRDN, 0.76%, 12/4/08 2,260,000 3,570,000 Owatonna Housing Rev., Series 2003 A, (Second Century Housing), VRDN, 1.22%, 12/4/08 (LOC: FHLB) 3,570,000 - ------ 12 Tax-Free Money Market Principal Amount Value $ 6,500,000 City of St. Cloud Rev., Series 2008 C, (Centracare Health Systems), VRDN, 1.00%, 12/4/08 (AGC) (SBBPA: Royal Bank of Canada) $ 6,500,000 ------------ 12,330,000 ------------ MISSISSIPPI -- 0.6% 1,845,000 Mississippi Business Finance Corp. Rev., Series 2004 B, VRDN, 1.13%, 12/4/08 (LOC: Wells Fargo Bank N.A.) 1,845,000 ------------ MISSOURI -- 5.5% 6,700,000 Jackson County Industrial Development Auth. Rev., (Linda Hall Library), VRDN, 1.17%, 12/4/08 (LOC: Commerce Bank N.A.) 6,700,000 8,950,000 Missouri Health & Educational Facilities Auth. Rev., (Pembroke Hill School), VRDN, 1.17%, 12/4/08 (LOC: Commerce Bank N.A.) 8,950,000 2,110,000 Springfield Industrial Development Auth. Rev., (Macintosh Holdings LLC), VRDN, 1.33%, 12/4/08 (LOC: U.S. Bank N.A.) 2,110,000 ------------ 17,760,000 ------------ NEW YORK -- 4.3% 6,000,000 Babylon Industrial Development Agency Resource Recovery Rev., (Ogden Martin Systems of Babylon, Inc.), VRDN, 7.00%, 12/3/08 (FSA) (SBBPA: JPMorgan Chase Bank) 6,000,000 3,215,000 JP Morgan Chase PUTTERs/Drivers Trust Rev., Series 2008-3127, VRDN, 1.11%, 12/4/08 (SBBPA: JPMorgan Chase Bank) (BHAC-CR)(1) 3,215,000 3,210,000 Nassau County Interim Finance Auth. Rev., Series 2002 B, VRDN, 5.00%, 12/3/08 (FSA) (SBBPA: BNP Pribas) 3,210,000 1,395,000 New York City Industrial Development Agency Civic Facility Rev., (1998 Peninsula Hospital Center), VRDN, 2.90%, 12/4/08 (LOC: JPMorgan Chase Bank) 1,395,000 ------------ 13,820,000 ------------ Principal Amount Value NORTH CAROLINA -- 0.3% $ 900,000 Austin Trust Various States Rev., Series 2008-1133, VRDN, 1.53%, 12/4/08 (FSA) (LIQ FAC: Bank of America N.A.) $ 900,000 ------------ OREGON -- 3.5% 5,200,000 Oregon Facilities Auth. Rev., Series 2008 A, (Reed College), VRDN, 0.90%, 12/4/08 (SBBPA: Wells Fargo Bank N.A.) 5,200,000 6,000,000 Oregon GO, Series 2008 A, (Tax Anticipation Notes), 3.00%, 6/30/09 6,044,310 ------------ 11,244,310 ------------ PENNSYLVANIA -- 3.4% 6,000,000 Bermudian Springs School District GO, VRDN, 2.50%, 12/4/08 (FSA) (SBBPA: Royal Bank of Canada) 6,000,000 5,000,000 Union County Hospital Auth. Rev., (Evangelical Community Hospital), VRDN, 1.03%, 12/4/08 (RADIAN) (LOC: Bank of America N.A.) 5,000,000 ------------ 11,000,000 ------------ PUERTO RICO -- 1.3% 4,000,000 Puerto Rico Tax & Rev. Anticipation Notes Rev., Series 2008 A2, 3.00%, 7/30/09 (LOC: BNP Paribas) 4,035,421 ------------ RHODE ISLAND -- 1.5% 4,690,000 Rhode Island State & Providence Plantations GO, Series 2000 B, VRDN, 2.75%, 12/3/08 (SBBPA: Landesbank Hessen-Thuringen) 4,690,000 ------------ SOUTH CAROLINA -- 2.4% 7,660,000 South Carolina Jobs Economic Development Auth. Rev., (Greenville Technical College), VRDN, 1.00%, 12/4/08 (LOC: SunTrust Bank) 7,660,000 ------------ TENNESSEE -- 2.4% 7,880,000 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.11%, 12/4/08 (LOC: U.S. Bank N.A.) 7,880,000 ------------ TEXAS -- 20.3% 5,200,000 Austin Trust Various States GO, Series 2008-3323X, VRDN, 1.53%, 12/4/08 (FSA) (LIQ FAC: Bank of America N.A.) 5,200,000 - ------ 13 Tax-Free Money Market Principal Amount Value $14,400,000 Brazos Harbor Industrial Development Corp. Rev., (BASF Corp.), VRDN, 4.00%, 12/3/08 $ 14,400,000 10,000,000 Crawford Education Facilities Corp. Rev., Series 2004 A, (University Parking System A), VRDN, 1.40%, 12/4/08 (LOC: BNP Paribas) 10,000,000 3,000,000 Hale County Industrial Development Corp. Rev., (Struikmans), VRDN, 1.57%, 12/4/08 (LOC: Bank of the West) 3,000,000 1,100,000 Harris County Health Facilities Development Corp. Rev., Series 2005 A2, (Methodist Hospital), VRDN, 0.90%, 12/1/08 (FSA) 1,100,000 5,600,000 Harris County Health Facilities Development Corp. Rev., VRDN, 0.90%, 12/1/08 (FSA) 5,600,000 3,560,000 Hunt Memorial Hospital District Rev., 5.25%, 12/4/08 (FSA) 3,560,000 5,090,000 Muleshoe Economic Development Corp. Rev., (John Lyle & Grace Ajean), VRDN, 1.52%, 12/4/08 (LOC: Wells Fargo Bank N.A.) 5,090,000 4,000,000 Port of Corpus Christi Auth. of Nueces County Solid Waste Disposal Rev., (Flint Hills Resources, LP), VRDN, 1.40%, 12/3/08 4,000,000 4,500,000 Port of Corpus Christi Auth. of Nueces County Solid Waste Disposal Rev., (Flint Hills Resources, LP), VRDN, 1.40%, 12/3/08 4,500,000 9,000,000 Texas Tax & Rev. Anticipation Notes, 3.00%, 8/28/09 9,058,435 ------------ 65,508,435 ------------ UTAH -- 0.9% 3,000,000 Emery County Pollution Control Rev., 1.05%, 12/3/08 (LOC: Wells Fargo) 3,000,000 ------------ Principal Amount Value VIRGINIA -- 1.5% $ 4,900,000 Alexandria Industrial Development Auth. Rev., Series 2000 B, (Institute for Defense Analyses), VRDN, 1.03%, 12/4/08 (LOC: Branch Banking & Trust) $ 4,900,000 ------------ WASHINGTON -- 3.0% 1,500,000 King County School District No. 414 GO, 4.00%, 12/1/09 (School Bond Guarantee)(2) 1,532,910 2,500,000 Snohomish County GO, (Marysville School District No. 25), 4.00%, 12/1/08 (FSA/School Bond Guarantee) 2,500,000 1,650,000 Metropolitan Park District of Tacoma GO, 3.50%, 12/1/09(2) 1,675,443 3,990,000 Washington Economic Development Finance Auth. Rev., Series 2007 E, (Mesa Dairy LLC.), VRDN, 1.57%, 12/4/08 (LOC: Wells Fargo Bank N.A.)(3) 3,990,000 ------------ 9,698,353 ------------ WEST VIRGINIA -- 1.2% 4,000,000 West Virginia Economic Development Auth. Rev., (Collins Hardwood Co.), VRDN, 1.57%, 12/4/08 (LOC: Bank of America N.A.) 4,000,000 ------------ WYOMING -- 0.6% 2,000,000 Sweetwater County Rev., (Simplot Phosphates LLC), VRDN, 1.25%, 12/3/08 (LOC: Rabobank Nederland) 2,000,000 ------------ TOTAL INVESTMENT SECURITIES -- 100.5% 323,343,246 ------------ OTHER ASSETS AND LIABILITIES -- (0.5)% (1,468,472) ------------ TOTAL NET ASSETS -- 100.0% $321,874,774 ============ - ------ 14 Tax-Free Money Market Notes to Schedule of Investments AGC = Assured Guaranty Corporation Ambac = Ambac Assurance Corporation BHAC-CR = Berkshire Hathaway Assurance Corporation -- Custodial Receipts FHLB = Federal Home Loan Bank FSA = Financial Security Assurance, Inc. GO = General Obligation LIQ FAC = Liquidity Facilities LOC = Letter of Credit MBIA = MBIA Insurance Corporation PUTTERs = Puttable Tax-Exempt Receipts RADIAN = Radian Asset Assurance, Inc. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 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 these securities at November 30, 2008 was $15,260,000, which represented 4.7% of total net assets. (2) When-issued security. (3) Security, or a portion thereof, has been segregated for when-issued securities. At the period end, the aggregate value of securities pledged was $3,208,400. See Notes to Financial Statements. - ------ 15 Tax-Free Bond NOVEMBER 30, 2008 (UNAUDITED) Principal Amount Value Municipal Securities -- 99.4% ALABAMA -- 0.5% $ 765,000 Alabama Water Pollution Control Auth., 5.75%, 8/15/18 (Ambac)(1) $793,206 810,000 East Central Industrial Development Auth. Rev., 5.25%, 9/1/13, Prerefunded at 100% of Par (Ambac)(1)(2) 811,434 645,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1)(2) 720,033 790,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1)(2) 881,901 840,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1)(2) 937,717 1,035,000 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1)(2) 1,155,401 -------------- 5,299,692 -------------- ALASKA -- 0.1% 2,125,000 Aleutians East Borough Project Rev., (Aleutian Pribilof Islands, Inc.), 5.00%, 6/1/20 (ACA)(1) 1,214,268 -------------- ARIZONA -- 7.3% 1,275,000 Arizona Health Facilities Auth. Rev., (Blood Systems, Inc.), 4.00%, 4/1/12(1) 1,246,478 1,000,000 Arizona Health Facilities Auth. Rev., (Blood Systems, Inc.), 5.00%, 4/1/21(1) 901,470 7,500,000 Arizona Health Facilities Auth. Rev., Series 2007 B, (Banner Health), VRDN, 3.41%, 1/2/09(1) 3,562,500 3,000,000 Arizona Health Facilities Auth. Rev., Series 2008 D, (Banner Health), 5.00%, 1/1/15(1) 3,005,310 1,750,000 Arizona School Facilities Board Rev., (State School Improvement), 5.50%, 7/1/11, Prerefunded at 100% of Par(1)(2) 1,902,285 1,935,000 Arizona State University COP, Series 2006 A, (University of Arizona), 5.00%, 6/1/18 (Ambac)(1) 2,016,967 1,000,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/11(1) 999,590 Principal Amount Value $1,000,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/12(1) $985,930 1,880,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/13(1) 1,838,132 2,000,000 Arizona Tourism & Sports Auth. Rev., Series 2003 A, (Multipurpose Stadium Facility), 5.25%, 7/1/17 (MBIA)(1) 2,102,560 1,910,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/11 (MBIA)(1) 2,004,259 2,130,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/12 (MBIA)(1) 2,251,367 500,000 Glendale Industrial Development Auth. Rev., Series 2001 A, (Midwestern University), 5.75%, 5/15/11, Prerefunded at 101% of Par(1)(2) 545,180 1,155,000 Maricopa County Gilbert Unified School District No. 41 GO, 5.75%, 7/1/11 (FSA)(1) 1,248,901 1,445,000 Maricopa County Phoenix Union High School District No. 210 GO, 4.75%, 7/1/11 (FSA)(1) 1,529,056 1,955,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.00%, 7/1/10(1) 1,997,365 2,415,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/11(1) 2,492,425 2,000,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/12(1) 2,054,820 1,000,000 Maricopa County Scottsdale Unified School District No. 48 GO, 6.60%, 7/1/12(1) 1,128,590 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) 2,267,691 1,265,000 Mohave County Community College District Rev., 5.75%, 3/1/14 (Ambac)(1) 1,302,431 - ------ 16 Tax-Free Bond Principal Amount Value $5,000,000 Mohave County Industrial Development Auth. Correctional Facilities Contract Rev., (Mohave Prison, LLC Expansion), 8.00%, 5/1/25(1) $ 4,823,850 2,155,000 Mohave County Industrial Development Auth. Rev., Series 2004 A, (Mohave Prison), 5.00%, 4/1/14 (XLCA)(1)(2) 2,373,452 1,815,000 Navajo County Unified School District No. 20 Rev., Series 2006 A, 5.00%, 7/1/17 (MBIA)(1) 1,880,957 1,750,000 Phoenix Arizona Civic Import Corp. Wastewater System Rev., 5.50%, 7/1/24(1) 1,809,202 1,000,000 Phoenix Civic Improvement Corp. Waste System Rev., (Junior Lien), 6.25%, 7/1/10, Prerefunded at 101% of Par (FGIC)(1)(2) 1,079,960 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.50%, 7/1/19 (FGIC)(1) 1,035,030 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., Series 2008 A, (Senior Lien), 5.00%, 7/1/38(1) 877,220 1,070,000 Phoenix GO, Series 1995 A, 6.25%, 7/1/17(1) 1,252,028 1,750,000 Phoenix Industrial Development Auth. Government Office Lease Rev., (Capitol Mall LLC), 5.00%, 9/15/26 (Ambac)(1) 1,621,358 1,200,000 Pima County Indian Oasis-Baboquivari Rev. Unified School District No. 40, Series 2002 A, 4.60%, 7/1/13 (MBIA)(1) 1,238,220 1,710,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/18 (Ambac)(1) 1,744,781 1,800,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/19 (Ambac)(1) 1,811,538 2,600,000 Pima County Tucson Unified School District No. 1 GO, 4.625%, 7/1/13 (FSA)(1) 2,745,496 1,125,000 Pima County Unified School District No. 6 Marana GO, 5.50%, 7/1/15 (FGIC)(1) 1,169,201 Principal Amount Value $ 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)(2) $861,994 820,000 Pinal County COP, 4.75%, 6/1/13 (Ambac)(1) 839,352 3,970,000 Pinal County COP, 5.00%, 12/1/25(1) 3,567,998 750,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/11(1) 751,958 1,000,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/16(1) 930,560 1,600,000 Scottsdale GO, 6.25%, 7/1/09, Prerefunded at 100% of Par(1)(2) 1,649,360 1,000,000 Sedona COP, 5.75%, 7/1/09, Prerefunded at 101% of Par(1)(2) 1,037,670 3,085,000 South Tucson Municipal Property Corp. Rev., 5.50%, 6/1/24, Prerefunded at 100% of Par(1)(2) 3,037,584 1,505,000 University of Arizona COP, 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(1)(2) 1,658,465 -------------- 77,180,541 -------------- CALIFORNIA -- 7.8% 3,445,000 ABAG Tax Allocation Rev., Series 2007 A, 5.00%, 9/1/33 (Ambac)(1) 3,076,592 2,450,000 California Department of Water Resources Power Supply Rev., Series 2005 G4, 5.00%, 5/1/16(1) 2,548,000 10,000,000 California Department of Water Resources Power Supply Rev., Series 2008 H, 5.00%, 5/1/21(1) 9,806,600 3,000,000 California Department of Water Resources Rev., Series 2008 AE, (Central Valley Water System), 5.00%, 12/1/22(1) 3,027,570 2,300,000 California Health Facilities Financing Auth. Rev., Series 2008 A3, (Stanford Hospital), VRDN, 3.45%, 5/15/09(1) 2,319,458 2,125,000 California Health Facilities Financing Auth. Rev., Series 2008 C, (Providence Health & Services), 6.50%, 10/1/38(1) 2,126,296 5,725,000 California Health Facilities Financing Auth. Rev., Series 2008 I, (Catholic Healthcare West), 5.125%, 7/1/22(1) 5,561,036 - ------ 17 Tax-Free Bond Principal Amount Value $2,000,000 California Statewide Communities Development Auth. Rev., Series 2001 B, (Kaiser Permanente), 3.90%, 8/1/31(1) $ 1,898,620 1,000,000 California Statewide Communities Development Auth. Rev., Series 2002 E, (Kaiser Permanente), 4.70%, 6/1/09(1) 1,015,190 230,000 California Statewide Communities Development Auth. Water & Waste Rev., (Pooled Financing Program), 5.00%, 10/1/12 (FSA)(1)(2) 254,086 845,000 California Statewide Communities Development Auth. Water & Waste Rev., (Pooled Financing Program), 5.00%, 10/1/12 (FSA)(1)(2) 903,643 430,000 California Statewide Communities Development Auth. Water & Waste Rev., (Pooled Financing Program), 5.25%, 10/1/13, Prerefunded at 101% of Par (FSA)(1)(2) 491,322 1,570,000 California Statewide Communities Development Auth. Water & Waste Rev., (Pooled Financing Program), 5.25%, 10/1/19 (FSA)(1) 1,607,931 6,850,000 City of Vista COP, (Community Projects), 5.00%, 5/1/37 (MBIA)(1) 5,289,844 3,510,000 Foothill-De Anza Community College District GO, Series 2007 B, (Election of 2006), 5.00%, 8/1/17 (Ambac)(1) 3,797,855 1,925,000 Foothill-De Anza Community College District GO, Series 2007 B, (Election of 2006), 5.00%, 8/1/27 (Ambac)(1) 1,859,126 5,000,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2007 A1, 5.75%, 6/1/47(1) 3,152,400 1,070,000 Hesperia Unified School District COP, (2007 Capital Improvement), 5.00%, 2/1/17 (Ambac)(1) 1,025,820 3,000,000 Imperial Irrigation District COP, (Water System), 5.50%, 7/1/29 (Ambac)(1) 2,931,210 2,250,000 Los Angeles Community College District GO, Series 2008 E-1, 5.00%, 8/1/20(1) 2,302,020 Principal Amount Value $2,200,000 Manteca Unified School District GO, 5.25%, 8/1/14, Prerefunded at 100% of Par (FSA)(1)(2) $ 2,512,158 2,500,000 Northern California Power Agency CA Rev., Series 2008 C, (Hydroelectric Project Number One), 5.00%, 7/1/20 (AGC)(1) 2,538,925 5,000,000 Northern California Power Agency CA Rev., Series 2008 C, (Hydroelectric Project Number One), 5.00%, 7/1/21 (AGC)(1) 5,016,800 2,300,000 Northern California Power Agency Rev., Series 2008 C, (Hydroelectric Project Number One), 5.00%, 7/1/19 (AGC)(1) 2,376,015 1,000,000 Plumas Unified School District GO, 5.25%, 8/1/20 (FSA)(1) 1,061,960 4,140,000 San Francisco City & County Airports Commission Rev., Series 2008-34F, 5.00%, 5/1/17 (AGC/FSA)(1) 4,318,186 2,145,000 San Francisco Uptown Parking Corp. Rev., (Union Square), 5.50%, 7/1/15 (MBIA)(1) 2,285,948 1,000,000 San Francisco Uptown Parking Corp. Rev., (Union Square), 6.00%, 7/1/20 (MBIA)(1) 1,070,600 2,000,000 San Francisco Uptown Parking Corp. Rev., (Union Square), 6.00%, 7/1/31 (MBIA)(1) 2,019,800 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) 1,397,954 2,875,000 Southern California Public Power Auth. Rev., Series 2008 A, (Southern Transmission), 5.00%, 7/1/22(1) 2,813,849 -------------- 82,406,814 -------------- COLORADO -- 2.0% 1,100,000 Arapahoe County Water & Wastewater Public Improvement District GO, Series 2002 B, 5.75%, 12/1/17 (MBIA)(1) 1,190,783 40,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University Facilities), 4.60%, 11/1/10, Prerefunded at 102% of Par(1)(2) 42,740 - ------ 18 Tax-Free Bond Principal Amount Value $ 170,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University Facilities), 4.75%, 11/1/10(1)(2) $178,852 730,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University Facilities), 4.75%, 11/1/10(1) 731,847 760,000 Colorado Educational & Cultural Facilities Auth. Rev., (Northwest Nazarene University Facilities), 4.60%, 11/1/16(1) 670,548 1,280,000 Colorado Health Facilities Auth. Rev., (Yampa Valley Medical Center), 5.00%, 9/15/11(1) 1,260,710 1,500,000 Colorado Health Facilities Auth. Rev., (Catholic Health Initiatives), 6.00%, 10/1/23(1) 1,490,400 1,000,000 Colorado Health Facilities Auth. Rev., Series 2006 B, (Longmont United Hospital), 5.00%, 12/1/20 (RADIAN)(1) 849,110 450,000 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/10, Prerefunded at 100% of Par(1)(2) 485,046 50,000 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/16(1) 53,108 1,350,000 Compark Business Campus Metropolitan District GO, Series 2007 A, 5.30%, 12/1/22 (RADIAN)(1) 1,196,235 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/Stated Aid Withholding)(1)(2) 1,125,740 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) 988,074 1,250,000 Interlocken Consolidated Metropolitan District GO, Series 1999 B, 5.625%, 12/15/16 (RADIAN)(1) 1,212,100 1,250,000 Midcities Metropolitan District No. 2 GO, 5.125%, 12/1/30 (RADIAN)(1) 909,663 Principal Amount Value $1,450,000 SBC Metropolitan District GO, 5.00%, 12/1/20 (ACA)(1) $ 1,356,011 5,000,000 University of Colorado Regents COP, 6.00%, 12/1/22 (MBIA-IBC)(1) 5,167,600 1,000,000 Vista Ridge Metropolitan District GO, Series 2006 A, 5.00%, 12/1/21 (RADIAN)(1) 795,640 1,250,000 Vista Ridge Metropolitan District GO, Series 2006 A, 5.00%, 12/1/26 (RADIAN)(1) 917,775 -------------- 20,621,982 -------------- CONNECTICUT -- 2.1% 2,150,000 Bridgeport GO, Series 2004 A, 5.25%, 8/15/14, Prerefunded at 100% of Par (MBIA)(1)(2) 2,415,396 4,000,000 Connecticut GO, Series 2001 C, 5.50%, 12/15/13 (MBIA-IBC)(1) 4,466,080 5,000,000 Connecticut GO, Series 2006 C, 5.00%, 6/1/14(1) 5,469,700 1,595,000 Connecticut GO, Series 2006 D, 5.00%, 11/1/15(1) 1,752,889 4,500,000 Connecticut Health & Educational Facility Auth. Rev., Series 2003 X-3, (Yale University), 4.85%, 7/1/37(1) 4,178,385 1,000,000 Connecticut Health & Educational Facility Auth. Rev., Series 2007 C, (Hospital for Special Care Issue), 5.25%, 7/1/27 (RADIAN)(1) 734,210 2,660,000 Connecticut Health & Educational Facility Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/16 (MBIA)(1) 2,745,492 -------------- 21,762,152 -------------- DISTRICT OF COLUMBIA -- 0.5% 1,385,000 District of Columbia GO, Series 1999 B, 5.50%, 6/1/09 (FSA)(1) 1,413,850 1,155,000 District of Columbia Rev., (Gonzaga College High School), 5.20%, 7/1/12 (FSA)(1) 1,184,210 2,425,000 District of Columbia Water & Sewer Auth. Public Utilities Rev., Series 2008 A, 5.00%, 10/1/34 (AGC)(1) 2,163,100 -------------- 4,761,160 -------------- - ------ 19 Tax-Free Bond Principal Amount Value FLORIDA -- 5.6% $ 400,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.00%, 4/1/14(1) $384,032 500,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/15(1) 485,395 525,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/16(1) 502,346 2,500,000 Citizens Property Insurance Corp. Rev., Series 2008 A-1, (GO of Corp.), 5.00%, 6/1/11(1) 2,537,725 2,500,000 Citizens Property Insurance Corp. Rev., Series 2008 A-2, (GO of Corp.), 4.50%, 6/1/09(1) 2,515,275 1,475,000 Collier County School Board COP, 5.50%, 2/15/12 (FSA)(1) 1,571,937 1,150,000 Duval County COP, 5.75%, 7/1/16 (FSA)(1) 1,178,738 1,000,000 Florida Higher Educational Facilities Financial Auth. Rev., VRDN, 1.00%, 12/1/08(1) 1,000,000 10,000,000 Florida Hurricane Catastrophe Fund Financial Corp. Rev., Series 2008 A, 5.00%, 7/1/13(1) 10,400,400 1,000,000 Florida Municipal Loan Council GO, Series 2002 C, 5.25%, 11/1/21 (MBIA)(1) 967,350 850,000 Florida Municipal Power Agency Rev., VRDN, 0.90%, 12/1/08(1) 850,000 4,500,000 Florida Rural Utility Financing Commission Rev., Series 2008 A, (Public Project Construction), 3.25%, 2/1/11(1) 4,499,955 2,000,000 Halifax Hospital Medical Center Rev., 5.375%, 6/1/31 (FSA)(1) 1,740,120 1,000,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/16(1) 903,850 950,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/18(1) 827,878 1,000,000 Halifax Hospital Medical Center Rev., Series 2006 B1, 5.50%, 6/1/38 (FSA)(1) 862,460 1,235,000 Indian River County Rev., (Spring Training Facility), 5.25%, 4/1/15 (FGIC)(1) 1,285,586 Principal Amount Value $2,230,000 Jacksonville Health Facilities Auth. Rev., VRDN, 0.90%, 12/1/08 (FSA)(1) $ 2,230,000 2,870,000 JEA St. Johns River Power Park System Rev., Series 2, Issue 3, 5.00%, 10/1/37(1) 2,550,024 850,000 Lee County Industrial Development Auth. Healthcare Facilities Rev., Series 1999 A, (Shell Point Village), 5.50%, 11/15/09(1)(2) 884,459 1,000,000 Miami Beach Stormwater Rev., 5.75%, 9/1/17 (FGIC)(1) 1,044,650 1,910,000 Miami Beach Water & Sewer Rev., 5.625%, 9/1/16 (Ambac)(1) 2,007,314 650,000 Miami Parking Facilities Rev., 5.25%, 10/1/15 (MBIA)(1) 678,782 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/11, Prerefunded at 100% of Par (FSA)(1)(2) 1,091,690 4,650,000 Miami-Dade County School Board COP, Series 2007 D, (Miami International Airport), 5.25%, 10/1/26 (FSA)(1) 4,482,740 800,000 Orange County Industrial Development Auth. Rev., Series 2007, (Catholic Charities), VRDN, 1.00%, 12/1/08 (LOC: Suntrust Bank)(1) 800,000 1,875,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/12, Prerefunded at 100% of Par (MBIA)(1)(2) 2,074,181 450,000 Orlando & Orange County Expressway Auth. Rev., (Junior Lien), 6.50%, 7/1/11 (FGIC)(1) 488,623 1,000,000 Orlando Utilities Commission Water & Electric Rev., Series 1989 D, 6.75%, 10/1/17(1) 1,159,240 1,500,000 Putnam County Development Auth. Pollution Control Rev., Series 2007 B, (Seminole Electric Cooperative, Inc.), 5.35%, 5/1/18 (Ambac)(1) 1,423,170 1,000,000 Sumter County School Board COP, 5.50%, 7/1/12, Prerefunded at 100% of Par (MBIA)(1)(2) 1,104,490 1,000,000 Sunrise Utility System Rev., 5.20%, 10/1/22 (Ambac)(1) 946,090 1,890,000 Tampa Bay Water Utility System Rev. , 5.00%, 10/1/38(1) 1,716,177 - ------ 20 Tax-Free Bond Principal Amount Value $ 400,000 Tampa Guaranteed Entitlement Rev., 6.00%, 10/1/18 (Ambac)(1) $454,040 1,000,000 Tampa Water & Sewer Rev., 6.00%, 10/1/17 (FSA)(1) 1,131,740 -------------- 58,780,457 -------------- GEORGIA -- 1.8% 1,200,000 Athens-Clarke County Unified Government Water & Sewer Rev., 5.625%, 1/1/28(1) 1,197,840 3,210,000 Burke County Development Auth. Pollution Control Rev., Series 2007 B, (Oglethorpe Power Corp. Vogtle), 4.75%, 1/1/11 (MBIA)(1) 3,212,279 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) 1,289,413 4,800,000 Georgia Municipal Electric Auth. Rev., Series 2008 D, (General Resolution), 5.50%, 1/1/26 (Project one)(1) 4,564,992 5,000,000 Georgia Municipal Electric Auth. Rev., Series 2008 A, 5.25%, 1/1/17 (Project one)(1) 5,142,400 560,000 Georgia Municipal Electric Power Auth. Rev., 6.50%, 1/1/12 (MBIA-IBC)(1) 589,663 130,000 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/09 (MBIA-IBC/GO of Participants)(1) 130,567 15,000 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC)(1) 15,881 110,000 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC)(1) 119,670 2,000,000 LaGrange Water & Sewerage Revenue Rev., 5.00%, 1/1/12 (Ambac)(1) 2,090,700 1,130,000 Marietta Development Auth. Rev., (Life University, Inc.), 6.25%, 6/15/20(1) 963,325 -------------- 19,316,730 -------------- HAWAII -- 0.1% 500,000 Maui County GO, Series 2000 A, 6.50%, 3/1/10, Prerefunded at 101% of Par (FGIC)(1)(2) 534,715 -------------- IDAHO -- 0.1% 1,000,000 Blaine County Hailey School District No. 61 GO, 5.00%, 7/30/10 (Ambac/School Bond Guarantee)(1) 1,049,640 -------------- Principal Amount Value ILLINOIS -- 5.6% $6,600,000 Austin Trust Various States GO, Series 2008-3025X, VRDN, 1.53%, 12/1/08 (FSA) (LIQ FAC: Bank of America N.A.)(1) $ 6,600,000 5,000,000 Chicago Board of Education GO, Series 2008 C, 5.25%, 12/1/23(1) 5,042,600 4,000,000 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 5.00%, 1/1/12 (MBIA-IBC)(1) 4,186,200 2,950,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/12 (FSA)(1) 3,093,518 3,400,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/13 (FSA)(1) 3,575,508 4,000,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/14 (FSA)(1) 4,210,720 600,000 Chicago O'Hare International Airport Rev., Series 2008 C, 4.00%, 1/1/17 (FSA)(1) 579,030 1,015,000 City of Chicago Rev., Series 2006 A, 5.00%, 11/1/13 (Ambac)(1) 1,081,076 4,915,000 Cook County Township High School District No. 211 GO, (Palantine & Schaumburg Townships), 5.00%, 12/1/10 (FSA)(1) 5,176,281 2,000,000 Illinois Dedicated Tax Rev., (Civic Center), 6.25%, 12/15/20 (Ambac)(1) 2,232,400 655,000 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.125%, 5/15/10(1) 672,934 400,000 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwetern University), 5.75%, 5/15/11, Prerefunded at 101% of Par(1)(2) 434,636 1,775,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/09(1) 1,774,077 2,785,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/11(1) 2,706,742 5,000,000 Illinois Financial Auth. Rev., (Advocate Health Care Network), 6.25%, 11/1/28(1) 4,858,400 - ------ 21 Tax-Free Bond Principal Amount Value $ 940,000 Illinois Health Facilities Auth. Rev., Series 1992 C, (Evangelical Hospital), 6.75%, 4/15/12(1)(2) $ 1,005,462 930,000 Kane County Community Unit School District No. 304 GO, 6.20%, 1/1/24 (FSA)(1) 968,130 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)(2) 1,149,450 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)(2) 1,271,614 75,000 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/18 (MBIA)(1) 79,846 1,000,000 Regional Transportation Auth. Rev., Series 1990 A, 7.20%, 11/1/20 (Ambac)(1) 1,169,900 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) 1,033,630 1,000,000 Southwestern Illinois Development Auth. Rev., (Triad School District No. 2), 5.00%, 10/1/18 (MBIA/GO of District)(1) 999,550 1,250,000 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/20 (XLCA)(1) 1,036,900 1,000,000 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/21 (XLCA)(1) 813,110 1,000,000 University of Illinois COP, Series 2006 A, (Academic Facilities), 5.00%, 3/15/16 (Ambac)(1) 1,071,840 2,000,000 Village of Bedford Park GO, Series 2004 A, 5.25%, 12/15/20 (FSA)(1) 2,058,320 -------------- 58,881,874 -------------- INDIANA -- 1.8% 1,000,000 Hamilton Southeastern Consolidated School Building Corp. Rev., (Hamilton County), 4.25%, 7/15/20 (FSA/Stated Aid Withholding)(1) 934,490 1,520,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/17 (FSA)(1) 1,609,011 Principal Amount Value $1,600,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/18 (FSA)(1) $ 1,669,584 1,680,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/19 (FSA)(1) 1,728,182 5,000,000 Indiana Finance Auth. Lease Rev., Series 2008 A1, 5.00%, 11/1/16(1) 5,233,150 220,000 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15, Prerefunded at 100% of Par(1)(2) 237,112 780,000 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15(1) 876,658 1,435,000 Indianapolis Local Public Improvement Bond Bank Rev., Series 2002 A, 5.00%, 7/1/12 (MBIA)(1) 1,534,015 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)(2) 1,638,150 1,650,000 Valparaiso Middle Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (FGIC)(1)(2) 1,801,965 1,000,000 Zionsville Community Schools Building Corp. Rev., (First Mortgage), 5.75%, 1/15/12, Prerefunded at 100% of Par (FGIC/State Aid Wiithholding)(1)(2) 1,102,200 -------------- 18,364,517 -------------- IOWA -- 0.4% 1,485,000 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/13 (CIFG)(1) 1,380,203 1,950,000 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/14 (CIFG)(1) 1,783,626 1,690,000 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/16 (CIFG)(1) 1,501,075 -------------- 4,664,904 -------------- KANSAS -- 0.2% 1,280,000 Wichita Hospital Facilities Rev., Series 2001 III, 5.25%, 11/15/13(1) 1,286,784 - ------ 22 Tax-Free Bond Principal Amount Value $1,195,000 Wichita Hospital Facilities Rev., Series 2001 III, 5.50%, 11/15/16(1) $ 1,191,009 -------------- 2,477,793 -------------- LOUISIANA -- 0.3% 1,105,000 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 4.00%, 7/1/13(1) 1,068,038 1,205,000 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 5.00%, 7/1/15(1) 1,193,950 1,465,000 Louisiana Public Facilities Auth. Rev., Series 2007 A, (Black & Gold Facilities), 5.00%, 7/1/22(1) 1,276,352 -------------- 3,538,340 -------------- MARYLAND -- 2.8% 10,000,000 Maryland GO, First, Series 2005 A, (State and Local Facilities Loan), 5.25%, 2/15/15(1) 11,119,600 10,000,000 Maryland GO, Second, Series 2005 A, (State and Local Facilities Loan), 5.00%, 8/1/11(1) 10,689,000 445,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Lifebridge Health Issue), 4.75%, 7/1/09(1) 448,800 130,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Lifebridge Health Issue), 4.75%, 7/1/10(1) 131,715 575,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Lifebridge Health Issue), 5.00%, 7/1/12(1) 579,387 1,840,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Lifebridge Health Issue), 5.00%, 7/1/13(1) 1,849,274 2,000,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Lifebridge Health Issue), 5.00%, 7/1/34 (AGC)(1) 1,815,060 1,645,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Johns Hopkins University), 5.25%, 7/1/38(1) 1,620,605 1,000,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Johns Hopkins University), 3.65%, 5/15/42(1) 999,790 -------------- 29,253,231 -------------- Principal Amount Value MASSACHUSETTS -- 2.7% $10,000,000 Commonwealth of Massachusetts GO, Series 2002 C, (Consolidated Loan of 2002), 5.50%, 11/1/12 (FSA)(1) $10,950,000 3,300,000 Massachusetts Bay Transportation Auth. Rev., Series 2008 A, 5.25%, 7/1/34(1) 3,227,136 1,760,000 Massachusetts Development Finance Agency Rev., Series 2007 C, 5.00%, 10/1/17(1) 1,763,872 2,500,000 Massachusetts GO, Series 2006 D, 5.00%, 8/1/14(1) 2,722,525 5,000,000 Massachusetts Health & Educational Facilities Auth. Rev., (Boston Medical Center), 5.25%, 7/1/38(1) 3,389,850 630,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 1992 F, 6.25%, 7/1/12 (Ambac)(1) 668,518 5,000,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 2008 A, 5.00%, 7/1/14(1) 5,494,900 -------------- 28,216,801 -------------- MICHIGAN -- 3.2% 3,500,000 Detroit GO, Series 2004 A1, 5.25%, 4/1/23 (Ambac)(1) 3,233,755 1,485,000 Grand Valley State University Rev., 5.75%, 12/1/10, Prerefunded at 100% of Par (FGIC)(1)(2) 1,598,603 1,265,000 Kalamazoo Public Schools GO, 4.00%, 5/1/13 (FSA)(1) 1,310,654 1,545,000 Kalamazoo Public Schools GO, 5.25%, 5/1/16 (FSA)(1) 1,685,255 5,000,000 Michigan Building Auth. Rev., Series 2003 I, (Facilities Program), 5.25%, 10/15/11 (FSA)(1) 5,287,950 2,345,000 Michigan Higher Education Facilities Auth. Rev., (Limited Obligation - Hillsdale College), 5.00%, 3/1/26(1) 2,054,783 1,070,000 Pontiac City School District GO, 5.00%, 5/1/13 (XLCA)(1) 1,106,872 1,110,000 Pontiac City School District GO, 5.00%, 5/1/14 (XLCA)(1) 1,145,797 1,260,000 Pontiac City School District GO, 5.00%, 5/1/15 (XLCA)(1) 1,295,482 1,425,000 Pontiac City School District GO, 5.00%, 5/1/16 (XLCA)(1) 1,449,424 1,595,000 Pontiac City School District GO, 5.00%, 5/1/17 (XLCA)(1) 1,599,546 - ------ 23 Tax-Free Bond Principal Amount Value $ 575,000 Taylor GO, 5.00%, 9/1/11 (MBIA)(1) $605,452 2,010,000 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/11 (FGIC)(1) 2,079,445 2,215,000 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/13 (FGIC)(1) 2,304,464 2,335,000 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/14 (FGIC)(1) 2,415,137 3,000,000 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/18 (FGIC)(1) 2,943,990 2,000,000 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/19 (FGIC)(1) 1,927,820 -------------- 34,044,429 -------------- MINNESOTA -- 1.2% 10,000,000 Minnesota GO, Series 2008 A, 5.00%, 6/1/13(1) 10,890,300 1,500,000 Minnesota Higher Education Facilities Auth. Rev., Series 2005-6G, (Saint John University), 5.00%, 10/1/12(1) 1,572,180 -------------- 12,462,480 -------------- MISSISSIPPI -- 1.2% 1,565,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/15 (Ambac)(1) 1,638,790 1,645,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/16 (Ambac)(1) 1,705,421 1,000,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Municipal Energy Agency Power Supply), 5.00%, 3/1/17 (XLCA)(1) 966,700 4,620,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Mississippi Development Bank), 5.00%, 7/1/19 (Ambac)(1) 4,669,018 1,195,000 University of Southern Mississippi Rev., Series 2006 A, 5.00%, 3/1/17 (FSA)(1) 1,260,701 1,940,000 University of Southern Mississippi Rev., Series 2006 A, 5.00%, 3/1/18 (FSA)(1) 2,019,714 -------------- 12,260,344 -------------- Principal Amount Value MISSOURI -- 1.6% $ 1,425,000 Jackson County Public Building Corp. Rev., Series 2006 A, (Capital Improvements), 5.00%, 12/1/15 (MBIA)(1) $ 1,540,995 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) 2,922,824 2,145,000 Missouri Health & Educational Facilities Auth. Rev., Series 1998 A, (Park Lane Medical Center), 5.60%, 1/1/15 (MBIA)(1)(2) 2,291,182 2,000,000 Missouri Health & Educational Facilities Auth. Rev., Series 2008 A, (The Washington University), 5.375%, 3/15/39(1) 2,000,560 3,145,000 Missouri Joint Municipal Electric Utility Commission Rev., (Plum Point), 5.00%, 1/1/16 (MBIA)(1) 3,176,639 3,030,000 Missouri State Highways & Transit Commission Rev., Series 2006 A, 5.00%, 5/1/13(1) 3,285,853 1,000,000 Platte County Industrial Development Auth. Rev., (Zona Rosa Retail), 5.00%, 12/1/32 (County Guaranteed)(1) 891,090 1,000,000 St. Louis Municipal Finance Corp. Rev., Series 2006 A, (Carnahan Courthouse), 4.00%, 2/15/17 (Ambac)(1) 943,820 -------------- 17,052,963 -------------- NEBRASKA -- 0.7% 2,000,000 Nebraska Public Power District Rev., Series 2007 B, 5.00%, 1/1/13 (FSA)(1) 2,129,080 2,500,000 Nebraska Public Power District Rev., Series 2008 B, 5.00%, 1/1/20(1) 2,483,075 3,000,000 Omaha Public Power District Electric System Rev., Series 2007 A, 5.00%, 2/1/21(1) 3,014,790 -------------- 7,626,945 -------------- NEVADA -- 0.4% 1,000,000 Clark County Economic Devleopment Rev., (University of Southern Nevada), 5.00%, 4/1/22 (RADIAN)(1) 879,240 - ------ 24 Tax-Free Bond Principal Amount Value $ 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)(2) $ 1,707,511 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) 2,054,521 -------------- 4,641,272 -------------- NEW HAMPSHIRE -- 0.5% 1,660,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/11(1) 1,654,024 305,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/12(1) 299,452 1,030,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/13(1) 1,002,118 2,850,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/18(1) 2,547,301 -------------- 5,502,895 -------------- NEW JERSEY -- 5.1% 270,000 New Jersey Economic Development Auth. Rev., Series 2008 Y, (School Facility Construction), 5.00%, 9/1/33(1) 250,120 7,300,000 New Jersey Sports & Exposition Auth. Rev., Series 2008 B, 5.00%, 9/1/18(1) 7,436,656 4,235,000 New Jersey Transit Corp. COP, 5.00%, 10/1/12 (FSA)(1) 4,525,733 5,595,000 New Jersey Transit Corp. COP, 5.00%, 10/1/13 (FSA)(1) 5,995,154 10,000,000 New Jersey Transportation Trust Fund Auth. Rev., Series 2003 B3, 5.00%, 12/15/16(1) 10,579,100 7,400,000 New Jersey Transportation Trust Fund Auth. Rev., Series 2004 B, 5.25%, 12/15/12 (FGIC)(1) 7,976,386 15,000,000 New Jersey Transportation Trust Fund Auth. Rev., Series 2006 A, 5.25%, 12/15/20(1) 14,883,300 Principal Amount Value $ 4,000,000 Tobacco Settlement Financing Corp. Rev., Series 2007 1A, 5.00%, 6/1/41(1) $ 2,186,040 -------------- 53,832,489 -------------- NEW MEXICO -- 1.0% 2,240,000 City of Clayton Rev., (Jail Project), 5.00%, 11/1/10 (CIFG)(1) 2,273,690 6,675,000 Los Alamos County, Inc. Utility System Rev., Series 2004 A, 5.00%, 7/1/11 (FSA)(1) 7,075,567 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)(2) 1,565,853 -------------- 10,915,110 -------------- NEW YORK -- 10.7% 2,975,000 City of New York GO, Series 2002 B, 5.25%, 8/1/09 (CIFG)(1) 3,043,276 2,885,000 City of New York GO, Series 2002 C, 5.25%, 8/1/09 (CIFG)(1) 2,951,211 5,000,000 City of New York GO, Series 2003 I, 5.75%, 3/1/13, Prerefunded at 101% of Par(1)(2) 5,668,550 5,195,000 City of New York GO, Series 2004 D, 5.00%, 11/1/17 (FSA)(1) 5,474,335 4,000,000 City of New York GO, Series 2006 J1, 5.00%, 6/1/18(1) 4,073,880 5,855,000 City of New York GO, Series 2008 J1, 5.00%, 8/1/13(1) 6,177,435 5,000,000 Metropolitan Transportation Auth. Rev., 6.25%, 11/15/13(1) 5,233,800 4,000,000 Metropolitan Transportation Auth. Rev., 5.00%, 11/15/27(1) 4,185,360 1,350,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2008 C, 5.00%, 6/15/17(1) 1,453,774 10,000,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2008 DD, 5.00%, 6/15/32(1) 9,344,000 8,500,000 New York City Transitional Finance Auth. Rev., Series 2004 D2, 5.00%, 11/1/12(1) 9,144,470 2,000,000 New York City Transitional Finance Auth. Rev., Series 2005 A1, 5.00%, 11/1/10(1) 2,100,260 1,440,000 New York State Dormitory Auth. Rev., Series 1990 A, (UNIC Educational Facilities), 7.50%, 5/15/13 (MBIA-IBC)(1) 1,691,122 - ------ 25 Tax-Free Bond Principal Amount Value $ 1,000,000 New York State Dormitory Auth. Rev., Series 2005 F, 5.00%, 3/15/12 (FSA)(1) $ 1,066,060 10,000,000 New York State Dormitory Auth. Rev., Series 2007 A, 5.00%, 3/15/32(1) 9,346,900 3,500,000 New York State Dormitory Auth. Rev., Series 2008 A, (Columbia University), 4.00%, 7/1/13 (GO of University)(1) 3,670,485 7,025,000 New York State Dormitory Auth. Rev., Series 2008 A1, (Memorial Sloan - Kettering Cancer Center), 5.00%, 7/1/36(1) 6,353,902 6,250,000 New York State Dormitory Auth. Rev., Series 2008 A2, (Memorial Sloan - Kettering Cancer Center), 5.00%, 7/1/26(1) 5,988,562 10,000,000 New York State Dormitory Auth. Rev., Series 2008 B, 5.75%, 3/15/36(1) 10,123,000 1,000,000 Niagara Falls Bridge Commission Toll Rev., Series 1993 B, 5.25%, 10/1/15 (FGIC)(1) 1,028,200 5,000,000 Triborough Bridge & Tunnel Auth. Rev., Series 2008 B3, (GO of Authority), 5.00%, 11/15/15(1) 5,227,900 10,000,000 Triborough Bridge & Tunnel Auth. Rev., Series 2008 C, (GO of Authority), 5.00%, 11/15/38(1) 8,999,600 -------------- 112,346,082 -------------- NORTH CAROLINA -- 1.6% 1,915,000 Austin Trust Various States Rev., VRDN, 1.53%, 12/1/08 (FSA) (LIQ FAC: Bank of America, N.A.)(1) 1,915,000 2,000,000 Charlotte GO, 5.00%, 8/1/19(1) 2,129,140 1,000,000 Charlotte Water & Sewer System Rev., 5.00%, 7/1/17(1) 1,085,320 2,060,000 Greensboro Rev., (Combined Enterprise System), 5.25%, 6/1/20(1) 2,180,304 2,500,000 North Carolina Medical Care Commission Retirement Facilities Rev., Series 2007 A, (Southminster), 5.625%, 10/1/27(1) 1,826,200 1,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., 6.00%, 1/1/10 (MBIA)(1) 1,035,450 Principal Amount Value $ 2,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 5.50%, 1/1/13(1) $ 2,109,040 2,500,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 C, 5.25%, 1/1/19(1) 2,499,875 2,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 C, 5.25%, 1/1/20(1) 1,966,920 -------------- 16,747,249 -------------- 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)(2) 1,644,000 -------------- OHIO -- 2.5% 1,000,000 American Municipal Power-Ohio, Inc. Rev., Series 2008 A, (Prairie State Energy Campus), 5.00%, 2/15/17(1) 1,035,620 4,005,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A2, (Asset-Backed Senior Current Interest Turbo Term), 5.875%, 6/1/30(1) 2,670,975 1,150,000 Mad River Local School District GO, (Classroom Facilities), 5.75%, 12/1/12, Prerefunded at 100% of Par (FGIC)(1)(2) 1,290,817 1,700,000 Milford Exempt Village School District GO, (School Improvement), 6.00%, 12/1/11, Prerefunded at 100% of Par (FSA)(1)(2) 1,887,986 1,005,000 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/11(1) 1,072,084 1,365,000 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/12(1) 1,472,876 750,000 Ohio Higher Educational Facility Commission Rev., Series 1990 B, (Case Western Reserve University), 6.50%, 10/1/20(1) 845,903 4,500,000 Ohio State Higher Educational Facility Commission, 5.00%, 1/1/25(1) 4,168,575 5,895,000 Ohio Water Development Auth. Rev., (Water Pollution Control Loan Fund), 5.00%, 12/1/13(1) 6,448,069 - ------ 26 Tax-Free Bond Principal Amount Value $ 2,000,000 Ohio Water Development Auth. Rev., (Drinking Water Assistance Fund), 5.00%, 6/1/28(1) $ 1,968,180 1,505,000 Summit County GO, 5.75%, 12/1/12, Prerefunded at 101% of Par (FGIC)(1)(2) 1,702,907 1,550,000 Tri Valley Local School District GO, 5.75%, 6/1/12, Prerefunded at 100% of Par (FGIC)(1)(2) 1,722,112 -------------- 26,286,104 -------------- OKLAHOMA -- 1.3% 1,000,000 Comanche County Hospital Auth. Rev., 5.00%, 7/1/11 (RADIAN)(1) 986,960 1,425,000 Comanche County Hospital Auth. Rev., 5.00%, 7/1/12 (RADIAN)(1) 1,381,936 1,300,000 Oklahoma County Finance Auth. Rev., (Western Heights Public Schools), 4.00%, 9/1/10 (AGC)(1) 1,326,455 3,000,000 Oklahoma Development Finance Auth. Health System Rev., Series 2008 C, 5.50%, 8/15/22 (Obligated Group Consisting of INTEGRIS Baptist Medical center, Inc., INTEGRIS South Oklahoma City Hospital Corp. and INTEGRIS Rural Heath, Inc.)(1) 2,911,230 1,610,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/13(1) 1,652,842 1,730,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/14(1) 1,767,593 1,710,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/15(1) 1,734,898 2,130,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/16(1) 2,148,041 -------------- 13,909,955 -------------- OREGON -- 0.9% 2,015,000 Clackamas County School Distrist No. 62 GO, 5.50%, 6/15/10 (School Bond Guarantee)(1) 2,116,395 2,840,000 Oregon State Department of Administrative Services COP, Series 2008 A, 5.00%, 5/1/13 (FSA)(1) 3,045,644 Principal Amount Value $ 4,040,000 Tri-County Metropolitan Transportation District Rev., (Payroll Tax & Grant Receipt), 4.00%, 5/1/14 (MBIA)(1) $ 4,040,202 -------------- 9,202,241 -------------- PENNSYLVANIA -- 5.4% 4,000,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/11(1) 4,098,720 6,210,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/12(1) 6,336,311 1,500,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/18(1) 1,473,210 2,250,000 Allegheny County Industrial Development Auth. Rev., (Residential Resources, Inc.), 4.75%, 9/1/14(1) 2,102,918 2,235,000 Allegheny County Redevelopment Auth. Tax Allocation Rev., (Pittsburgh Mills), 5.10%, 7/1/14(1) 1,936,136 1,150,000 Central Dauphin School District GO, 7.00%, 2/1/16, Prerefunded at 100% of Par (MBIA/State Aid Withholding)(1)(2) 1,411,142 15,805,000 City of Pittsburgh GO, Series 2006 B, 5.25%, 9/1/16 (FSA)(1) 16,788,703 2,580,000 East Stroudsburg Area School District GO, 7.75%, 9/1/16, Prerefunded at 100% of Par (FSA/State Aid Withholding)(1)(2) 3,333,592 1,155,000 Exeter Township GO, 5.25%, 7/15/15 (Ambac)(1) 1,264,760 1,830,000 Exeter Township GO, 5.30%, 7/15/19 (Ambac)(1) 1,960,991 5,000,000 Geisinger Auth. Health System Rev., VRDN, 2.91%, 2/1/09(1) 2,325,000 2,000,000 Northampton County General Purpose Auth. Rev., Series 2008 A, 5.50%, 8/15/35(1) 1,417,320 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)(2) 1,096,430 1,125,000 Pennsylvania GO, 5.375%, 7/1/18 (FSA)(1) 1,234,024 - ------ 27 Tax-Free Bond Principal Amount Value $ 2,975,000 Philadelphia School District GO, Series 2002 A, 5.25%, 2/1/11 (FSA/State Aid Withholding)(1) $ 3,147,877 2,270,000 Scranton Parking Auth. Rev., 5.00%, 6/1/22 (RADIAN)(1) 1,978,941 4,500,000 Westmoreland County Municipal Auth. Rev., 5.25%, 8/15/15, Prerefunded at 100% of Par (FSA)(1)(2) 5,087,385 -------------- 56,993,460 -------------- PUERTO RICO -- 4.1% 4,000,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 5.00%, 7/1/12(1) 3,971,960 12,550,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 5.00%, 7/1/14(1) 12,148,275 1,750,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 6.00%, 7/1/44(1) 1,524,933 5,000,000 Puerto Rico GO, Series 2006 B, 5.25%, 7/1/17(1) 4,715,550 3,020,000 Puerto Rico GO, Series 2008 A, 5.50%, 7/1/16(1) 2,937,765 3,000,000 Puerto Rico GO, Series 2008 A, 5.125%, 7/1/28(1) 2,388,750 2,000,000 Puerto Rico Government Development Bank Rev., Series 2006 B, 5.00%, 12/1/16(1) 1,876,340 575,000 Puerto Rico Highway & Transportation Auth. Rev., Series 2007 CC, 5.00%, 7/1/14(1) 562,505 2,000,000 Puerto Rico Infrastructure Financing Auth. Special Tax Rev., Series 2006 B, 5.00%, 7/1/13(1) 1,969,740 3,700,000 Puerto Rico Municipal Finance Agency GO, Series 2005 A, 5.00%, 8/1/11(1) 3,712,950 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)(2) 5,550,600 2,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2007 M, (Government Facilities), 5.50%, 7/1/12(1) 2,024,880 -------------- 43,384,248 -------------- RHODE ISLAND -- 0.4% 1,000,000 Cranston GO, 6.375%, 11/15/09, Prerefunded at 101% of Par (FGIC)(1)(2) 1,059,880 Principal Amount Value $ 2,000,000 Rhode Island Depositors Economic Protection Corp. Rev., Series 1993 A, (Landmark Medical Center), 6.25%, 8/1/16 (MBIA)(1)(2) $ 2,380,320 1,265,000 Rhode Island Health & Educational Building Corp. Rev., 5.00%, 10/1/17 (RADIAN)(1) 1,197,765 -------------- 4,637,965 -------------- SOUTH CAROLINA -- 2.1% 5,455,000 Charleston Educational Excellence Finance Corp. Rev., (Charleston County School District), 5.00%, 12/1/19(1) 5,362,156 1,700,000 Florence Water & Sewer Rev., 7.50%, 3/1/18 (Ambac)(1) 1,800,878 1,060,000 Kershaw County Public Schools Foundation Installment Purchase Rev., (School Improvements), 5.00%, 12/1/17 (CIFG)(1) 1,067,717 2,260,000 Kershaw County Public Schools Foundation Installment Purchase Rev., (School Improvements), 5.00%, 12/1/18 (CIFG)(1) 2,249,084 1,900,000 Kershaw County Public Schools Foundation Installment Purchase Rev., (School Improvements), 5.00%, 12/1/19 (CIFG)(1) 1,859,112 3,000,000 Kershaw County Public Schools Foundation Installment Purchase Rev., (School Improvements), 5.00%, 12/1/20 (CIFG)(1) 2,881,890 140,000 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1)(2) 167,675 625,000 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC)(1) 755,831 875,000 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC)(1) 944,011 375,000 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1) 406,474 485,000 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1)(2) 580,875 1,095,000 Spartanburg County Health Services District, Inc. Hospital Rev., 5.50%, 4/15/16 (FSA)(1) 1,134,519 920,000 Sumter Waterworks and Sewer System Improvement Rev., 5.00%, 12/1/22 (XLCA)(1) 874,607 - ------ 28 Tax-Free Bond Principal Amount Value $ 2,000,000 Tobacco Settlement Revenue Management Auth. Rev., 5.00%, 6/1/18(1) $ 1,915,140 -------------- 21,999,969 -------------- TENNESSEE -- 0.6% 3,340,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 A, (Campus Development Foundation, Inc. Phase I LLC), 5.00%, 10/1/15(1) 2,934,157 3,800,000 Tennessee State School Board Auth. Rev., Series 2008 B, (Higher Educational Facilities), 5.125%, 5/1/33(3) 3,590,088 -------------- 6,524,245 -------------- TEXAS -- 5.0% 1,080,000 Austin Trust Various States Rev., 1.89%, 9/1/33 (FSA) (LIQ FAC: Bank of America, N.A.)(1) 1,080,000 1,000,000 Canadian River Municipal Water Auth. Rev., (Conjunctive Use Groundwater), 5.00%, 2/15/19 (Ambac)(1) 1,004,430 2,035,000 Cash Special Utility District Rev., 5.25%, 9/1/24 (MBIA)(1) 2,015,484 340,000 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)(2) 368,795 1,475,000 Clint Independent School District GO, (Unlimited Tax School Building and Refunding Bonds), 6.00%, 2/15/17 (PSF-GTD)(1) 1,564,592 1,000,000 Cypress-Fairbanks Independent School District GO, 5.00%, 2/15/16 (PSF-GTD)(1) 1,082,780 2,000,000 Donna Independent School District GO, 5.00%, 2/15/15 (PSF-GTD)(1) 2,167,880 1,115,000 Edcouch-Elsa Independent School District GO, 5.00%, 2/15/14 (PSF-GTD)(1) 1,206,452 320,000 Garza County Public Facility Corp. Rev., 4.75%, 10/1/09(1) 321,754 585,000 Garza County Public Facility Corp. Rev., 4.75%, 10/1/10(1) 585,936 610,000 Garza County Public Facility Corp. Rev., 5.00%, 10/1/11(1) 606,218 2,015,000 Garza County Public Facility Corp. Rev., 5.00%, 10/1/13(1) 1,949,694 Principal Amount Value $ 1,115,000 Garza County Public Facility Corp. Rev., 5.25%, 10/1/14(1) $ 1,073,678 1,225,000 Garza County Public Facility Corp. Rev., 5.25%, 10/1/15(1) 1,158,838 1,145,000 Garza County Public Facility Corp. Rev., 5.25%, 10/1/16(1) 1,062,697 1,000,000 Garza County Public Facility Corp. Rev., 5.50%, 10/1/16(1) 945,090 1,000,000 Gregg County Health Facilities Development Corp. Rev., Series 2006 A, (Good Shepherd Medical Center), 5.00%, 10/1/16(1) 903,180 2,500,000 Harris County Cultural Education Facilities Finance Corp. Rev., Series 2008 B, (The Methodist Hospital System), 5.50%, 12/1/18(1) 2,554,025 480,000 Harris County Housing Finance Corp. Rev., (Las Americas Apartments), 4.90%, 3/1/11 (LIQ FAC: FNMA)(1) 489,379 700,000 Hays Consolidated Independent School District GO, 4.00%, 8/15/11 (PSF-GTD)(1)(2)(4) 649,033 2,300,000 Hays Consolidated Independent School District GO, 4.00%, 8/15/11 (PSF-GTD)(1)(4) 2,110,411 1,295,000 Hidalgo County GO, 5.50%, 8/15/12, Prerefunded at 100% of Par (FGIC)(1)(2) 1,433,617 1,750,000 Hidalgo County GO, 5.50%, 8/15/12, Prerefunded at 100% of Par (FGIC)(1)(2) 1,937,320 1,630,000 Live Oak GO, 5.25%, 8/1/22 (MBIA)(1) 1,645,795 1,740,000 Montgomery County GO, 5.50%, 3/1/14, Prerefunded at 100% of Par (Ambac)(1)(2) 1,959,814 9,500,000 North Texas Tollway Auth. Rev., Series 2008 H, 5.00%, 1/1/42(1) 9,334,415 550,000 Pasadena Independent School District GO, Series 1996 A, 6.05%, 2/15/16 (PSF-GTD)(1) 628,446 1,500,000 Pearland Independent School District GO, 6.00%, 2/15/09, Prerefunded at 100% of Par (PSF-GTD)(1)(2) 1,515,930 2,000,000 San Antonio City Rev., Series 1991 B, 6.74%, 2/1/09 (FGIC)(1)(4) 1,994,900 2,120,000 Southside Independent School District GO, Series 2004 A, 5.25%, 8/15/25 (PSF-GTD)(1) 2,132,296 - ------ 29 Tax-Free Bond 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) $874,370 195,000 Texas Public Finance Auth. Rev., (Technical College), 6.25%, 8/1/09 (MBIA)(1) 199,705 500,000 Texas Public Finance Auth. Rev., Series 2006 A, (KIPP, Inc.), 5.25%, 2/15/14 (ACA)(1) 460,725 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)(2) 1,054,800 1,265,000 West Oso Independent School District GO, 5.50%, 8/15/13, Prerefunded at 100% of Par (PSF-GTD)(1)(2) 1,423,125 1,000,000 Williamson County GO, Series 2004 A, (Unlimited Tax Road & Refunding Bonds), 5.00%, 2/15/19 (MBIA)(1) 1,039,600 -------------- 52,535,204 -------------- 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(1) 2,022,160 1,500,000 Virgin Islands Water & Power Auth. Rev., Series 2007 A, 5.00%, 7/1/24(1) 1,263,870 -------------- 3,286,030 -------------- UTAH -- 1.5% 2,550,000 Eagle Mountain City Gas & Electric Rev., 5.00%, 6/1/19 (RADIAN)(1) 2,346,791 3,500,000 Intermountain Power Agency Rev., Series 2008 A, 5.25%, 7/1/20(1) 3,534,615 890,000 Salt Lake City Hospital Rev., Series 1988 A, (Intermountain Health Corporation), 8.125%, 5/15/15(1)(2) 1,020,723 1,495,000 Utah County Municipal Building Auth. Lease Rev., 5.00%, 11/1/09 (Ambac)(1)(2) 1,548,013 1,820,000 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1)(2) 1,976,447 1,915,000 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1)(2) 2,079,613 Principal Amount Value $ 1,000,000 Utah County Municipal Building Auth. Lease Rev., 5.50%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1)(2) $ 1,093,000 1,130,000 West Valley City Municipal Building Auth. Lease Rev., Series 2002 A, 5.00%, 8/1/10 (Ambac)(1) 1,171,132 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)(2) 1,416,891 -------------- 16,187,225 -------------- VERMONT -- 0.4% 4,290,000 University of Vermont & State Agricultural College GO, 5.00%, 10/1/19 (Ambac)(1) 4,460,656 -------------- VIRGINIA -- 0.8% 1,500,000 Fairfax County COP, 5.30%, 4/15/23(1) 1,516,620 1,115,000 Pittsylvania County GO, Series 2001 B, 5.75%, 3/1/18 (MBIA/State Aid Withholding)(1) 1,183,796 5,120,000 Virginia Resources Auth. Clean Water Rev., 5.00%, 10/1/16(1) 5,607,526 -------------- 8,307,942 -------------- WASHINGTON -- 4.4% 1,000,000 Benton County Public Utility District No. 1 Rev., Series 2001 A, 5.625%, 11/1/19 (FSA)(1) 1,054,290 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)(2) 1,111,040 2,375,000 Energy Northwest Electric Rev., Series 2008 D, (Columbia Generating), 5.00%, 7/1/12(1) 2,538,875 1,750,000 Energy Northwest Rev., 4.75%, 7/1/20 (MBIA)(1) 1,653,575 3,500,000 Energy Northwest Rev., Series 2002 A, (Columbia Generating), 5.75%, 7/1/18 (MBIA)(1) 3,717,315 10,000,000 Energy Northwest Rev., Series 2002 B, (Columbia Generating), 6.00%, 7/1/18 (Ambac)(1) 10,721,300 1,000,000 King County Public Hospital District No. 2 GO, (Evergreen Healthcare), 5.00%, 12/1/14 (MBIA)(1) 1,038,160 1,555,000 King County School District No. 414 Lake Washington GO, 5.75%, 12/1/12, Prerefunded at 100% of Par(1)(2) 1,745,410 - ------ 30 Tax-Free Bond Principal Amount Value $ 1,000,000 Kitsap County School District No. 303 Bainbridge Island GO, 5.00%, 12/1/17 (MBIA/School Bond Guarantee)(1) $ 1,055,470 1,260,000 Mason County School District No. 309 Shelton GO, 5.625%, 12/1/11, Prerefunded at 100% of Par (FGIC/School Bond Guarantee)(1)(2) 1,385,647 1,000,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(1)(2) 1,110,580 1,120,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(1)(2) 1,243,850 6,715,000 Snohomish County Edmonds School District No. 15 GO, 5.00%, 12/1/17 (FGIC/School Bond Guarantee)(1) 7,065,389 1,720,000 University of Washington Rev., (Student Facilities Fee), 5.875%, 6/1/10, Prerefunded at 101% of Par (FSA)(1)(2) 1,842,670 1,000,000 Washington GO, Series 1990 A, 6.75%, 2/1/15(1) 1,119,360 4,500,000 Washington Health Care Facilities Auth. Rev., Series 2006 D, (Providence Health & Services), 5.25%, 10/1/33 (FSA)(1) 4,126,275 1,500,000 Whitman County Pullman School District No. 267 GO, 5.625%, 12/1/16 (FSA/School Bond Guarantee)(1) 1,599,825 1,675,000 Yakima County School District No. 208 West Valley GO, 5.00%, 12/1/18 (MBIA/School Bond Guarantee)(1) 1,743,005 -------------- 45,872,036 -------------- WISCONSIN -- 0.6% 1,990,000 Wisconsin Clean Water Rev., 6.875%, 6/1/11(1) 2,113,340 2,590,000 Wisconsin Health & Educational Facilities Auth. Rev., (Aurora Medical Group), 6.00%, 11/15/10 (FSA)(1) 2,752,626 600,000 Wisconsin Health & Educational Facilities Auth. Rev., (Blood Center Southeastern), 5.75%, 6/1/34(1) 496,938 500,000 Wisconsin Transportation Rev., Series 2008 A, 5.00%, 7/1/18(1) 526,450 -------------- 5,889,354 -------------- Value TOTAL INVESTMENT SECURITIES -- 99.4% (Cost $1,073,394,454) $1,046,878,503 -------------- OTHER ASSETS AND LIABILITIES -- 0.6% 6,366,113 -------------- TOTAL NET ASSETS -- 100.0% $1,053,244,616 ============== 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 LIQ FAC = Liquidity Facilities MBIA = MBIA Insurance Corporation MBIA-IBC = MBIA Insurance Corporation -- Insured Bond Certificates PSF-GTD = Permanent School Fund -- Guaranteed RADIAN = Radian Asset Assurance, Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2008. XLCA = XL Capital Ltd. (1) Security, or portion thereof, has been segregated for when-issued securities. At the period end, the aggregate value of securities pledged was $3,590,100. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) When-issued security. (4) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are issued at a substantial discount from their value at maturity. See Notes to Financial Statements. - ------ 31 STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 2008 (UNAUDITED) Tax-Free Money Market Tax-Free Bond ASSETS Investment securities, at value (cost of $323,343,246 and $1,073,394,454, respectively) $323,343,246 $1,046,878,503 Cash 792,593 -- Receivable for investments sold 235,039 4,947,174 Receivable for capital shares sold 330,633 1,306,707 Interest receivable 1,155,590 16,329,435 Prepaid portfolio insurance 24,828 -- ------------ -------------- 325,881,929 1,069,461,819 ------------ -------------- LIABILITIES Disbursements in excess of demand deposit cash -- 483,006 Payable for investments purchased 3,208,353 13,340,269 Payable for capital shares redeemed 664,364 1,983,991 Accrued management fees 119,953 409,937 Dividends payable 14,485 -- ------------ -------------- 4,007,155 16,217,203 ------------ -------------- NET ASSETS $321,874,774 $1,053,244,616 ============ ============== NET ASSETS CONSIST OF: Capital paid in $321,872,401 $1,088,673,173 Undistributed net investment income 29,658 3,309 Accumulated net realized loss on investment transactions (27,285) (8,915,915) Net unrealized depreciation on investments -- (26,515,951) ------------ -------------- $321,874,774 $1,053,244,616 ============ ============== INVESTOR CLASS Net assets $321,874,774 $976,398,175 Shares outstanding 321,872,402 95,255,410 Net asset value per share $1.00 $10.25 INSTITUTIONAL CLASS Net assets N/A $76,846,441 Shares outstanding N/A 7,496,770 Net asset value per share N/A $10.25 See Notes to Financial Statements. - ------ 32 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2008 (UNAUDITED) Tax-Free Money Market Tax-Free Bond INVESTMENT INCOME (LOSS) INCOME: Interest $4,151,540 $ 23,730,138 ---------- ------------- EXPENSES: Management fees 774,414 2,556,405 Trustees' fees and expenses 8,082 27,880 Portfolio insurance 42,220 -- Other expenses 966 2,248 ---------- ------------- 825,682 2,586,533 ---------- ------------- Amount waived (40,050) -- ---------- ------------- 785,632 2,586,533 ---------- ------------- NET INVESTMENT INCOME (LOSS) 3,365,908 21,143,605 ---------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions 23,941 (9,853,196) Futures transactions -- 2,724,064 ---------- ------------- 23,941 (7,129,132) ---------- ------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments -- (44,113,727) Futures -- (143,095) ---------- ------------- -- (44,256,822) ---------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) 23,941 (51,385,954) ---------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $3,389,849 $(30,242,349) ========== ============= See Notes to Financial Statements. - ------ 33 STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED NOVEMBER 30, 2008 (UNAUDITED) AND YEAR ENDED MAY 31, 2008 Tax-Free Money Market Tax-Free Bond Increase (Decrease) in Net Assets Nov. 30, 2008 May 31, 2008 Nov. 30, 2008 May 31, 2008 OPERATIONS Net investment income $ 3,365,908 $ 8,191,291 $ 21,143,605 $ 35,064,332 Net realized gain (loss) 23,941 68 (7,129,132) 1,648,708 Change in net unrealized appreciation (depreciation) -- -- (44,256,822) 3,814,582 ------------ ------------ -------------- -------------- Net increase (decrease) in net assets resulting from operations 3,389,849 8,191,359 (30,242,349) 40,527,622 ------------ ------------ -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (3,336,250) (8,191,291) (19,664,721) (33,554,485) Institutional Class -- -- (1,475,575) (1,529,931) Advisor Class -- -- -- (4,501) ------------ ------------ -------------- -------------- Decrease in net assets from distributions (3,336,250) (8,191,291) (21,140,296) (35,088,917) ------------ ------------ -------------- -------------- CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions 8,279,052 37,808,998 34,083,749 344,147,689 ------------ ------------ -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS 8,332,651 37,809,066 (17,298,896) 349,586,394 NET ASSETS Beginning of period 313,542,123 275,733,057 1,070,543,512 720,957,118 ------------ ------------ -------------- -------------- End of period $321,874,774 $313,542,123 $1,053,244,616 $1,070,543,512 ============ ============ ============== ============== Undistributed net investment income $29,658 -- $3,309 -- ============ ============ ============== ============== See Notes to Financial Statements. - ------ 34 NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2008 (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. 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 10). 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. - ------ 35 FUTURES CONTRACTS -- Tax-Free Bond may enter into futures contracts in order to manage the fund's exposure to changes in market conditions. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, Tax-Free Bond is required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by Tax-Free Bond. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. Tax-Free Bond recognizes a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of realized gain (loss) on futures transactions and unrealized appreciation (depreciation) on futures, respectively. 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 investments. 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 have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. The funds are no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and 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. - ------ 36 2. FEES AND TRANSACTIONS WITH RELATED PARTIES 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. Effective August 1, 2008, the investment advisor voluntarily agreed to waive 0.038% of its management fee for Tax-Free Money Market. The total amount of the waiver for the six months ended November 30, 2008, is shown on the Statement of Operations. The fee waiver may be revised or terminated at any time without notice. The effective annual management fee for the Investor Class of Tax-Free Money Market for the six months ended November 30, 2008 was 0.49% before waiver and 0.46% after waiver. The effective annual management fee for the Investor Class and Institutional Class of Tax-Free Bond was 0.48% and 0.28%, respectively, for the six months ended November 30, 2008. MONEY MARKET INSURANCE -- Tax-Free Money Market, along with other money market funds managed by ACIM, has entered into an insurance agreement with Ambac Assurance Corporation (Ambac). Ambac provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. Tax-Free Money Market pays annual premiums to Ambac, which are amortized daily over one year. For the six months ended November 30, 2008, the annualized ratio of money market insurance expense to average net assets was 0.02%. The agreement will expire on January 31, 2009, and will not be renewed. TEMPORARY GUARANTEE PROGRAM -- On October 3, 2008, the Board of Trustees approved Tax-Free Money Market to participate in the U.S. Treasury Department's Temporary Guarantee Program for Money Market Funds (the program). The program provides coverage to eligible shareholders for share balances held in participating money market funds as of the close of business on September 19, 2008 and provides coverage through December 19, 2008. Participation in the program requires Tax-Free Money Market to pay an upfront fee of 0.01% of the net assets as of the close of business on September 19, 2008, which is amortized daily over the three month period. The Board of Trustees has approved continued participation by Tax-Free Money Market in a program extension through April 30, 2009. For the six months ended November 30, 2008, the annualized ratio of the program expense to average net assets was less than 0.01%. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the trust's investment advisor, ACIM, the distributor of the trust, American Century Investment Services, Inc., and the trust's transfer agent, American Century Services, LLC. JPMorgan Chase Bank is a custodian of the funds and a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in ACC. - ------ 37 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Tax-Free Bond, excluding short-term investments, for the six months ended November 30, 2008, were $227,799,585 and $165,991,444 respectively. All investment transactions for Tax-Free Money Market were considered short-term during the six months ended November 30, 2008. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): Six months ended Year ended November 30, 2008 May 31, 2008 Shares Amount Shares Amount Tax-Free Money Market INVESTOR CLASS Sold 163,879,460 $163,879,460 253,755,789 $253,755,789 Issued in reinvestment of distributions 3,155,195 3,155,195 8,015,936 8,015,936 Redeemed (158,755,603) (158,755,603) (223,962,727) (223,962,727) ------------- ------------- ------------- ------------- Net increase (decrease) 8,279,052 $ 8,279,052 37,808,998 $ 37,808,998 ============= ============= ============= ============= Tax-Free Bond INVESTOR CLASS Sold 21,732,153 $227,923,843 35,687,999 $382,982,672 Issued in connection with acquisition (Note 9) -- -- 7,774,102 82,359,758 Issued in connection with reclassification (Note 10) -- -- 21,853 234,652 Issued in reinvestment of distributions 1,584,651 16,527,938 2,594,739 27,751,493 Redeemed (21,435,726) (222,794,759) (19,213,634) (205,984,323) ------------- ------------- ------------- ------------- 1,881,078 21,657,022 26,865,059 287,344,252 ------------- ------------- ------------- ------------- INSTITUTIONAL CLASS Sold 3,195,010 33,426,826 6,270,528 67,276,110 Issued in reinvestment of distributions 136,441 1,422,815 139,087 1,489,799 Redeemed (2,157,610) (22,422,914) (1,076,544) (11,561,403) ------------- ------------- ------------- ------------- 1,173,841 12,426,727 5,333,071 57,204,506 ------------- ------------- ------------- ------------- ADVISOR CLASS Sold 5,316 57,026 Issued in reinvestment of distributions 344 3,658 Redeemed in connection with reclassification (Note 10) (21,853) (234,652) Redeemed (21,465) (227,101) ------------- ------------- ------------- ------------- (37,658) (401,069) ------------- ------------- ------------- ------------- Net increase 3,054,919 $ 34,083,749 32,160,472 $344,147,689 ============= ============= ============= ============= - ------ 38 5. FAIR VALUE MEASUREMENTS The funds' securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the funds. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows: * Level 1 valuation inputs consist of actual quoted prices based on an active market; * Level 2 valuation inputs consist of significant direct or indirect observable market data; or * Level 3 valuation inputs consist of significant unobservable inputs such as the fund's own assumptions. The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not an indication of the risks associated with investing in these securities or other financial instruments. The following is a summary of the valuation inputs used to determine the fair value of the funds' securities as of November 30, 2008: Value of Fund/Valuation Inputs Investment Securities TAX FREE MONEY MARKET Level 1 -- Quoted Prices -- Level 2 -- Other Significant Observable Inputs $323,343,246 Level 3 -- Significant Unobservable Inputs -- -------------- $323,343,246 ============== TAX FREE BOND Level 1 -- Quoted Prices -- Level 2 -- Other Significant Observable Inputs $1,046,878,503 Level 3 -- Significant Unobservable Inputs -- -------------- $1,046,878,503 ============== 6. BANK LINE OF CREDIT 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. 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%. The line expired December 10, 2008, and was not renewed. Tax-Free Bond did not borrow from the line during the six months ended November 30, 2008. 7. INTERFUND LENDING The funds, along with certain other funds managed by ACIM or ACGIM, may participate in an interfund lending program, pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC). This program provides an alternative credit facility allowing the funds to borrow from or lend to other funds in the American Century Investments family of funds that permit such transactions. During the six months ended November 30, 2008, the funds did not utilize the program. 8. FEDERAL TAX INFORMATION The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. - ------ 39 As of November 30, 2008, the components of investments for federal income tax purposes were as follows: Tax-Free Money Market Tax-Free Bond Federal tax cost of investments $323,343,246 $1,073,394,454 ============ ============== Gross tax appreciation of investments -- $ 570,205,000 Gross tax depreciation of investments -- (596,720,951) ------------ -------------- Net tax appreciation (depreciation) of investments -- $(26,515,951) ============ ============== The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. As of May 31, 2008, Tax-Free Money Market and Tax-Free Bond had accumulated capital losses of $(51,226) and $(1,643,796), respectively, which represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire as follows: 2009 2010 2011 2012 2013 2014 2015 2016 Tax-Free Money Market $(32,696) $(8,870) -- $(3,706) $(1,346) -- $(1,691) $(2,917) Tax-Free Bond -- -- -- -- -- -- $(1,643,796) -- 9. 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 Florida Municipal, Florida Municipal and Tax-Free Bond immediately before the acquisition were $49,968,836, $32,390,922 and $744,181,750, respectively. Florida 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 Florida Municipal and Florida Municipal, respectively. - ------ 40 10. 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. 11. RECENTLY ISSUED ACCOUNTING STANDARDS 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 did 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 interim periods 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. - ------ 41 FINANCIAL HIGHLIGHTS Tax-Free Money Market Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.01 0.03 0.03 0.02 0.01 0.01 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.01) (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 $1.00 ====== ====== ====== ====== ====== ====== TOTAL RETURN(2) 1.06% 2.97% 3.26% 2.51% 1.33% 0.64% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.49%(3)(4) 0.51% 0.52% 0.52% 0.51% 0.51% Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 0.52%(3) 0.51% 0.52% 0.52% 0.51% 0.51% Ratio of Net Investment Income (Loss) to Average Net Assets 2.12%(3)(4) 2.91% 3.22% 2.47% 1.31% 0.65% Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 2.09%(3) 2.91% 3.22% 2.47% 1.31% 0.65% Net Assets, End of Period (in thousands) $321,875 $313,542 $275,733 $272,208 $284,851 $276,245 (1) Six months ended November 30, 2008 (unaudited). (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) Annualized. (4) Effective August 1, 2008, the investment advisor voluntarily agreed to waive a portion of its management fee. See Notes to Financial Statements. - ------ 42 Tax-Free Bond Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.74 $10.68 $10.67 $10.88 $10.71 $11.19 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.20 0.43 0.42 0.40 0.38 0.37 Net Realized and Unrealized Gain (Loss) (0.49) 0.06 0.01 (0.20) 0.17 (0.45) ------ ------ ------ ------ ------ ------ Total From Investment Operations (0.29) 0.49 0.43 0.20 0.55 (0.08) ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.20) (0.43) (0.42) (0.40) (0.38) (0.37) From Net Realized Gains -- -- -- (0.01) -- (0.03) ------ ------ ------ ------ ------ ------ Total Distributions (0.20) (0.43) (0.42) (0.41) (0.38) (0.40) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.25 $10.74 $10.68 $10.67 $10.88 $10.71 ====== ====== ====== ====== ====== ====== TOTAL RETURN(2) (2.69)% 4.66% 4.08% 1.87% 5.16% (0.79)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.49%(3) 0.49% 0.49% 0.49% 0.50% 0.51% Ratio of Net Investment Income (Loss) to Average Net Assets 3.86%(3) 4.00% 3.91% 3.73% 3.46% 3.34% Portfolio Turnover Rate 16% 62% 43% 79% 77% 60% Net Assets, End of Period (in thousands) $976,398 $1,002,648 $709,988 $665,458 $610,420 $583,689 (1) Six months ended November 30, 2008 (unaudited). (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (3) Annualized. See Notes to Financial Statements. - ------ 43 Tax-Free Bond Institutional Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.74 $10.68 $10.67 $10.88 $10.71 $11.19 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.21 0.45 0.44 0.42 0.40 0.39 Net Realized and Unrealized Gain (Loss) (0.49) 0.06 0.01 (0.20) 0.17 (0.45) ------ ------ ------ ------ ------ ------ Total From Investment Operations (0.28) 0.51 0.45 0.22 0.57 (0.06) ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.21) (0.45) (0.44) (0.42) (0.40) (0.39) From Net Realized Gains -- -- -- (0.01) -- (0.03) ------ ------ ------ ------ ------ ------ Total Distributions (0.21) (0.45) (0.44) (0.43) (0.40) (0.42) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.25 $10.74 $10.68 $10.67 $10.88 $10.71 ====== ====== ====== ====== ====== ====== TOTAL RETURN(2) (2.59)% 4.88% 4.28% 2.07% 5.37% (0.60)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.29%(3) 0.29% 0.29% 0.29% 0.30% 0.31% Ratio of Net Investment Income (Loss) to Average Net Assets 4.06%(3) 4.20% 4.11% 3.93% 3.66% 3.54% Portfolio Turnover Rate 16% 62% 43% 79% 77% 60% Net Assets, End of Period (in thousands) $76,846 $67,895 $10,567 $7,815 $8,796 $7,711 (1) Six months ended November 30, 2008 (unaudited). (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (3) Annualized. See Notes to Financial Statements. - ------ 44 APPROVAL OF MANAGEMENT AGREEMENTS Tax-Free Money Market and Tax-Free Bond Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century Investments, this process is referred to as the "15(c) Process." The board oversees on a continuous basis and evaluates at its quarterly meetings, directly and through the committees of the board, the nature and quality of significant services provided by the advisor, the investment performance of the funds, shareholder services, audit and compliance functions and a variety of other matters relating to fund operations. Each year, it also holds a special meeting in connection with determining whether to renew the contracts for advisory services, to review fund performance, shareholder services, adviser profitability, audit and compliance matters, and other fund operational matters. Under a Securities and Exchange Commission rule, each fund is required to disclose in its annual or semiannual report, as appropriate, the material factors and conclusions that formed the basis for the board's approval or renewal of any advisory agreements within the fund's most recently completed fiscal half-year period. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process, the Directors reviewed extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning Tax-Free Bond and Tax-Free Money Market (the "funds") and the services provided to the funds under the management agreement. The information considered and the discussions held at the meetings included, but were not limited to: * the nature, extent and quality of investment management, shareholder services and other services provided to the funds; * reports on the wide range of programs and services the advisor provides to the funds and their shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * data comparing the cost of owning the funds to the cost of owning similar funds; * data comparing the funds' performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the funds to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to other investment management clients of the advisor. In keeping with its practice, the Directors at a special meeting and at a regularly scheduled quarterly meeting reviewed and discussed the information provided by the advisor throughout the year and to negotiate with the advisor the renewal of the management agreement, including the setting of the applicable advisory fee. The board had the benefit of the advice of its independent counsel throughout the period. - ------ 45 FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, an independent data provider, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreement, the advisor is responsible for providing or arranging for all services necessary for the operation of the funds. The board noted that under the management agreement, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of the funds' portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal-services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the funds in accordance with its investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their - ------ 46 business. At each quarterly meeting and at the special meeting to consider renewal of the advisory contract, the Directors, directly and through its Portfolio Committee, reviews investment performance information for the funds, together with comparative information for appropriate benchmarks and peer groups of funds managed similarly to the funds. If performance concerns are identified, the Directors discuss with the advisor the reasons for such results (e.g., market conditions, security and sector selection) and any efforts being undertaken to improve performance. Tax-Free Money Market's performance for both the one- and three-year periods was in the top quartile of its peer group. Tax-Free Bond's performance fell below the median of its peer group for both the one-year period and was above the median for the three-year period. The board discussed the fund's performance with the advisor and was satisfied with the efforts being undertaken by the advisor. SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a comprehensive package of transfer agency, shareholder, and other services. The Directors, directly and through the various Committees of the Board, review reports and evaluations of such services at their regular quarterly meetings and at its special meeting to consider renewal of the Advisory Contract, including the annual meeting concerning contract review, and reports to the board. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed information concerning its cost of providing various services to the funds, its profitability in managing the funds, its overall profitability, and its financial condition. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. ETHICS. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the funds specifically, and the expenses incurred by the advisor in providing various functions to the funds. The Directors believe the advisor is appropriately sharing economies of scale through its competitive fee structure, fee breakpoints as the fund complex and the funds increase in size, and through reinvestment in its business to provide shareholders additional content and services. In - ------ 47 particular, separate breakpoint schedules based on the size of the entire fund complex and on the size of the funds reflect the complexity of assessing economies of scale. COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the funds, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the funds' independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the risk of increased costs of operating the fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Directors' analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the fund's unified fee to the total expense ratio of other funds in the fund's peer group. The unified fee charged to shareholders of Tax-Free Bond was in the lowest quartile of the total expense ratios of its peer group. The unified fee charged to shareholders of Tax-Free Money Market was below the median of the total expense rations of its peer group. COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the funds. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the funds. The Directors analyzed this information and concluded that the fees charged and services provided to the funds were reasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the funds. They concluded that the advisor's primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Directors noted that the advisor receives proprietary research from broker dealers that execute fund portfolio transactions and concluded that this research is likely to benefit fund shareholders. The Directors also determined that the advisor is able to provide investment management services to certain clients other than the fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Directors concluded, however, that the assets of those other clients are not material to the analysis and, in any event, are included with the assets of the funds to determine breakpoints in the funds' fee schedule, provided they are managed using the same investment team and strategy. - ------ 48 CONCLUSIONS OF THE DIRECTORS As a result of this process, the Directors, in the absence of particular circumstances and assisted by the advice of legal counsel that is independent of the advisor, taking into account all of the factors discussed above and the information provided by the advisor and others concluded that the investment management agreement between Tax-Free Bond and the advisor is fair and reasonable in light of the services provided and should be renewed. The Directors negotiated a renewal of the one-year waiver by the advisor of a portion of the management fee of Tax-Free Money Market that was in place last year. These changes were proposed by the Directors based on their review of the fund's percentile rank in its peer group universe and the fact that the Directors seek as a general rule to have total expense ratios of existing fixed income and money market funds in the lowest 25th percentile of the fees of comparable funds. Although the adviser agreed to such a waiver in the past, the adviser argued this year that it was no longer appropriate. After discussions with the Directors, the adviser agreed to continue the waiver for another year. Also as part of this negotiation, the adviser and the Directors concluded that it would be appropriate to discuss over the coming year the possibility of changes in the overall fee structure of the fund. The renewal of the fee waiver, effective August 1, 2008, will result in a lowering of the management fee of the fund by four basis points. Following these negotiations with the advisor, the Directors concluded that the investment management agreement between the fund and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------ 49 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. - ------ 50 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 BARCLAYS CAPITAL 3-YEAR MUNICIPAL BOND INDEX is composed of those securities included in the Barclays Capital Municipal Bond Index that have maturities of 2-4 years. The BARCLAYS CAPITAL 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 BARCLAYS CAPITAL LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Barclays Capital Municipal Bond Index that have maturities greater than 22 years. The BARCLAYS CAPITAL MUNICIPAL BOND INDEX is a market value-weighted index designed for the long-term tax-exempt bond market. The BARCLAYS CAPITAL 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 BARCLAYS CAPITAL 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 BARCLAYS CAPITAL U.S. TREASURY INDEX is composed of those securities included in the Barclays Capital U.S. Aggregate Index that are public obligations of the U.S. Treasury with a remaining maturity of one year or more. - ------ 51 NOTES - ------ 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 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. 0901 CL-SAN-63744N-SUP [front cover] SEMIANNUAL REPORT NOVEMBER 30, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS LONG-TERM TAX-FREE FUND HIGH-YIELD MUNICIPAL FUND PROSPECTUS SUPPLEMENT ENCLOSED PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended November 30, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. 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 HIGH-YIELD MUNICIPAL Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 9 Portfolio at a Glance. . . . . . . . . . . . . . . . . . . . . . 9 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Portfolio Composition By Credit Rating . . . . . . . . . . . . . 10 Top Five Sectors . . . . . . . . . . . . . . . . . . . . . . . . 10 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . 11 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 13 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 OTHER INFORMATION Approval of Management Agreements for Long-Term Tax-Free and High-Yield Municipal . . . . . . . . . . . . . . . . . . . . . . 43 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 MARKETS FACED MOUNTING CHALLENGES Widespread credit and liquidity problems, along with unprecedented failures and takeovers of several major financial institutions, plagued the financial markets during the six-month period. Despite massive U.S. government intervention in the financial system, credit remained scarce, and growth prospects dimmed. Economic activity dropped precipitously in November, as data released during the month suggested President-elect Obama's team will face a severe global recession. In particular, the housing market continued to deteriorate, the unemployment rate hit 6.7%, and consumer spending experienced its largest slide in 50 years. Inflation represented the lone bright spot, as slower global growth sent commodity prices and near-term inflationary pressures tumbling late in the period. Headline inflation, as measured by the month-to-month change in the Consumer Price Index, sank -1.0% in October and -1.7% in November, to end the period at an annual rate of 1.1%. After holding the federal funds target rate steady at 2.0% for five months, the Federal Reserve (the Fed) took aggressive action in October with two 50-basis-point rate cuts. The Fed also reiterated its "whatever it takes" philosophy to restore economic growth, suggesting it would cut rates even further, if necessary. MUNICIPAL MARKET ANOMALY LED TO VALUE This extraordinary backdrop perpetuated a flight-to-quality sentiment among investors. Treasuries significantly outperformed non-Treasury securities, as credit-related risk-aversion hurt lower-quality bonds and the traditionally-stoic municipal bond market. Extensive financial-sector deleveraging and forced selling among hedge funds led to a severe supply/demand imbalance and historically poor performance for municipal bonds relative to Treasuries. In fact, late in the six-month period, certain investment-grade municipal yields reached 140% of comparable Treasury yields. (The ratio historically has been approximately 90%.) A positive consequence of this historic underperformance is municipals are attractively valued relative to Treasuries. Yields on AAA-rated municipals exceed those on comparable Treasury bonds even before taking taxes into account. We believe municipal yields at 100% or more of Treasuries offer sufficient long-term appreciation potential to overcome near-term economic, financial, and credit risks. U.S. Fixed-Income Total Returns For the six months ended November 30, 2008 BARCLAYS CAPITAL MUNICIPAL MARKET INDICES Municipal Bond -4.98% 3-Year Municipal Bond 2.04% 5-Year General Obligation (GO) Bond 1.61% Long-Term Municipal Bond -14.77% Non-Investment-Grade Municipal Bond -18.56% TAXABLE MARKET RETURNS Barclays Capital U.S. Aggregate Index 0.24% Barclays Capital U.S. Treasury Index 8.46% 3-Month Treasury Bill 0.62% 10-Year Treasury Note 11.62% - ------ 2 PERFORMANCE Long-Term Tax-Free Total Returns as of November 30, 2008 Average Annual Returns 6 Since Inception months(1) 1 year 5 years 10 years Inception Date A CLASS No sales charge* -4.62% -3.22% 1.78%(2) 3.79%(2) 4.66%(2) With sales charge* -8.93% -7.58% 0.85%(2) 3.31%(2) 4.25%(2) 3/31/97 BARCLAYS CAPITAL MUNICIPAL BOND INDEX(3)(4) -4.98% -3.61% 2.58% 4.13% 4.88% -- LIPPER GENERAL MUNICIPAL DEBT FUNDS AVERAGE RETURNS(4) -9.36% -8.92% 0.77% 2.53% 3.45% -- A Class's Lipper Ranking(4) as of 29 of 11/30/08 -- 226 8 of 146 5 of 118 -- as of 30 of 46 of 197 12/31/08 -- 228 40 of 199 9 of 146 5 of 119 -- Investor Class -4.50% -2.98% -- -- 0.95% 4/3/06 Institutional Class -4.40% -2.79% -- -- 1.15% 4/3/06 B Class No sales charge* -4.89% -3.95% 1.06%(2) 3.08%(2) 3.95%(2) With sales charge* -9.89% -7.95% 0.87%(2) 3.08%(2) 3.95%(2) 3/31/97 C Class No sales charge* -4.98% -3.95% -- -- -0.05% With sales charge* -5.91% -3.95% -- -- -0.05% 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) Total returns for periods less than one year are not annualized. (2) Class returns would have been lower if fees had not been waived. (3) Formerly Lehman Brothers Municipal Bond Index. (4) 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 November 30, 1998*
One-Year Returns Over 10 Years Periods ended November 30 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 A Class** (no sales charge) -1.09% 8.67% 9.54% 6.17% 6.23% 3.21% 3.02% 5.92% 0.21% -3.22% Barclays Capital Municipal Bond Index -1.07% 8.18% 8.75% 6.32% 6.65% 4.07% 3.88% 6.12% 2.71% -3.61% * 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 Portfolio Managers: Alan Kruss, Joseph Gotelli, and Steven Permut PERFORMANCE SUMMARY Long-Term Tax-Free returned -4.62%* for the six months ended November 30, 2008. By comparison, the Barclays Capital Municipal Bond Index returned - -4.98%. The average return of the 226 general municipal debt funds tracked by Lipper Inc. was -9.36% for the same period. The portfolio's average annual returns also exceeded those of its Lipper group average for the one-, five-, and 10-year periods ended in November (see page 3). The portfolio's negative results can be attributed to a period of unprecedented market turmoil, resulting in massive supply/demand imbalances. Longer-term notes and bonds, which are most sensitive to yield changes, performed worst among investment-grade bonds (see the Market Perspective on page 2). The fund's performance relative to the Lipper group average and Barclays Index was aided by our duration and yield curve positioning, as well as some of our sector allocation decisions. TAKING PROFITS FROM CURVE TRADE The portfolio continued to benefit from the yield curve steepening bias we had in place using municipal bonds and two- and 30-year Treasury futures (the trade is based on the expectation that the yield difference between two- and 30-year Treasury notes would widen, which they have). The difference in yield between two- and 30-year AAA municipal general obligation notes increased from 237 to 313 basis points (a basis point equals 0.01%) for the six months, while the Treasury curve steepened from 207 to 245 basis points. Late in the reporting period, we took profits from this long-running trade--closing out our Treasury futures position--and repositioned the portfolio for a flatter, rather than steeper, yield curve. The poor economic backdrop, tumbling commodity prices, and worries about deflation all suggest that longer-term municipal bond yields have considerable room to fall in absolute terms and relative to short-term bond yields. Portfolio at a Glance As of As of 11/30/08 5/31/08 Weighted Average Maturity 14.6 years 13.5 years Average Duration (Modified) 8.2 years 6.5 years Yields as of November 30, 2008 30-Day SEC Yield Investor Class 4.42% Institutional Class 4.62% A Class 3.98% B Class 3.41% C Class 3.41% A Class 30-Day Tax-Equivalent Yields(1) 25.00% Tax Bracket 5.31% 28.00% Tax Bracket 5.53% 33.00% Tax Bracket 5.94% 35.00% Tax Bracket 6.12% (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. Total returns for periods less than one year are not annualized. - ------ 5 Long-Term Tax-Free POSITIVE CONTRIBUTORS: DURATION, SECTOR ALLOCATION It helped to maintain a slightly short duration. While the forced selling in the market occurred across the maturity spectrum, shorter-term notes and bonds tend to be less price sensitive than longer-term securities. As a result, having a shorter duration as bond yields rose reduced the impact on the fund's share price. For some time now we've been underweight in corporate-linked municipal bonds in general, and airline and tobacco bonds in particular. This positioning has been a key source of outperformance relative to the Lipper group over time because these bonds have performed poorly. While avoiding these securities, we favored high-quality essential service revenue bonds in less economically sensitive segments of the economy, such as water and sewer bonds. We also added highly rated and well-structured health care and education bonds in our ongoing effort to increase the portfolio's credit quality. Importantly, we were able to add these bonds at very attractive spreads due to the negative technical factors prevailing in the municipal bond market. MANAGEMENT CHANGE In July, Portfolio Manager Joseph Gotelli joined American Century Investments, bringing six years of municipal bond investment experience. He joins Steven Permut, a senior portfolio manager and head of the municipal bond team, and Alan Kruss, a municipal bond portfolio manager, as portfolio managers on Long-Term Tax-Free. OUTLOOK "We're in a remarkable period, with municipal bonds trading at unprecedented levels relative to fully taxable investments as a result of technical, rather than fundamental, reasons," said Steven Permut. "As a result, we view this as a historic investment opportunity for investors with a time horizon greater than a few years and the ability to stomach the volatility we're seeing in the market. That said, it's impossible to know when we'll return to some semblance of normal, functioning markets, which we view as a prerequisite for a municipal market rally." Portfolio Composition By Credit Rating % of fund % of fund investments investments as of as of 11/30/08 5/31/08 AAA 35% 53% AA 41% 27% A 14% 9% BBB 9% 11% BB 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 Sectors as of November 30, 2008 % of fund investments General Obligation (GO) 17% Hospital Revenue 13% Water/Sewer/Gas Revenue 12% Higher Education 8% Electric Revenue 8% - ------ 6 PERFORMANCE High-Yield Municipal Total Returns as of November 30, 2008 Average Annual Returns 6 Since Inception months(1) 1 year 5 years 10 years Inception Date INVESTOR CLASS -14.36% -15.86% 0.29% 2.81%(2) 3.20%(2) 3/31/98 BARCLAYS CAPITAL LONG-TERM MUNICIPAL BOND INDEX(3)(4) -14.77% -15.21% 0.94% 3.31% 3.63% -- LIPPER HIGH-YIELD MUNICIPAL DEBT FUNDS AVERAGE RETURNS(4) -18.36% -20.28% -0.84% 1.32% 1.59% -- Investor Class's Lipper Ranking(4) as of 11/30/08 -- 1 of 49 1 of 48 -- as of 22 of 106 18 of 77 12/31/08 -- 39 of 106 31 of 77 6 of 50 3 of 48 -- A Class No sales charge* -14.46% -16.07% 0.04% -- 0.89% With sales charge* -18.28% -19.81% -0.88% -- 0.11% 1/31/03 B Class No sales charge* -14.79% -16.70% -0.71% -- 0.16% With sales charge* -19.79% -20.70% -0.92% -- -0.01% 1/31/03 C Class No sales charge* -14.79% -16.70% -0.71% -- 0.58% With sales charge* -15.62% -16.70% -0.71% -- 0.58% 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) Total returns for periods less than one year are not annualized. (2) Investor Class returns and rankings would have been lower if management fees had not been waived from 3/31/98 to 4/30/99. Beginning on 5/1/99, management fees were phased in at a rate of 0.10% each month until 10/31/99. (3) Formerly Lehman Brothers Long-Term Municipal Bond Index. (4) 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 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. - ------ 7 High-Yield Municipal Growth of $10,000 Over 10 Years
$10,000 investment made November 30, 1998
One-Year Returns Over 10 Years Periods ended November 30 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class -0.70%* 4.33% 8.64% 7.99% 7.03% 6.23% 7.03% 7.79% -1.62% -15.86% Barclays Capital Long-Term Municipal Bond Index -5.10% 10.70% 10.30% 6.09% 7.55% 5.53% 7.57% 8.79% 0.06% -15.21% * 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. - ------ 8 PORTFOLIO COMMENTARY High-Yield Municipal Portfolio Manager: Steven Permut PERFORMANCE SUMMARY High-Yield Municipal returned -14.36%* for the six months ended November 30, 2008. By comparison, the Barclays Capital Long-Term Municipal Bond Index returned -14.77%. The average return of the 106 high-yield municipal debt funds tracked by Lipper Inc. was -18.36%. Longer-term, the portfolio's average annual returns also exceeded those of its Lipper group average for the one-, five-, and 10-year periods ended November 30 (see page 7). The portfolio's sharply negative returns can be attributed to a period of unprecedented market turmoil, resulting in massive supply/demand imbalances (see the Market Perspective on page 2). However, the portfolio held up better than its Lipper peer group average thanks largely to our yield curve positioning, and sector and credit allocation decisions. HIGH-YIELD MUNICIPALS PERFORMED POORLY High-yield bonds made up the poorest-performing segment of the municipal market for the six months. The market was overwhelmed by factors that have little to do with credit fundamentals--extensive financial sector deleveraging, forced selling among hedge funds and some open-end mutual funds (forced to raise cash to meet margin calls and redemptions), and the extinction of some bond dealers all hurt. While we have never used leverage, the portfolio was not immune to the massive sell-off that contributed to some of the worst months in municipal market history. Add it all up, and the spread, or difference in yield, between high-yield municipals and alternative investments, such as investment-grade municipal and fully taxable bonds, reached record highs. TAKING PROFITS FROM CURVE TRADE The portfolio continued to benefit from the yield curve steepening bias we had in place using municipal bonds and two- and 30-year Treasury futures (the trade is based on the expectation that the yield difference between two- and 30-year Treasury notes would widen, which it has). The difference in yield between two- and 30-year AAA municipal general obligation notes increased from 237 to 313 basis points (a basis point equals 0.01%) for the six months, while the Treasury curve steepened from 207 to 245 basis points. Portfolio at a Glance As of As of 11/30/08 5/31/08 Weighted Average Maturity 18.9 years 17.4 years Average Duration (Modified) 8.3 years 8.3 years Yields as of November 30, 2008 30-Day SEC Yield Investor Class 7.01% A Class 6.44% B Class 5.99% C Class 5.98% Investor Class 30-Day Tax Equivalent Yields(1) 25.00% Tax Bracket 9.35% 28.00% Tax Bracket 9.74% 33.00% Tax Bracket 10.46% 35.00% Tax Bracket 10.78% (1) The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. * All fund returns referenced in this commentary are for Investor Class shares. Total returns for periods less than one year are not annualized. - ------ 9 High-Yield Municipal Late in the reporting period, we took profits from this long-running trade and repositioned the portfolio for a flatter, rather than steeper, yield curve. The poor economic backdrop, tumbling commodity prices, and worries about deflation all suggest that longer-term municipal bond yields have considerable room to fall in absolute terms and relative to short-term bond yields. SECTOR TRADES CONTRIBUTED For some time now we've been underrepresented in corporate-linked municipal bonds in general, and airline and tobacco bonds in particular. This positioning has been a key source of outperformance relative to the Lipper group over time, because these bonds have performed poorly. While avoiding these securities, we favored high-quality essential service revenue bonds in less economically sensitive segments of the economy, such as water and sewer bonds. We also added highly rated and well-structured health care and education bonds in our ongoing bid to increase the portfolio's credit quality. Importantly, we were able to add these bonds at very attractive spreads because of the essentially indiscriminate selling going on in the market. OUTLOOK "We're in a remarkable period, with municipal bonds trading at unprecedented levels relative to fully taxable investments as a result of technical, rather than fundamental, reasons," said Steven Permut. "As a result, we view this as a historic investment opportunity for investors with a time horizon greater than a few years and the ability to stomach the volatility we're seeing in the market. That said, it's impossible to know when we'll return to some semblance of normal, functioning markets, which we view as a prerequisite for a municipal market rally." Portfolio Composition By Credit Rating % of fund % of fund investments investments as of as of 11/30/08 5/31/08 AAA 3% 11% AA 15% 11% A 14% 7% BBB 5% 7% BB 6% 4% Unrated 57% 60% Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. Top Five Sectors as of November 30, 2008 % of fund investments Land Secured 31% Electric Revenue 11% Hospital Revenue 11% Continuing Care Retirement Facility 10% Transportation Revenue 6% - ------ 10 SHAREHOLDER FEE EXAMPLES (UNAUDITED) Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from June 1, 2008 to November 30, 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. - ------ 11 Expenses Paid Beginning Ending During Period* Annualized Account Account Value 6/1/08 - Expense Value 6/1/08 11/30/08 11/30/08 Ratio* Long-Term Tax-Free ACTUAL Investor Class $1,000 $955.00 $2.40 0.49% Institutional Class $1,000 $956.00 $1.42 0.29% A Class $1,000 $953.80 $3.62 0.74% B Class $1,000 $951.10 $7.29 1.49% C Class $1,000 $950.20 $7.28 1.49% HYPOTHETICAL Investor Class $1,000 $1,022.61 $2.48 0.49% Institutional Class $1,000 $1,023.61 $1.47 0.29% A Class $1,000 $1,021.36 $3.75 0.74% B Class $1,000 $1,017.60 $7.54 1.49% C Class $1,000 $1,017.60 $7.54 1.49% High-Yield Municipal ACTUAL Investor Class $1,000 $856.40 $2.89 0.62% A Class $1,000 $855.40 $4.05 0.87% B Class $1,000 $852.10 $7.52 1.62% C Class $1,000 $852.10 $7.52 1.62% HYPOTHETICAL Investor Class $1,000 $1,021.96 $3.14 0.62% A Class $1,000 $1,020.71 $4.41 0.87% B Class $1,000 $1,016.95 $8.19 1.62% C Class $1,000 $1,016.95 $8.19 1.62% * Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. - ------ 12 SCHEDULE OF INVESTMENTS Long-Term Tax-Free NOVEMBER 30, 2008 (UNAUDITED) Principal Amount Value Municipal Securities -- 98.0% ALABAMA -- 1.5% $ 500,000 East Alabama Health Care Facilities Auth. Rev., Series 2008 B, 5.00%, 9/1/13(1) $ 484,700 ----------- ARIZONA -- 1.4% 200,000 Mohave County Industrial Development Authority Correctional Facilities Contract Rev., (Mohave Prison, LLC Expansion), 8.00%, 5/1/25(1) 192,954 250,000 Phoenix Arizona Civic Import Corp. Wastewater System Rev., 5.50%, 7/1/24(1) 258,457 ----------- 451,411 ----------- CALIFORNIA -- 9.1% 500,000 Bay Area Toll Auth. Toll Bridge Rev., Series 2007 F, 5.00%, 4/1/31(1) 464,395 200,000 California Department of Water Resources Power Supply Rev., Series 2005 G4, 5.00%, 5/1/16(1) 208,000 500,000 California Department of Water Resources Power Supply Rev., Series 2008 H, 5.00%, 5/1/22(1) 487,715 250,000 California Health Facilities Financing Auth. Rev., Series 2008 C, (Providence Health & Services), 6.50%, 10/1/38(1) 250,153 565,000 Chaffey Community College District GO, Series 2007 C, (Election of 2002), 5.00%, 6/1/32 (MBIA)(1) 518,913 50,000 Desert Sands Unified School District COP, (Financing), 5.00%, 3/1/18(1) 49,864 500,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2007 A-1, 5.75%, 6/1/47(1) 315,240 200,000 Los Angeles Community College District, Series 2008 E-1, (Election of 2001), 5.00%, 8/1/23(1) 197,814 150,000 Metropolitan Water District of Southern California GO, 3.50%, 3/1/10(1) 153,298 150,000 Metropolitan Water District of Southern California Rev., Series 2004 B-3, 3.25%, 10/1/11 (MBIA)(1) 153,417 Principal Amount Value $ 175,000 Ventura County Community College District GO, Series 2008 C, (Election of 2002), 5.50%, 8/1/33(1) $ 170,604 ----------- 2,969,413 ----------- COLORADO -- 0.6% 200,000 Colorado Health Facility Auth. Rev., Series 2008 D, (Catholic Health Initiatives), 6.25%, 10/1/33(1) 195,420 ----------- CONNECTICUT -- 3.0% 500,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2003 X-3, (Yale University), 4.85%, 7/1/37(1) 464,265 150,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 C, (Hospital for Special Care Issue), 5.25%, 7/1/27 (RADIAN)(1) 110,131 400,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/17 (MBIA)(1) 407,676 ----------- 982,072 ----------- DISTRICT OF COLUMBIA -- 1.4% 500,000 District of Columbia Water & Sewer Auth. Public Utility Rev., Series 2008 A, 5.00%, 10/1/34 (AGC)(1) 446,000 ----------- FLORIDA -- 8.2% 500,000 Florida Board of Education Capital Outlay GO, Series 2007 G, 4.75%, 6/1/37 (MBIA)(1) 421,720 450,000 Florida Municipal Power Agency Rev., (All-Requirements Power Supply), VRDN, 0.90%, 12/1/08(1) 450,000 500,000 Florida Rural Utility Financing Commission Rev., Series 2008 A, (Public Project Construction), 3.25%, 2/1/11(1) 499,995 500,000 JEA St. Johns River Power Park System Rev., Series 2, Issue 3, 5.00%, 10/1/37(1) 444,255 500,000 Miami-Dade County Educational Facilities Auth. Rev., Series 2008 A, (University of Miami), 5.50%, 4/1/38(1) 415,065 500,000 Tampa Water & Sewer Systems Rev., 5.00%, 10/1/37(1) 454,630 ----------- 2,685,665 ----------- - ------ 13 Long-Term Tax-Free Principal Amount Value GEORGIA -- 9.4% $ 300,000 Athens-Clarke County Unified Government Water & Sewer Rev., 5.625%, 1/1/28(1) $ 299,460 500,000 Burke County Development Auth. Pollution Control Rev., Series 2006 C-1, (Oglethorpe Power Corp. Vogtle), 4.625%, 4/1/10 (Ambac)(1) 502,850 500,000 Fulton County Development Auth. Rev., Series 2001 A, (TUFF/Atlanta Housing, LLC Project at Georgia State University), 5.50%, 9/1/18 (Ambac)(1) 515,765 40,000 Georgia Municipal Electric Power Auth. Rev., Series 1998 Y, (Project One Special Obligation), 6.40%, 1/1/13 (Ambac)(1) 42,979 500,000 Georgia Road & Tollway Auth. Rev., Series 2008 A, (Federal Highway Grant Anticipation Bonds), 5.00%, 6/1/11(1) 530,120 810,000 LaGrange Water & Sewerage Rev., 5.00%, 1/1/12 (Ambac)(1) 846,734 200,000 Marietta Development Auth. Rev., (Life University, Inc.), 7.00%, 6/15/39(1) 158,476 200,000 Municipal Electric Auth. Rev., Series 2008 D, (General Resolution), 5.50%, 1/1/26(1) 190,208 ----------- 3,086,592 ----------- ILLINOIS -- 6.1% 500,000 Chicago Board of Education GO, Series 2008 C, 5.25%, 12/1/23(1) 504,260 500,000 Chicago O'Hare International Airport Rev., Series 2008 A, 5.00%, 1/1/12 (FSA)(1) 524,325 200,000 Illinois Financial Auth. Rev., (Advocate Health Care Network), 6.25%, 11/1/28(1) 194,336 700,000 Winnebago, Boone et al Counties Community College District No. 511 GO, (Rock Valley Community College), 6.30%, 10/1/15 (FGIC)(1) 792,806 ----------- 2,015,727 ----------- INDIANA -- 1.5% 500,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/20 (FSA)(1) 507,765 ----------- Principal Amount Value KENTUCKY -- 1.4% $ 250,000 Kentucky Property & Buildings Community Rev., 5.50%, 11/1/28(1) $ 245,830 200,000 Kentucky Turnpike Auth. Economic Development Road Rev., Series 2008 A, (Revitalization), 5.00%, 7/1/17(1) 213,140 ----------- 458,970 ----------- MARYLAND -- 6.2% 150,000 Maryland Economic Development Corp. Student Housing Rev., (University of Maryland, College Park), 5.00%, 6/1/19(1) 129,906 500,000 Maryland GO, First Series 2005 B, (State & Local Facilities Loan), 5.25%, 2/15/12(1) 541,430 200,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Johns Hopkins University), 5.00%, 7/1/18(1) 215,796 300,000 Maryland Health & Higher Educational Facilities Auth. Rev., (Johns Hopkins University), 5.25%, 7/1/38(1) 295,551 400,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 4.75%, 7/1/11(1) 404,112 480,000 Maryland Health & Higher Educational Facilities Auth. Rev., (LifeBridge Health Issue), 5.00%, 7/1/34 (AGC)(1) 435,614 ----------- 2,022,409 ----------- MASSACHUSETTS -- 2.3% 200,000 Massachusetts Bay Transportation Auth. Rev., Series 2008 A, 5.25%, 7/1/34(1) 195,584 200,000 Massachusetts GO, Series 2008 A, 5.00%, 8/1/24(1) 199,556 200,000 Massachusetts Health & Educational Facilities Auth. Rev., (Boston Medical Center), 5.25%, 7/1/38(1) 135,594 250,000 Massachusetts Water Resources Auth. Rev., Series 2006 B, 5.00%, 8/1/31 (Ambac)(1) 234,203 ----------- 764,937 ----------- - ------ 14 Long-Term Tax-Free Principal Amount Value MINNESOTA -- 2.1% $ 300,000 Minneapolis-St. Paul Metropolitan Airports Commission Rev., Series 2007 B, 5.00%, 1/1/25 (FGIC)(1) $ 272,466 400,000 Minnesota GO, 5.00%, 6/1/18(1) 425,908 ----------- 698,374 ----------- MISSOURI -- 0.8% 250,000 Missouri Health & Educational Facilities Auth. Rev., Series 2008 A, (The Washington University), 5.375%, 3/15/39(1) 250,070 ----------- NEBRASKA -- 0.4% 150,000 Nebraska Public Power District Rev., Series 2008 B, 5.00%, 1/1/24(1) 141,927 ----------- NEW JERSEY -- 2.1% 500,000 Monmouth County GO, (County College Bonds), 4.00%, 9/15/19(1) 481,845 200,000 New Jersey Sports & Exposition Auth. Rev., Series 2008 B, 5.00%, 9/1/18(1) 203,744 ----------- 685,589 ----------- NEW YORK -- 11.0% 250,000 Long Island Power Auth. Electric System Rev., Series 2008 A, 6.00%, 5/1/33(1) 250,563 200,000 Metropolitan Transportation Auth. Rev., Series 2008 C, 6.50%, 11/15/28(1) 208,784 500,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2004 C, 5.00%, 6/15/35(1) 460,720 500,000 New York City Municipal Water Finance Auth. Water & Sewer System Rev., Series 2008 DD, 5.00%, 6/15/37(1) 457,485 215,000 New York City Transitional Finance Auth. Rev., Series 2004 D-2, 5.00%, 11/1/12(1) 231,301 500,000 New York State Dormitory Auth. Rev., Series 2008 A, (Columbia University), 4.00%, 7/1/13 (GO of University)(1) 524,355 500,000 New York State Dormitory Auth. Rev., Series 2008 A-1, (Memorial Sloan - Kettering Cancer Center), 5.00%, 7/1/36(1) 452,235 Principal Amount Value $ 300,000 New York State Dormitory Auth. State Personal Income Tax Rev., Series 2008 A, 5.00%, 3/15/19(1) $ 312,108 540,000 New York Urban Development Corp. State Personal Income Tax Rev., Series 2008 A-1, (Economic Development & Housing), 5.00%, 12/15/22(1) 543,931 200,000 Triborough Bridge & Tunnel Auth. Rev., Series 2008 C, (GO of Auth.), 5.00%, 11/15/38(1) 179,992 ----------- 3,621,474 ----------- NORTH CAROLINA -- 0.9% 300,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2008 A, 5.25%, 1/1/16(1) 311,121 ----------- OHIO -- 0.5% 250,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A-2, (Asset-Backed Senior Current Interest Turbo Term), 5.875%, 6/1/30(1) 166,728 ----------- PENNSYLVANIA -- 6.9% 450,000 Allegheny County Hospital Development Auth. Rev., Series 2008 A, (University of Pittsburgh Medical Center), 5.00%, 9/1/18(1) 441,963 1,000,000 Allegheny County Industrial Development Auth. Rev., (Residential Resources, Inc.), 4.50%, 9/1/11(1) 984,040 500,000 Central Dauphin School District GO, 7.00%, 2/1/16, Prerefunded at 100% of Par (MBIA/State Aid Withholding)(1)(2) 613,540 200,000 Pennsylvania Turnpike Commission Rev., Series 2008 C, 6.00%, 6/1/28 (AGC)(1) 209,286 ----------- 2,248,829 ----------- PUERTO RICO -- 3.9% 500,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 5.00%, 7/1/14(1) 483,995 750,000 Puerto Rico Aqueduct & Sewer Auth. Rev., Series 2008 A, 6.00%, 7/1/44(1) 653,542 200,000 Puerto Rico GO, Series 2008 A, 5.125%, 7/1/28(1) 159,250 ----------- 1,296,787 ----------- - ------ 15 Long-Term Tax-Free Principal Amount Value TENNESSEE -- 1.5% $ 225,000 Metropolitan Government Nashville & Davidson County Health & Educational Facilities Board Rev., Series 2008 A, (Vanderbilt University), 5.00%, 10/1/15 (GO of University)(1) $ 245,367 50,000 Shelby County Health Educational & Housing Facilities Board Rev., Series 2008 C, 5.25%, 6/1/17(1) 46,443 200,000 Tennessee State School Board Auth. Rev., Series 2008 B, (Higher Educational Facilities), 5.125%, 5/1/33(3) 188,952 ----------- 480,762 ----------- TEXAS -- 3.4% 250,000 Lower Colorado River Auth. Rev., 5.75%, 5/15/37(1) 241,183 200,000 North Texas Tollway Auth. Rev., Series 2008 H, 5.00%, 1/1/13(1) 196,514 250,000 Tarrant County Cultural Education Facilities Finance Corp. Hospital Rev., (Scott & White Memorial Hospital and Scott, Sherwood & Brindley Foundation), 5.50%, 8/15/31(1) 222,812 500,000 Waco Education Finance Corp. Rev., Series 2008 C, (Baylor University), 5.00%, 3/1/36(1) 448,645 ----------- 1,109,154 ----------- UTAH -- 3.1% 500,000 Utah State Board of Regents Hospital Rev., Series 2006 A, (University of Utah), 5.25%, 8/1/21 (MBIA)(1) 494,405 500,000 Utah Transit Auth. Sales Tax Rev., Series 2008 A, 5.00%, 6/15/20(1) 517,140 ----------- 1,011,545 ----------- VIRGINIA -- 0.7% 200,000 Virginia Resources Auth. Clean Water Rev., 5.00%, 10/1/16(1) 219,044 ----------- Principal Amount Value WASHINGTON -- 5.4% $ 250,000 Energy Northwest Electric Rev., Series 2008 D, (Columbia Generating), 5.00%, 7/1/12(1) $ 267,250 250,000 Redmond GO, 5.00%, 12/1/21(1) 252,985 440,000 Seattle Solid Waste Rev., 5.00%, 2/1/24(1) 433,079 350,000 Washington GO, Series 2008 A, 5.00%, 7/1/20(1) 357,882 500,000 Washington Health Care Facilities Auth. Rev., Series 2006 D, (Providence Health & Services), 5.25%, 10/1/33 (FSA)(1) 458,475 ----------- 1,769,671 ----------- WISCONSIN -- 3.2% 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/Moral Obligation)(1)(2) 525,583 500,000 Wisconsin Transportation Rev., Series 2008 A, 5.00%, 7/1/18(1) 526,450 ----------- 1,052,033 ----------- TOTAL MUNICIPAL SECURITIES (Cost $33,757,556) 32,134,189 ----------- Municipal Derivatives -- 1.3% TEXAS -- 1.3% $360,000 Texas GO, VRDN, Inverse Floater, 8.50%, 9/30/11(1)(4) 426,636 (Cost $395,821) ----------- TOTAL INVESTMENT SECURITIES -- 99.3% (Cost $34,153,377) 32,560,825 ----------- OTHER ASSETS AND LIABILITIES -- 0.7% 227,235 ----------- TOTAL NET ASSETS -- 100.0% $32,788,060 =========== - ------ 16 Long-Term Tax-Free Notes to Schedule of Investments AGC = Assured Guaranty Corporation Ambac = Ambac Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance, Inc. GO = General Obligation MBIA = MBIA Insurance Corporation RADIAN = Radian Asset Assurance, Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2008. (1) Security, or a portion thereof, has been segregated for when-issued securities. At the period end, the aggregate value of securities pledged was $189,000. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) When-issued security. (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. - ------ 17 High-Yield Municipal NOVEMBER 30, 2008 (UNAUDITED) Principal Amount Value Municipal Securities -- 98.6% ARIZONA -- 6.4% $2,500,000 Arizona Health Facilities Auth. Rev., Series 2007 B, (Banner Health), VRDN 3.41%, 1/2/09 $ 1,187,500 500,000 Mohave County Industrial Development Auth. Correctional Facilities Contract Rev., (Mohave Prison, LLC Expansion), 8.00%, 5/1/25 482,385 4,050,000 Phoenix Civic Improvement Corp. Airport Rev., Series 2008 D, 5.25%, 7/1/17 3,802,869 1,000,000 Phoenix Civic Improvement Corp. Airport Rev., Series 2008 D, 5.25%, 7/1/18 918,780 3,015,000 Pronghorn Ranch Community Facilities District GO, 6.40%, 7/15/29 2,379,830 1,120,000 Quailwood Meadows Community Facilities District GO, 6.00%, 7/15/22 922,656 2,000,000 Quailwood Meadows Community Facilities District GO, 6.125%, 7/15/29 1,507,640 750,000 Scottsdale Industrial Development Auth. Hospital Rev., Series 2008 A, (Scottsdale Healthcare), 5.25%, 9/1/30 592,102 880,000 Sundance Community Facilities District Assessment District No. 2 Rev., 7.125%, 7/1/27(1) 771,382 704,000 Sundance Community Facilities District Assessment District No. 3 Rev., 6.50%, 7/1/29 563,235 395,000 Sundance Community Facilities District GO, 6.25%, 7/15/29(1) 317,094 ------------ 13,445,473 ------------ ARKANSAS -- 0.1% 200,000 Pulaski County Public Facilities Board Rev., Series 2006 A, (Philander Smith College), 5.60%, 6/1/36 145,644 ------------ CALIFORNIA -- 3.2% 2,000,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B, (Palomar Estates E&W), 7.00%, 9/15/36 1,596,180 Principal Amount Value $2,235,000 Independent Cities Lease Finance Auth. Rev., Series 2004 A, (Morgan Hill - Hacienda Valley Mobile Estates), 5.90%, 11/15/34 $ 1,618,296 1,000,000 Morongo Band of Misison Indians Rev., Series 2008, (Enterprise Casino Services), 6.50%, 3/1/28(1) 801,750 250,000 Palm Springs Airport Passenger Facility Charge Rev., (Palm Springs International Airport), 6.40%, 7/1/23 215,838 275,000 Palm Springs Airport Passenger Facility Charge Rev., (Palm Springs International Airport), 6.50%, 7/1/27 230,299 1,000,000 Soledad Improvement Bond Act of 1915 Special Assessment, (Diamond Ridge Assessment District No. 2002-01), 6.75%, 9/2/33 836,200 1,565,000 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 1,468,596 ------------ 6,767,159 ------------ COLORADO -- 7.2% 9,865,000 Denver Health & Hospital Auth. Healthcare Rev., Series 2007 B, VRDN 2.98%, 12/1/08 resets quarterly at 67% of the 3-month LIBOR plus 1.10% with no caps, 4,784,525 5,725,000 Granby Ranch Metropolitan District GO, 6.75%, 12/1/36 4,055,189 3,000,000 One Horse Business Improvement District Rev., 6.00%, 6/1/24 2,418,690 1,500,000 Plaza Metropolitan District No. 1 Rev., 8.00%, 12/1/25 1,265,055 1,850,000 Todd Creek Farms Metropolitan District No. 1 Rev., 5.60%, 12/1/14 1,595,699 1,500,000 Todd Creek Farms Metropolitan District No. 1 Rev., 6.125%, 12/1/19 1,195,935 ------------ 15,315,093 ------------ CONNECTICUT -- 0.4% 1,000,000 Connecticut Development Auth. Industrial Rev., (Afco Cargo BDL - LLC), 8.00%, 4/1/30 901,760 ------------ - ------ 18 High-Yield Municipal Principal Amount Value DISTRICT OF COLUMBIA -- 2.1% $1,000,000 District of Columbia COP, (Public Safety & Emergency), 5.50%, 1/1/19 (Ambac) $ 1,010,990 750,000 Metropolitan Washington Airports Auth. Rev., Series 2001 A, 5.50%, 10/1/18 (MBIA) 705,368 3,000,000 Metropolitan Washington Airports Auth. Rev., Series 2008 A, 5.50%, 10/1/21 2,676,750 ------------ 4,393,108 ------------ FLORIDA -- 8.2% 1,570,000 Arborwood Community Development District Special Assessment Rev., Series 2006 B, (Centex Homes), 5.25%, 5/1/16 1,228,949 2,100,000 Concorde Estates Community Development District Rev., Series 2004 B, 5.00%, 5/1/11 1,562,505 140,000 Covington Park Community Development District Rev., Series 2004 B, (Capital Improvement), 5.30%, 11/1/09 136,654 960,000 Double Branch Community Development District Special Assessment, Series 2002 A, 6.70%, 5/1/34 796,089 1,910,000 Dupree Lakes Community Development District Rev., 5.00%, 11/1/10 1,784,666 450,000 Florida Municipal Power Agency Rev., 0.90%, 12/1/08 450,000 5,000,000 Florida Municipal Power Agency, Rev., Series 2008 A, (All-Requirements Power Supply), 5.25%, 10/1/19 5,057,350 2,000,000 Miami-Dade County Health Facilities Auth. Rev., Series 2008, (Miami Children-A-2RMK), 4.55%, 8/1/13 (MBIA) 1,969,720 120,000 Middle Village Community Development District Special Assessment, Series 2004 B, 5.00%, 5/1/09 118,249 2,500,000 Midtown Miami Community Development District Special Assessment, Series 2004 A, 6.25%, 5/1/37 1,633,050 150,000 Orange County Industrial Development Auth. Rev., Series 2007, VRDN (Catholic Charities) 1.00%, 12/1/08 150,000 Principal Amount Value $1,500,000 Putnam County Development Auth. Pollution Control Rev., Series 2007 B, (Seminole Electric Cooperative, Inc.), 5.35%, 5/1/18 (Ambac) $ 1,423,170 1,245,000 South-Dade Venture Community Development District, Rev., Series 2004, 6.125%, 5/1/34 957,256 ------------ 17,267,658 ------------ GEORGIA -- 3.7% 1,235,000 City of Atlanta Tax Allocation Rev., (Princeton Lakes), 5.50%, 1/1/31 850,310 1,000,000 Georgia Municipal Electric Auth. Rev., Series 2008 A, (General Resolution), 5.25%, 1/1/19 1,003,060 3,000,000 Georgia Municipal Electric Auth. Rev., Series 2008 D, (General Resolution), 6.00%, 1/1/23 3,052,290 3,800,000 Marietta Development Auth. Rev., (Life University, Inc.), 7.00%, 6/15/39 3,011,044 ------------ 7,916,704 ------------ GUAM -- 0.6% 1,500,000 Guam Government Waterworks Auth. Rev., 6.00%, 7/1/25 1,184,655 ------------ ILLINOIS -- 18.6% 1,325,000 Bedford Park Tax Allocation, Series 2005, 5.125%, 12/30/18 1,054,726 3,000,000 Chicago Park District GO, Series 2006 C, 5.00%, 1/1/12 (FGIC) 3,192,270 3,000,000 Chicago Tax Increment Allocation Rev., Series 2004 B, (Pilsen Redevelopment), (Junior Lien), 6.75%, 6/1/22 2,763,210 13,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Monarch Landing, Inc. Facility), 7.00%, 12/1/37 10,009,740 5,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Sedgebrook, Inc. Facility), 6.00%, 11/15/37 3,438,900 5,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Sedgebrook, Inc. Facility), 6.00%, 11/15/42 3,385,000 3,341,000 Pingree Grove Special Service Area No. 7 Special Tax Rev., Series 2006-1, (Cambridge Lakes), 6.00%, 3/1/36 2,346,819 1,000,000 Village of Bolingbrook Sales Tax Rev., 6.25%, 1/1/24 812,380 - ------ 19 High-Yield Municipal Principal Amount Value $5,000,000 Village of Hampshire Special Service Area No. 13 Special Tax Rev., (Tuscany Woods), 5.75%, 3/1/37 $ 3,047,300 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 2,588,422 3,500,000 Volo Village Special Service Area No. 3 Special Tax Rev., Series 2006-1, (Symphony Meadows), 6.00%, 3/1/36 2,458,505 5,990,000 Yorkville Special Service Area No. 2005-109 Special Tax Rev., Series 2006-105, (Bristol Bay I), 5.875%, 3/1/36 4,246,670 ------------ 39,343,942 ------------ LOUISIANA -- 0.8% 2,000,000 Colonial Pinnacle Community Development District Rev., 7.00%, 5/1/37 1,587,560 ------------ MARYLAND -- 3.0% 5,000,000 Baltimore Special Obligation Rev., (Resh Park), 7.00%, 9/1/38 3,875,450 2,155,000 Maryland Economic Development Corp. Student Housing Rev., (University of Maryland College Park), 5.80%, 6/1/38 1,668,854 1,000,000 Maryland Industrial Development Financing Auth. Rev., Series 2005 A, (Our Lady of Good Counsel High School), 6.00%, 5/1/35 704,800 ------------ 6,249,104 ------------ MINNESOTA -- 1.0% 3,000,000 North Oaks Senior Housing Rev., (Presbyterian Homes), 6.50%, 10/1/47 2,184,990 ------------ MISSOURI -- 0.4% 860,000 Missouri Bottom Transportation Development District Hazelwood Rev., 7.20%, 5/1/33 693,521 210,000 Missouri Housing Development Commission Mortgage Rev., Series 1998 B2, (Single Family), 6.40%, 9/1/29 210,101 ------------ 903,622 ------------ NEVADA -- 5.7% 655,000 Clark County Improvement District No. 108 & 124 Special Assessment, Series 2003 B, 5.25%, 2/1/12 628,800 Principal Amount Value $ 690,000 Clark County Improvement District No. 108 & 124 Special Assessment , Series 2003 B, 5.375%, 2/1/13 $ 655,065 665,000 Clark County Improvement District No. 108 & 124 Special Assessment, Series 2003 B, 5.40%, 2/1/14 621,722 2,925,000 Clark County Improvement District Improvement District No. 142 Special Assessment, 5.50%, 8/1/12 2,778,750 1,365,000 Henderson Local Improvement District No. T-15 Special Assessment, Series 2004, 6.10%, 3/1/24 1,094,034 1,105,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.10%, 10/1/22 1,010,523 350,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.20%, 10/1/25 312,077 1,235,000 Las Vegas Improvement District No. 607 Special Assessment, Series 2004, 5.50%, 6/1/13 1,120,676 3,500,000 Las Vegas Improvement Districts No. 808 & 810 Special Assessment, Series 2007, (Summerlin Village 23B), 6.125%, 6/1/31 2,508,835 680,000 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.20%, 12/1/10 665,876 715,000 Reno Special Assessment District No. 4 Rev., Series 2003, (Somersett Parkway), 5.45%, 12/1/11 690,347 ------------ 12,086,705 ------------ NEW JERSEY -- 5.4% 2,150,000 New Jersey COP, Series 2008 A, (Equipment Lease Purchase), 5.00%, 6/15/21 2,098,679 5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 A, (Gloucester Marine Terminal), 6.625%, 1/1/37 3,736,550 5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 B, (Gloucester Marine Terminal), 6.875%, 1/1/37 3,810,100 2,000,000 New Jersey Economic Development Auth. Rev., Series 2006 C, (Gloucerter Marine Terminal), 6.50%, 1/1/15 1,754,040 ------------ 11,399,369 ------------ - ------ 20 High-Yield Municipal Principal Amount Value NEW MEXICO -- 1.6% $1,490,000 Cabezon Public Improvement District Special Tax Rev., 6.30%, 9/1/34 $ 1,129,554 900,000 Mariposa East Public Improvement District GO, 6.00%, 9/1/32 622,782 1,190,000 Montecito Estates Public Improvement District Special Levy Rev., (City of Albuquerque), 7.00%, 10/1/37 881,445 1,000,000 Ventana West Public Improvement District Special Levy Rev., Series 2004, 6.875%, 8/1/33 800,670 ------------ 3,434,451 ------------ NEW YORK -- 6.9% 2,500,000 Nassau County Industrial Development Agency Continuing Care Retirement Community Rev., Series 2007 A, (Amstredam at Harborside), 6.50%, 1/1/27 2,031,150 4,250,000 New York State Dormitory Auth. Rev., Series 2008, (Orange Regional Medical Center), 6.25%, 12/1/37 3,163,062 6,250,000 New York State Dormitory Auth. Rev., Series 2008 A2, (Memorial Sloan - Kettering Cancer Center), 5.00%, 7/1/26 5,988,563 1,000,000 Onondaga County Industrial Development Agency Rev., (Air Cargo), 7.25%, 1/1/32 841,860 2,500,000 Triborough Bridge & Tunnel Auth. Rev., Series 2008 B3, (GO of Authority), 5.00%, 11/15/15 2,613,950 ------------ 14,638,585 ------------ NORTH CAROLINA -- 5.0% 1,700,000 Austin Trust Various States Rev., Series 2008-1133, VRDN, 1.53%, 12/4/08 (FSA) (LIQ FAC: Bank of America N.A.) 1,700,000 4,645,000 North Carolina Municipal Power Agency No. 1 Catawba Elect Rev., Series 2008 A, 5.25%, 1/1/16 4,817,190 4,000,000 North Carolina Municipal Power Agency No. 1 Catawba Rev., Series 2008 A, Catawba Electric, 5.25%, 1/1/17 4,103,160 ------------ 10,620,350 ------------ Principal Amount Value OHIO -- 4.7% $4,255,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A2, (Asset-Backed Senior Current Interest Turbo Term), 6.50%, 6/1/47 $ 2,918,079 285,000 New Albany Plain Local School District GO, 5.50%, 12/1/19 (FGIC) 290,908 4,865,000 Ohio State Higher Educational Facility Commission, Series 2008, (Cleveland Clinic Health), 5.00%, 1/1/25 4,506,693 1,800,000 Pinnacle Community Infrastructure Financing Facilities Auth. Rev., Series 2004 A, 6.25%, 12/1/36 1,324,422 1,100,000 Port of Greater Cincinnati Development Auth. Special Assessment Rev., (Cooperative Public Parking Infrastructure), 6.40%, 2/15/34 801,592 ------------ 9,841,694 ------------ OKLAHOMA -- 0.3% 750,000 Oklahoma City Industrial & Cultural Facilities Trust Rev., 6.75%, 1/1/23 626,850 ------------ OREGON -- 0.8% 2,430,000 Forest Grove Student Housing Rev., Series 2007, (Oak Tree Foundation), 5.50%, 3/1/37 1,658,353 ------------ PENNSYLVANIA -- 2.1% 3,915,000 Allegheny County Redevelopment Auth. Tax Allocation Rev., (Pittsburgh Mills), 5.10%, 7/1/14 3,391,486 1,500,000 Allegheny County Redevelopment Auth. Tax Allocation Rev., (Pittsburgh Mills), 5.60%, 7/1/23 1,121,160 ------------ 4,512,646 ------------ PUERTO RICO -- 0.2% 600,000 Puerto Rico Commonwealth GO, Series 2008 A, 6.00%, 7/1/38 519,444 ------------ TENNESSEE -- 3.5% 1,265,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 B, (Campus Development Foundation, Inc. Phase I LLC), 5.50%, 10/1/20 1,003,841 - ------ 21 High-Yield Municipal Principal Amount Value $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 $ 2,530,152 350,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2007, (Siskin Rehabilitation), VRDN, 0.90%, 12/1/08 350,000 3,695,000 Shelby County Health Educational & Housing Facilities Board Rev., Series 2008 C, 5.25%, 6/1/17 3,432,100 ------------ 7,316,093 ------------ TEXAS -- 3.7% 390,000 Abia Development Corp. Airport Facilities Rev., (Aero Austin L.P.), 6.75%, 1/1/11 375,410 100,000 Austin Trust Various States Rev., VRDN, 1.53%, 12/4/08 (FSA) (LIQ FAC: Bank of America, N.A.) 100,000 2,250,000 Lower Colorado River Auth. Rev., 5.75%, 5/15/37 2,170,643 5,300,000 North Texas Tollway Auth. Rev., Series 2008 H, 5.00%, 1/1/13 5,207,621 ------------ 7,853,674 ------------ VIRGINIA -- 1.0% 3,000,000 Peninsula Town Center Community Development Auth. Rev., Series 2007, 6.45%, 9/1/37 2,169,990 ------------ WASHINGTON -- 1.3% 2,375,000 Energy Northwest Electric Rev., Series 2008 D, (Columbia Generating), 5.00%, 7/1/12 2,538,875 250,000 Port of Seattle Rev., Series 2000 B, 6.00%, 2/1/15 (MBIA) 252,863 ------------ 2,791,738 ------------ Principal Amount Value WISCONSIN -- 0.7% $2,000,000 Wisconsin Health & Educational Facilities Auth. Rev., Series 2004 A, (Southwest Health Center), 6.25%, 4/1/34 $ 1,445,820 ------------ TOTAL INVESTMENT SECURITIES -- 98.6% (Cost $259,107,578) 208,522,234 ------------ OTHER ASSETS AND LIABILITIES -- 1.4% 2,864,376 ------------ TOTAL NET ASSETS -- 100.0% $211,386,610 ============ 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 LIQ FAC = Liquidity Facilities 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. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 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 these securities at November 30, 2008 was $1,890,226, which represented 0.9% of total net assets. See Notes to Financial Statements. - ------ 22 STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 2008 (UNAUDITED) Long-Term High-Yield Tax-Free Municipal ASSETS Investment securities, at value (cost of $34,153,377 and $259,107,578, respectively) $32,560,825 $208,522,234 Cash 28,294 -- Receivable for investments sold 417,407 171,050 Receivable for capital shares sold 178,808 324,776 Interest receivable 508,967 4,681,870 ----------- ------------ 33,694,301 213,699,930 ----------- ------------ LIABILITIES Disbursements in excess of demand deposit cash -- 218,028 Payable for investments purchased 843,642 -- Payable for capital shares redeemed 43,094 1,685,786 Accrued management fees 10,202 109,656 Distribution fees payable 1,587 18,912 Service fees (and distribution fees -- A Class) payable 2,814 28,497 Dividends payable 4,902 252,441 ----------- ------------ 906,241 2,313,320 ----------- ------------ NET ASSETS $32,788,060 $211,386,610 =========== ============ See Notes to Financial Statements. - ------ 23 NOVEMBER 30, 2008 (UNAUDITED) Long-Term High-Yield Tax-Free Municipal NET ASSETS CONSIST OF: Capital paid in $35,621,343 $ 274,747,737 Accumulated undistributed net investment income (loss) 25,576 (54) Accumulated net realized loss on investment transactions (1,266,307) (12,775,729) Net unrealized depreciation on investments (1,592,552) (50,585,344) ----------- ------------- $32,788,060 $ 211,386,610 =========== ============= INVESTOR CLASS Net assets $1,892,039 $76,855,608 Shares outstanding 191,297 9,584,764 Net asset value per share $9.89 $8.02 INSTITUTIONAL CLASS Net assets $16,888,831 N/A Shares outstanding 1,707,563 N/A Net asset value per share $9.89 N/A A CLASS Net assets $11,250,934 $105,061,142 Shares outstanding 1,137,514 13,101,352 Net asset value per share $9.89 $8.02 Maximum offering price (net asset value divided by 0.955) $10.36 $8.40 B CLASS Net assets $882,358 $2,707,428 Shares outstanding 89,222 337,599 Net asset value per share $9.89 $8.02 C CLASS Net assets $1,873,898 $26,762,432 Shares outstanding 189,454 3,338,913 Net asset value per share $9.89 $8.02 See Notes to Financial Statements. - ------ 24 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2008 (UNAUDITED) Long-Term High-Yield Tax-Free Municipal INVESTMENT INCOME (LOSS) INCOME: Interest $ 679,113 $ 7,540,319 ------------ ------------- EXPENSES: Management fees 58,026 759,712 Distribution fees: B Class 3,658 13,253 C Class 4,681 121,913 Service fees: B Class 1,219 4,418 C Class 1,560 40,637 Distribution and service fees -- A Class 12,546 157,880 Trustees' fees and expenses 789 6,530 Other expenses 68 782 ------------ ------------- 82,547 1,105,125 ------------ ------------- NET INVESTMENT INCOME (LOSS) 596,566 6,435,194 ------------ ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (354,977) (4,129,159) Futures transactions 49,866 974,036 ------------ ------------- (305,111) (3,155,123) ------------ ------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (1,719,545) (40,689,545) Futures (5,412) (33,871) ------------ ------------- (1,724,957) (40,723,416) ------------ ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (2,030,068) (43,878,539) ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,433,502) $(37,443,345) ============ ============= See Notes to Financial Statements. - ------ 25 STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED NOVEMBER 30, 2008 (UNAUDITED) AND YEAR ENDED MAY 31, 2008 Long-Term Tax-Free High-Yield Municipal Increase (Decrease) in Nov. 30, Net Assets 2008 May 31, 2008 Nov. 30, 2008 May 31, 2008 OPERATIONS Net investment income (loss) $ 596,566 $ 1,137,158 $ 6,435,194 $ 13,420,902 Net realized gain (loss) (305,111) (405,518) (3,155,123) (9,342,893) Change in net unrealized appreciation (depreciation) (1,724,957) (204,636) (40,723,416) (19,705,067) ----------- ----------- ------------ ------------ Net increase (decrease) in net assets resulting from operations (1,433,502) 527,004 (37,443,345) (15,627,058) ----------- ----------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (30,910) (17,308) (2,339,716) (4,566,108) Institutional Class (352,573) (730,716) -- -- A Class (182,634) (341,166) (3,290,827) (7,203,404) B Class (13,996) (37,439) (78,902) (175,879) C Class (18,068) (10,529) (725,803) (1,475,511) ----------- ----------- ------------ ------------ Decrease in net assets from distributions (598,181) (1,137,158) (6,435,248) (13,420,902) ----------- ----------- ------------ ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions 4,456,785 (223,047) (9,776,406) (4,863,723) ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS 2,425,102 (833,201) (53,654,999) (33,911,683) NET ASSETS Beginning of period 30,362,958 31,196,159 265,041,609 298,953,292 ----------- ----------- ------------ ------------ End of period $32,788,060 $30,362,958 $211,386,610 $265,041,609 =========== =========== ============ ============ Accumulated undistributed net investment income (loss) $25,576 $27,191 $(54) -- =========== =========== ============ ============ See Notes to Financial Statements. - ------ 26 NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2008 (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. Long-Term Tax-Free Fund (Long-Term Tax-Free) and High-Yield Municipal Fund (High-Yield Municipal) (collectively, the funds) are two funds in a series issued by the trust. Long-Term Tax-Free is diversified under the 1940 Act. High-Yield Municipal is 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 transactions and unrealized appreciation (depreciation) on futures, 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 investments. 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 have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. The funds are no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and 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 six months ended November 30, 2008, was 0.48% and 0.61%, respectively. The effective annual management fee for the Institutional Class of Long-Term Tax-Free for the six months ended November 30, 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 six month ended November 30, 2008, are detailed in the Statement of Operations. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors 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. JPMorgan Chase Bank is a custodian of the funds and a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the six months ended November 30, 2008, were as follows: Long-Term Tax Free High-Yield Municipal Purchases $10,157,837 $39,500,347 Proceeds from sales $6,533,242 $59,874,829 - ------ 29 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): Six months ended Year ended November 30, 2008 May 31, 2008 Shares Amount Shares Amount Long-Term Tax-Free INVESTOR CLASS Sold 120,812 $ 1,257,771 123,013 $ 1,289,179 Issued in reinvestment of distributions 2,823 28,561 1,412 14,875 Redeemed (33,777) (345,632) (43,591) (458,140) --------- ----------- --------- ----------- 89,858 940,700 80,834 845,914 --------- ----------- --------- ----------- INSTITUTIONAL CLASS Issued in reinvestment of distributions 34,485 350,572 69,445 730,716 --------- ----------- --------- ----------- A CLASS Sold 388,631 3,946,041 308,625 3,260,281 Issued in reinvestment of distributions 15,345 155,672 25,681 273,082 Redeemed (149,358) (1,518,655) (586,314) (6,216,798) --------- ----------- --------- ----------- 254,618 2,583,058 (252,008) (2,683,435) --------- ----------- --------- ----------- B CLASS Sold 8,124 80,771 2,970 31,287 Issued in reinvestment of distributions 1,130 11,503 2,868 30,258 Redeemed (29,778) (305,124) (27,452) (290,176) --------- ----------- --------- ----------- (20,524) (212,850) (21,614) (228,631) --------- ----------- --------- ----------- C CLASS Sold 112,924 1,121,486 114,908 1,214,251 Issued in reinvestment of distributions 1,640 16,613 935 9,837 Redeemed (34,277) (342,794) (10,509) (111,699) --------- ----------- --------- ----------- 80,287 795,305 105,334 1,112,389 --------- ----------- --------- ----------- Net increase (decrease) 438,724 $ 4,456,785 (18,009) $ (223,047) ========= =========== ========= =========== - ------ 30 Six months ended Year Ended November 30, 2008 May 31, 2008 Shares Amount Shares Amount High-Yield Municipal INVESTOR CLASS Sold 2,831,044 $ 25,981,761 3,460,250 $ 34,684,853 Issued in reinvestment of distributions 181,134 1,605,154 283,425 2,832,724 Redeemed (2,474,103) (22,423,581) (3,801,236) (38,290,517) ----------- ------------ ----------- ------------ 538,075 5,163,334 (57,561) (772,940) ----------- ------------ ----------- ------------ A CLASS Sold 2,484,445 22,372,659 6,642,501 66,611,899 Issued in reinvestment of distributions 310,405 2,764,161 606,875 6,057,678 Redeemed (4,233,171) (38,030,498) (7,558,740) (75,730,114) ----------- ------------ ----------- ------------ (1,438,321) (12,893,678) (309,364) (3,060,537) ----------- ------------ ----------- ------------ B CLASS Sold 9,400 86,497 24,142 247,623 Issued in reinvestment of distributions 3,737 33,354 7,404 73,859 Redeemed (70,570) (594,880) (84,927) (860,513) ----------- ------------ ----------- ------------ (57,433) (475,029) (53,381) (539,031) ----------- ------------ ----------- ------------ C CLASS Sold 421,474 3,876,809 1,164,913 11,675,088 Issued in reinvestment of distributions 35,756 318,024 60,290 600,802 Redeemed (657,750) (5,765,866) (1,269,899) (12,767,105) ----------- ------------ ----------- ------------ (200,520) (1,571,033) (44,696) (491,215) ----------- ------------ ----------- ------------ Net decrease (1,158,199) $(9,776,406) (465,002) $(4,863,723) =========== ============ =========== ============ 5. FAIR VALUE MEASUREMENTS The funds' securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the funds. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows: * Level 1 valuation inputs consist of actual quoted prices based on an active market; * Level 2 valuation inputs consist of significant direct or indirect observable market data; or * Level 3 valuation inputs consist of significant unobservable inputs such as the fund's own assumptions. The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not an indication of the risks associated with investing in these securities or other financial instruments. - ------ 31 The following is a summary of the valuation inputs used to determine the fair value of the funds' securities as of November 30, 2008: Value of Fund/Valuation Inputs Investment Securities LONG-TERM TAX FREE Level 1 -- Quoted Prices -- Level 2 -- Other Significant Observable Inputs $32,560,825 Level 3 -- Significant Unobservable Inputs -- ------------ $32,560,825 ============ HIGH-YIELD MUNICIPAL Level 1 -- Quoted Prices -- Level 2 -- Other Significant Observable Inputs $208,522,234 Level 3 -- Significant Unobservable Inputs -- ------------ $208,522,234 ============ 6. BANK LINE OF CREDIT The funds, along with certain other funds managed by ACIM or American Century Global Investment Management, Inc. (ACGIM), have a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. 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 line expired December 10, 2008, and was not renewed. The funds did not borrow from the line during the six months ended November 30, 2008. 7. INTERFUND LENDING The funds, along with certain other funds managed by ACIM or ACGIM, may participate in an interfund lending program, pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC). This program provides an alternative credit facility allowing the funds to borrow from or lend to other funds in the American Century Investments family of funds that permit such transactions. During the six months ended November 30, 2008, the funds did not utilize the program. 8. 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. 9. FEDERAL TAX INFORMATION The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. - ------ 32 As of November 30, 2008, the components of investments for federal income tax purposes were as follows: Long-Term High-Yield Tax-Free Municipal Federal tax cost of investments $34,153,377 $259,107,578 ============ ============= Gross tax appreciation of investments $ 163,006 $ 199,750,000 Gross tax depreciation of investments (1,755,558) (250,335,344) ------------ ------------- Net tax appreciation (depreciation) of investments $(1,592,552) $(50,585,344) ============ ============= The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. Following are the capital loss carryovers and capital loss deferral amounts as of May 31, 2008: Long-Term Tax Free High-Yield Municipal Accumulated capital losses $(955,784) $(5,078,339) Capital loss deferral -- $(5,063,032) 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. 10. RECENTLY ISSUED ACCOUNTING STANDARDS 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 did 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 interim periods 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. - ------ 33 FINANCIAL HIGHLIGHTS Long-Term Tax-Free Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.56 $10.78 $10.70 $10.72 ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.20 0.43 0.43 0.06 Net Realized and Unrealized Gain (Loss) (0.67) (0.22) 0.08 (0.02) ------ ------ ------ ------ Total From Investment Operations (0.47) 0.21 0.51 0.04 ------ ------ ------ ------ Distributions From Net Investment Income (0.20) (0.43) (0.43) (0.06) ------ ------ ------ ------ Net Asset Value, End of Period $9.89 $10.56 $10.78 $10.70 ====== ====== ====== ====== TOTAL RETURN(3) (4.50)% 1.99% 4.84% 0.42% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.49%(4) 0.49% 0.49% 0.49%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 3.86%(4) 4.02% 4.00% 3.85%(4) Portfolio Turnover Rate 22% 257% 101% 62% Net Assets, End of Period (in thousands) $1,892 $1,071 $222 $25 (1) Six months ended November 30, 2008 (unaudited). (2) April 3, 2006 (commencement of sale) through May 31, 2006. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. See Notes to Financial Statements. - ------ 34 Long-Term Tax-Free Institutional Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.56 $10.78 $10.70 $10.72 ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.21 0.45 0.45 0.07 Net Realized and Unrealized Gain (Loss) (0.67) (0.22) 0.08 (0.02) ------ ------ ------ ------ Total From Investment Operations (0.46) 0.23 0.53 0.05 ------ ------ ------ ------ Distributions From Net Investment Income (0.21) (0.45) (0.45) (0.07) ------ ------ ------ ------ Net Asset Value, End of Period $9.89 $10.56 $10.78 $10.70 ====== ====== ====== ====== TOTAL RETURN(3) (4.40)% 2.19% 5.05% 0.45% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.29%(4) 0.29% 0.29% 0.29%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 4.06%(4) 4.22% 4.20% 4.05%(4) Portfolio Turnover Rate 22% 257% 101% 62% Net Assets, End of Period (in thousands) $16,889 $17,661 $17,285 $16,456 (1) Six months ended November 30, 2008 (unaudited). (2) April 3, 2006 (commencement of sale) through May 31, 2006. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. See Notes to Financial Statements. - ------ 35 Long-Term Tax-Free A Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006(2) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.56 $10.78 $10.70 $10.72 $10.74 $11.06 $10.98 ------ ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.18 0.40 0.41 0.06 0.35(3) 0.33(3) 0.33(3) Net Realized and Unrealized Gain (Loss) (0.67) (0.22) 0.08 (0.02) (0.03) (0.15) 0.24 ------ ------ ------ ------ ------ ------ ------ Total From Investment Operations (0.49) 0.18 0.49 0.04 0.32 0.18 0.57 ------ ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.18) (0.40) (0.41) (0.06) (0.34) (0.33) (0.33) From Net Realized Gains -- -- -- -- -- (0.17) (0.16) ------ ------ ------ ------ ------ ------ ------ Total Distributions (0.18) (0.40) (0.41) (0.06) (0.34) (0.50) (0.49) ------ ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.89 $10.56 $10.78 $10.70 $10.72 $10.74 $11.06 ====== ====== ====== ====== ====== ====== ====== TOTAL RETURN(4) (4.62)% 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%(5) 0.74% 0.74% 0.74%(5) 0.82% 0.84% 0.85% Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 0.74%(5) 0.74% 0.74% 0.74%(5) 0.82% 0.84% 0.89% Ratio of Net Investment Income (Loss) to Average Net Assets 3.61%(5) 3.77% 3.75% 3.60%(5) 3.21% 3.01% 3.01% Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 3.61%(5) 3.77% 3.75% 3.60%(5) 3.21% 3.01% 2.97% Portfolio Turnover Rate 22% 257% 101% 62% 27% 43% 815%(6) Net Assets, End of Period (in thousands) $11,251 $9,320 $12,233 $19,288 $36,834 $123,399 $120,606 (1) Six months ended November 30, 2008 (unaudited). (2) April 1, 2006 through May 31, 2006. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period. For the years before May 31, 2006, Long-Term Tax-Free's fiscal year end was March 31. (3) Computed using average shares outstanding throughout the period. (4) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (5) Annualized. (6) Portfolio turnover rate includes the effect of using U.S. Treasuries in same day trades to manage interest rate risk. The rate would be 238% if this trading activity was excluded from the calculation. See Notes to Financial Statements. - ------ 36 Long-Term Tax-Free B Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006(2) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $10.56 $10.78 $10.70 $10.72 $10.73 $11.06 $10.98 ------ ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.14 0.32 0.32 0.05 0.27(3) 0.26(3) 0.26(3) Net Realized and Unrealized Gain (Loss) (0.67) (0.22) 0.08 (0.02) (0.01) (0.16) 0.24 ------ ------ ------ ------ ------ ------ ------ Total From Investment Operations (0.53) 0.10 0.40 0.03 0.26 0.10 0.50 ------ ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.14) (0.32) (0.32) (0.05) (0.27) (0.26) (0.26) From Net Realized Gains -- -- -- -- -- (0.17) (0.16) ------ ------ ------ ------ ------ ------ ------ Total Distributions (0.14) (0.32) (0.32) (0.05) (0.27) (0.43) (0.42) ------ ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.89 $10.56 $10.78 $10.70 $10.72 $10.73 $11.06 ====== ====== ====== ====== ====== ====== ====== TOTAL RETURN(4) (4.89)% 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%(5) 1.49% 1.49% 1.49%(5) 1.50% 1.50% 1.50% Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 1.49%(5) 1.49% 1.49% 1.49%(5) 1.54% 1.52% 1.54% Ratio of Net Investment Income (Loss) to Average Net Assets 2.86%(5) 3.02% 3.00% 2.85%(5) 2.49% 2.36% 2.39% Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 2.86%(5) 3.02% 3.00% 2.85%(5) 2.45% 2.34% 2.35% Portfolio Turnover Rate 22% 257% 101% 62% 27% 43% 815%(6) Net Assets, End of Period (in thousands) $882 $1,158 $1,416 $2,046 $2,081 $2,483 $2,674 (1) Six months ended November 30, 2008 (unaudited). (2) April 1, 2006 through May 31, 2006. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period. For the years before May 31, 2006, Long-Term Tax-Free's fiscal year end was March 31. (3) Computed using average shares outstanding throughout the period. (4) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (5) Annualized. (6) Portfolio turnover rate includes the effect of using U.S. Treasuries in same day trades to manage interest rate risk. The rate would be 238% if this trading activity was excluded from the calculation. See Notes to Financial Statements. - ------ 37 Long-Term Tax-Free C Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.56 $10.78 $10.70 $10.72 ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.14 0.32 0.32 0.05 Net Realized and Unrealized Gain (Loss) (0.67) (0.22) 0.08 (0.02) ------ ------ ------ ------ Total From Investment Operations (0.53) 0.10 0.40 0.03 ------ ------ ------ ------ Distributions From Net Investment Income (0.14) (0.32) (0.32) (0.05) ------ ------ ------ ------ Net Asset Value, End of Period $9.89 $10.56 $10.78 $10.70 ====== ====== ====== ====== TOTAL RETURN(3) (4.98)% 0.98% 3.80% 0.26% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.49%(4) 1.49% 1.49% 1.49%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 2.86%(4) 3.02% 3.00% 2.85%(4) Portfolio Turnover Rate 22% 257% 101% 62% Net Assets, End of Period (in thousands) $1,874 $1,152 $41 $25 (1) Six months ended November 30, 2008 (unaudited). (2) April 3, 2006 (commencement of sale) through May 31, 2006. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. See Notes to Financial Statements. - ------ 38 High-Yield Municipal Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.63 $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.24 0.52 0.51 0.50 0.51 0.52 Net Realized and Unrealized Gain (Loss) (1.61) (1.05) 0.18 --(2) 0.46 (0.21) ------ ------ ------ ------ ------ ------ Total From Investment Operations (1.37) (0.53) 0.69 0.50 0.97 0.31 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.24) (0.52) (0.51) (0.50) (0.51) (0.52) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $8.02 $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (14.36)% (5.01)% 6.70% 4.91% 9.84% 3.07% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.62%(4) 0.62% 0.62% 0.62% 0.63% 0.64% Ratio of Net Investment Income (Loss) to Average Net Assets 5.46%(4) 5.16% 4.80% 4.80% 4.92% 5.06% Portfolio Turnover Rate 17% 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $76,856 $87,127 $97,254 $84,896 $62,945 $54,340 (1) Six months ended November 30, 2008 (unaudited). (2) Per-share amount was less than $0.005. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. See Notes to Financial Statements. - ------ 39 High-Yield Municipal A Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.63 $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.23 0.50 0.48 0.48 0.48 0.49 Net Realized and Unrealized Gain (Loss) (1.61) (1.05) 0.18 --(2) 0.46 (0.21) ------ ------ ------ ------ ------ ------ Total From Investment Operations (1.38) (0.55) 0.66 0.48 0.94 0.28 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.23) (0.50) (0.48) (0.48) (0.48) (0.49) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $8.02 $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (14.46)% (5.25)% 6.43% 4.65% 9.56% 2.81% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.87%(4) 0.87% 0.87% 0.87% 0.88% 0.89% Ratio of Net Investment Income (Loss) to Average Net Assets 5.21%(4) 4.91% 4.55% 4.55% 4.67% 4.81% Portfolio Turnover Rate 17% 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $105,061 $140,037 $158,622 $129,681 $79,154 $33,335 (1) Six months ended November 30, 2008 (unaudited). (2) Per-share amount was less than $0.005. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. See Notes to Financial Statements. - ------ 40 High-Yield Municipal B Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.63 $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.20 0.42 0.40 0.40 0.40 0.42 Net Realized and Unrealized Gain (Loss) (1.61) (1.05) 0.18 --(2) 0.46 (0.21) ------ ------ ------ ------ ------ ------ Total From Investment Operations (1.41) (0.63) 0.58 0.40 0.86 0.21 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.20) (0.42) (0.40) (0.40) (0.40) (0.42) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $8.02 $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (14.79)% (5.96)% 5.64% 3.87% 8.75% 2.05% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.62%(4) 1.62% 1.62% 1.62% 1.63% 1.64% Ratio of Net Investment Income (Loss) to Average Net Assets 4.46%(4) 4.16% 3.80% 3.80% 3.92% 4.06% Portfolio Turnover Rate 17% 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $2,707 $3,805 $4,790 $4,468 $3,573 $2,541 (1) Six months ended November 30, 2008 (unaudited). (2) Per-share amount was less than $0.005. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. See Notes to Financial Statements. - ------ 41 High-Yield Municipal C Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2008(1) 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.63 $10.68 $10.50 $10.50 $10.04 $10.25 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.20 0.42 0.40 0.40 0.40 0.43 Net Realized and Unrealized Gain (Loss) (1.61) (1.05) 0.18 --(2) 0.46 (0.21) ------ ------ ------ ------ ------ ------ Total From Investment Operations (1.41) (0.63) 0.58 0.40 0.86 0.22 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.20) (0.42) (0.40) (0.40) (0.40) (0.43) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $8.02 $9.63 $10.68 $10.50 $10.50 $10.04 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (14.79)% (5.96)% 5.64% 3.86% 8.74% 2.20% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.62%(4) 1.62% 1.62% 1.62% 1.63% 1.54% Ratio of Net Investment Income (Loss) to Average Net Assets 4.46%(4) 4.16% 3.80% 3.80% 3.92% 4.16% Portfolio Turnover Rate 17% 69% 36% 16% 30% 27% Net Assets, End of Period (in thousands) $26,762 $34,072 $38,287 $29,862 $16,967 $8,457 (1) Six months ended November 30, 2008 (unaudited). (2) Per-share amount was less than $0.005. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. See Notes to Financial Statements. - ------ 42 APPROVAL OF MANAGEMENT AGREEMENTS Long-Term Tax-Free and High-Yield Municipal Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century Investments, this process is referred to as the "15(c) Process." The board oversees on a continuous basis and evaluates at its quarterly meetings, directly and through the committees of the board, the nature and quality of significant services provided by the advisor, the investment performance of the funds, shareholder services, audit and compliance functions and a variety of other matters relating to fund operations. Each year, it also holds a special meeting in connection with determining whether to renew the contracts for advisory services, to review fund performance, shareholder services, adviser profitability, audit and compliance matters, and other fund operational matters. Under a Securities and Exchange Commission rule, each fund is required to disclose in its annual or semiannual report, as appropriate, the material factors and conclusions that formed the basis for the board's approval or renewal of any advisory agreements within the fund's most recently completed fiscal half-year period. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process, the Directors reviewed extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning Long-Term Tax-Free and High-Yield Municipal (the "funds") and the services provided to the funds under the management agreement. The information considered and the discussions held at the meetings included, but were not limited to: * the nature, extent and quality of investment management, shareholder services and other services provided to the funds; * reports on the wide range of programs and services the advisor provides to the funds and their shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * data comparing the cost of owning the funds to the cost of owning similar funds; * data comparing the funds' performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the funds to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to other investment management clients of the advisor. In keeping with its practice, the Directors at a special meeting and at a regularly scheduled quarterly meeting reviewed and discussed the information provided by the advisor throughout the year and to negotiate with the advisor the renewal of the management agreement, including the setting of the applicable advisory fee. The board had the benefit of the advice of its independent counsel throughout the period. - ------ 43 FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, an independent data provider, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreement, the advisor is responsible for providing or arranging for all services necessary for the operation of the funds. The board noted that under the management agreement, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of the funds' portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal-services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the funds in accordance with its investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their - ------ 44 business. At each quarterly meeting and at the special meeting to consider renewal of the advisory contract, the Directors, directly and through its Portfolio Committee, reviews investment performance information for the funds, together with comparative information for appropriate benchmarks and peer groups of funds managed similarly to the funds. If performance concerns are identified, the Directors discuss with the advisor the reasons for such results (e.g., market conditions, security and sector selection) and any efforts being undertaken to improve performance. Each fund's performance fell below the median of its peer group for both the one- and three-year periods during the past year. The board discussed the fund's performance with the advisor and was satisfied with the efforts being undertaken by the advisor. SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a comprehensive package of transfer agency, shareholder, and other services. The Directors, directly and through the various Committees of the Board, review reports and evaluations of such services at their regular quarterly meetings and at its special meeting to consider renewal of the Advisory Contract, including the annual meeting concerning contract review, and reports to the board. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed information concerning its cost of providing various services to the funds, its profitability in managing the funds, its overall profitability, and its financial condition. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. ETHICS. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the funds specifically, and the expenses incurred by the advisor in providing various functions to the funds. The Directors believe the advisor is appropriately sharing economies of scale through its competitive fee structure, fee breakpoints as the fund complex and the funds increase in size, and through reinvestment in its business to provide shareholders additional content and services. In particular, separate breakpoint schedules based on the size of the entire fund complex and on the size of the funds reflect the complexity of assessing economies of scale. - ------ 45 COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the funds, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the funds' independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the risk of increased costs of operating the fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Directors' analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the fund's unified fee to the total expense ratio of other funds in the fund's peer group. The unified fee charged to shareholders of each fund was in the lowest quartile of the total expense ratios of its peer group. COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the funds. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the funds. The Directors analyzed this information and concluded that the fees charged and services provided to the funds were reasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the funds. They concluded that the advisor's primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Directors noted that the advisor receives proprietary research from broker dealers that execute fund portfolio transactions and concluded that this research is likely to benefit fund shareholders. The Directors also determined that the advisor is able to provide investment management services to certain clients other than the fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Directors concluded, however, that the assets of those other clients are not material to the analysis and, in any event, are included with the assets of the funds to determine breakpoints in the funds' fee schedule, provided they are managed using the same investment team and strategy. CONCLUSIONS OF THE DIRECTORS As a result of this process, the Directors, in the absence of particular circumstances and assisted by the advice of legal counsel that is independent of the advisor, taking into account all of the factors discussed above and the information provided by the advisor and others concluded that the investment management agreement between each fund and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------ 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 BARCLAYS CAPITAL MUNICIPAL BOND INDEX is a market value-weighted index designed for the long-term tax-exempt bond market. The BARCLAYS CAPITAL 3-YEAR MUNICIPAL BOND INDEX is composed of those securities included in the Barclays Capital Municipal Bond Index that are investment-grade and have maturities between two and four years. The BARCLAYS CAPITAL LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Barclays Capital Municipal Bond Index that have maturities greater than 22 years. The BARCLAYS CAPITAL 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 BARCLAYS CAPITAL 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 BARCLAYS CAPITAL 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 BARCLAYS CAPITAL U.S. TREASURY INDEX is composed of those securities included in the Barclays Capital 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 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. 0901 CL-SAN-63743N-SUP ITEM 2. CODE OF ETHICS. Not applicable for semiannual report filings. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semiannual report filings. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semiannual report filings. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. 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) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Not applicable for semiannual report filings. (a)(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as Exhibit 99.302CERT. (a)(3) Not applicable. (b) A certification by the registrant's chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is furnished and attached hereto as Exhibit 99.906CERT.SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: AMERICAN CENTURY MUNICIPAL TRUST By: /s/ Jonathan S. Thomas ---------------------------------------- Name: Jonathan S. Thomas Title: President Date: January 29, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Jonathan S. Thomas ---------------------------------------- Name: Jonathan S. Thomas Title: President (principal executive officer) Date: January 29, 2009 By: /s/ Robert J. Leach ---------------------------------------- Name: Robert J. Leach Title: Vice President, Treasurer, and Chief Financial Officer (principal financial officer) Date: January 29, 2009