ANNUAL REPORT
[american century logo]
American
Century(sm)
May 31, 1997
BENHAM
GROUP
Tax-Free Money Market
Intermediate-Term Tax-Free
Long-Term Tax-Free
[front cover]
TABLE OF CONTENTS
Report Highlights........................................... 1
Our Message to You.......................................... 2
Period Overview............................................. 3
Municipal Credit Review..................................... 4
Tax-Free Money Market
Performance Information.................................. 5
Management Q & A......................................... 6
Schedule of Investments.................................. 8
Financial Highlights.....................................30
Intermediate-Term Tax-Free
Performance Information..................................11
Management Q & A.........................................12
Schedule of Investments..................................15
Financial Highlights.....................................31
Long-Term Tax-Free
Performance Information..................................18
Management Q & A.........................................19
Schedule of Investments..................................22
Financial Highlights.....................................32
Statements of Assets and Liabilities........................25
Statements of Operations....................................26
Statements of Changes in Net Assets.........................27
Notes to Financial Statements...............................28
Independent Auditors' Report................................33
Background Information
Investment Philosophy & Policies.........................36
Comparative Indices......................................36
Lipper Rankings..........................................36
Portfolio Management Team................................36
Glossary....................................................37
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Tax-Free Money Market
Intermediate-Term Tax-Free
Long-Term Tax-Free
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
Period Overview
o The U.S. economy grew at a healthy pace during the 12 months ended May 31,
1997, while inflation remained relatively tame.
o The Federal Reserve raised short-term interest rates in late March in an
attempt to head off potential inflation going forward.
o Municipal bonds produced solid returns for the period.
o Low levels of new municipal debt issuance supported municipal bond prices.
Municipal Credit Review
o Strong U.S. economic growth led to improved municipal credit quality during
the period.
o Despite the generally positive municipal credit outlook, federal policies
related to health care and welfare reform may pose longer-term challenges
to local governments.
Tax-Free Money Market
o The fund slightly outperformed its Lipper peer group average during the
fiscal year ended May 31, 1997.
o Benham Management Corporation will waive its management fee for one year
beginning August 1, 1997. We've also lowered the fund's expense cap from 67
to 50 basis points.
o Going forward, we'll look for opportunities to add one-year municipal
securities at attractive yields relative to shorter-term securities.
Intermediate-Term Tax-Free
o The fund slightly underperformed its Lipper peer group average during the
fiscal year ended May 31, 1997.
o We sold many of the attractively priced California municipal securities we
purchased in the aftermath of the Orange County bankruptcy at a profit.
o The proposed merger with the Benham Intermediate-Term Tax-Exempt fund will
have no effect on this fund's investment management, objectives or
policies.
o Going forward, we plan to use a conservative, value-oriented approach to
managing the fund.
Long-Term Tax-Free
o The fund strongly outperformed its Lipper peer group average during the
fiscal year ended May 31, 1997.
o We made only minor adjustments to the fund's maturity and duration,
concentrating instead on adding attractively valued securities to the fund.
o The proposed merger with the Benham Long-Term Tax-Exempt fund will have no
effect on this fund's investment management, objectives or policies.
o Going forward, we think slower economic growth could cause the municipal
market to rally, so we plan to keep the fund's duration slightly longer
than the peer group average.
Tax-Free
Money Market
Total Returns: AS OF 5/31/97
6 Months 1.51%*
1 Year 2.98%
7-Day Current Yield: 3.32%
Net Assets: $85.7 million
(AS of 5/31/97)
Inception Date: 7/31/84
Ticker Symbol: BNTXX
Intermediate-Term
Tax-Free
Total Returns: AS OF 5/31/97
6 Months 1.23%*
1 Year 6.16%
Net Assets: $60.7 million
(AS of 5/31/97)
Inception Date: 7/31/84
Ticker Symbol: BNTIX
Long-Term Tax-Free
Total Returns: AS OF 5/31/97
6 Months 1.76%*
1 Year 8.41%
Net Assets: $52.0 million
(AS of 5/31/97)
Inception Date: 7/31/84
Ticker Symbol: BTFLX
* Not annualized.
Annual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
During the fiscal year ended May 31, 1997, investors in the Benham Tax-Free
funds earned solid, competitive returns as municipal securities outperformed
Treasurys for most of the period. The extended economic expansion that propelled
U.S. stock markets to new highs also benefited municipal and corporate bonds,
and low levels of inflation provided bond investors with higher real rates of
return. Improving real estate values and low unemployment across the country
boosted tax receipts for local governments, leading to credit quality upgrades
on many municipal bond issues.
American Century's municipal bond management team is well positioned to take
advantage of attractive opportunities in the municipal markets. We have
continued to expand our very talented team of municipal credit analysts, most
recently adding David Moore, who comes to us from Keystone Investments in
Boston. David will contribute an important East Coast perspective to the team.
The credit team contributed significantly to our ability to find undervalued
municipal securities that ultimately enhanced fund returns.
We also strengthened our corporate team. In June, Bill Lyons, American
Century's chief operating officer, was named president, assuming full
responsibility for the company's day-to-day operations. This change will allow
James E. Stowers III to focus more time on developing and refining new
investment technologies and tools that build on and leverage the proprietary
system his father pioneered 25 years ago. One of our goals is to ensure that we
continue to evolve and innovate--building the investment tools today that will
help lead us and our investors to success in the next century.
The proposed merger of the Benham Intermediate- and Long-Term Term Tax-Free
funds with the Intermediate- and Long-Term Tax-Exempt funds is another
opportunity for us to improve the way we serve you. Our aim is to reduce the
number of overlapping funds that resulted when Benham merged with Twentieth
Century. Combining similar funds not only creates greater efficiencies, but
should allow fund managers to focus more of their attention on each individual
fund.
We appreciate your confidence in American Century and look forward to continuing
to serve you.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
President and Chief Executive Officer Vice Chairman
American Century Companies American Century Companies
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. Economy
The U.S. economy grew at a healthy pace during the 12 months ended May 31, 1997.
After expanding at a 2.2% annual rate in the third quarter of 1996, the U.S.
economy surged ahead at an impressive 3.8% rate in the fourth quarter. Economic
growth hit a ten-year high of 5.9% in the first quarter of 1997. Fueling robust
growth were strong consumer spending and rising consumer confidence, which
reached a 28-year high in April. In addition, the unemployment rate fell from
5.4% in January to a 23-year low of 4.8% in May.
Inflation--as measured by the government's consumer price index--rose at a
modest 1.4% annual rate during the first five months of 1997. That stands in
sharp contrast to 1996, when prices rose by 3.6% --the largest yearly gain since
1990.
Concerned that vigorous economic growth might lead to higher inflation, the
Federal Reserve (the Fed) raised short-term interest rates in March--the first
such increase since February 1995. Though the Fed held rates steady at its May
interest rate policy meeting, tight labor markets and strong manufacturing
activity have kept market participants from ruling out another rate hike.
Municipal Bond Market
Municipal bonds produced strong returns as interest rates declined overall
during the 12-month period. Longer-term securities, which usually appreciate
more than short-term securities when rates fall, performed best. For the period,
the Lehman Long-Term Municipal Bond Index rose by 10.04%. The Lehman Five-Year
General Obligation Index rose by 6.09%.
Bond yields fluctuated throughout the period. Yields were at their highest point
at the beginning of the period, when strong job growth led many to believe that
the Fed was poised to raise rates. However, expectations for higher rates
softened after economic growth moderated in the third quarter and the Fed
continued to hold interest rates steady. Aided by strong demand from insurance
companies, municipal bond prices rallied and yields fell. By December,
short-term municipal yields had fallen nearly 60 basis points from where they
began the period, while long-term municipal yields were nearly 70 basis points
lower.
Interest rates rose near the end of the first quarter of 1997 as signs of
stronger-than-expected economic growth resurrected fears that the Fed would
raise rates to keep inflation in check. As a result, municipal bond yields rose
steadily through April.
Recent data suggest that the rate of U.S. economic growth slowed during the
second quarter, fueling a municipal market rally in May and June. Municipal
bonds are also benefiting from relatively low levels of new municipal debt
issuance. Although demand from retail investors has tapered off recently, retail
demand was strong during much of the fiscal year. Any renewed surge in demand
would support bond prices and dampen market volatility.
[line graph - data below]
MUNICIPAL YIELD CURVES
Years to Maturity 5/31/96 5/31/97
1 3.800 3.850
2 4.150 4.150
3 4.370 4.350
4 4.520 4.500
5 4.640 4.600
6 4.740 4.660
7 4.840 4.720
8 4.940 4.780
9 5.040 4.840
10 5.140 4.900
11 5.230 4.976
12 5.320 5.052
13 5.410 5.128
14 5.500 5.204
15 5.590 5.280
16 5.624 5.308
17 5.658 5.336
18 5.692 5.364
19 5.726 5.392
20 5.760 5.420
21 5.768 5.426
22 5.776 5.432
23 5.784 5.438
24 5.792 5.444
25 5.800 5.450
26 5.804 5.454
27 5.808 5.458
28 5.812 5.462
29 5.816 5.466
30 5.820 5.470
Source: Bloomberg Financial Markets
Annual Report Period Overview 3
MUNICIPAL CREDIT REVIEW
Strong U.S. economic growth led to improved municipal credit quality during the
12 months ended May 31, 1997. Economic expansion and rising property values in
many states increased tax revenues and helped improve municipal budgets.
Municipal credit rating upgrades outpaced downgrades by more than 3 to 1 during
1996, the latest period for which data are available. The number of credit
upgrades has continued to improve since 1995, when downgrades last outnumbered
upgrades. However, the trend toward credit upgrades has been slowing in recent
months.
By region, the Rocky Mountain and southwestern states posted strong economic
growth during 1996 and 1997. Nevada, Arizona and Utah registered the fastest
employment growth in the nation. All three boast unemployment rates below the
national average. Unemployment has fallen so low in many Mountain states that
future growth may be constrained by a shortage of skilled workers.
The West has a strong and stable credit outlook. A strong, broad-based economic
expansion led several independent rating agencies to upgrade California's credit
rating in the past year. Washington and Oregon are also experiencing strong
growth, fueled by expansion in the high technology and aerospace industries.
The Midwest continued to grow at a relatively steady pace, with unemployment
rates well below the national average. Due to its low business costs, the
Southeast also remained healthy, with several states recently receiving rating
upgrades. The Great Lakes areas, Louisiana, the Mid-Atlantic and the Northeast
continued to lag the rest of the nation, but even these regions saw improved
economic conditions in 1996 and so far in 1997.
General obligation bonds and other forms of tax-supported municipal debt have
benefited from the healthy growth of the economy. Nevertheless, federal policy
decisions related to health care and welfare reform may pose longer-term credit
concerns for state and local governments. In addition, debt issued by public
power entities has been adversely affected by the deregulation of the electric
utilities industry.
This analysis provides only a glimpse of general municipal market trends.
Growing market complexity and issue disparities point to a continuing need for
thorough case-by-case credit analysis, although sector analysis remains an
integral element in municipal research.
CREDIT QUALITY TRENDS
(U.S. map)
Improving:
Arizona
California
Colorado
Georgia
Idaho
Massachussetts
Minnesota
Mississippi
Nevada
New Hampshire
New Mexico
North Carolina
Oregon
South Dakota
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Stable:
(all other states)
4 Municipal Credit Review American Century Investments
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET
7-Day 7-Day 7-Day Tax-Equivalent Yields
Current Effective 28% 31% 36% 39.6%
Yield Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
CURRENT YIELDS AS OF MAY 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Tax-Free Money Market 3.32% 3.37% 4.61% 4.81% 5.19% 5.50%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TOTAL RETURNS AS OF MAY 31, 1997
Tax-Free Money Market ...................... 1.51% 2.98% 3.04% 2.63% 3.73%
Average Tax-Exempt Money Market Fund(1) .... 1.48% 2.94% 3.02% 2.62% 3.72%
Fund's Ranking Among Tax-Exempt
Money Market Funds(1) ...................... -- 64 out of 136 54 out of 117 45 out of 97 25 out of 58
(1) According to Lipper Analytical Services.
</TABLE>
See pages 36-37 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
5/31/97 5/31/96
Number of Securities 48 58
Weighted Average Maturity 53 days 42 days
Expense Ratio 0.67% 0.65%
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable $1.00 share price.
Many of the investment terms in this report are
defined in the Glossary on page 37.
Annual Report Tax-Free Money Market 5
TAX-FREE MONEY MARKET
Management Q & A
An interview with Bryan Karcher, a portfolio manager on the Tax-Free funds
management team.
How did the fund perform?
The fund performed relatively well. For the fiscal year ended May 31, 1997, the
fund returned 2.98%, compared with the 2.94% average return of the 136
"Tax-Exempt Money Market Funds" tracked by Lipper Analytical Services. (See the
Total Returns table on the previous page for other fund performance
comparisons.)
How was the fund positioned during the period?
We initially allowed the fund's average maturity to decline because of a lack of
attractively priced one-year municipal securities (munis). For much of the
period, one-year munis traded in a range between 3.55% and 3.65%, which was an
insufficient yield pick-up over shorter-term munis considering the outlook for
interest rates. With the expectation that the Fed would eventually raise
short-term interest rates, it didn't make sense to purchase relatively low-
yielding one-year securities. Instead, we preferred to hold variable-rate demand
notes that reset their interest rates quickly to better capture the rise in
rates.
As a result, we allowed the fund's average maturity to fall to a low of 20 days
at the beginning of April, compared with a 43-day average maturity for the
fund's peers. The fund's shorter maturity proved beneficial when the Federal
Reserve raised short-term interest rates in late March. (Reducing the average
maturity in a rising interest rate environment allowed the fund to more quickly
reinvest matured assets in higher-yielding securities.)
But you aggressively extended the fund's average maturity in April. Why?
We lengthened the fund's maturity because one-year munis began to offer more
attractive yields. We were able to buy one-year notes at an average yield of
4.05%. We used this buying opportunity to extend the fund's average maturity to
around 50 days by early May. That extension proved timely as yields on one-year
munis dropped back down to around 3.85% by early June.
Why were one-year securities more attractive in April compared with the rest of
the period?
One-year note yields rose in April in part because of expectations for further
Fed rate hikes, despite the fact that the economy was slowing. That concern
caused the spread, or difference in yield, between shorter paper and one-year
securities to widen, making one-year munis more attractive. In addition, money
market fund outflows typically increase during the April tax season. These
outflows reduce the demand for notes and may actually cause money market fund
managers to sell notes if redemptions are greater than expected.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 5/31/97)
VRDNs 59%
Bonds less than 1 Year 16%
Commercial Paper 15%
Municipal Notes 10%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 11/30/96)
VRDNs 73%
Municipal Notes 10%
Commercial Paper 9%
Bonds less than 1 Year 8%
6 Tax-Free Money Market American Century Investments
TAX-FREE MONEY MARKET
You increased the fund's weighting of commercial paper in May. Why?
We typically increase the fund's weighting of commercial paper each May to
lengthen the fund's average maturity. We use these securities to bridge June and
July, when a flood of coupon payments and maturing securities tends to cause
short-term muni yields to fall. So far, however, demand for short-term paper
hasn't been as strong as in years past--we suspect that many investors have been
putting their available cash to work in the stock market. As a result, muni
rates haven't fallen as sharply as they typically do. Nevertheless, many
municipal notes mature in July, which should bring some cash back to the muni
market.
Benham Management Corporation is preparing to waive its management fee. Can you
explain?
Sure. Benham Management Corporation will waive its management fee for one year
beginning August 1, 1997. When the fund resumes paying expenses, it will have a
lower contractual expense cap-- 50 basis points, compared with the current cap
of 67 basis points. Lower expenses can translate into higher yields for
shareholders.
What's your outlook for interest rates going forward?
Our current expectation is that economic growth will continue to slow from its
breakneck first-quarter pace. Inflation seems tame, having risen just 2.2% over
the last 12 months. In addition, the "real" federal funds rate (the nominal
federal funds rate minus the inflation rate) is already at a level that should
inhibit economic growth. As a result, we think further Fed rate increases are
unlikely. Nevertheless, if wage pressures increase, fear of a Fed rate hike may
send short-term muni yields higher.
With this outlook in mind, what are your plans for the fund going forward?
We will look for opportunities to add more one-year paper to the fund in the
coming months if it looks attractive relative to shorter-term munis. But we
won't buy one-year paper solely to maintain a longer average maturity--we're
only going to buy securities that we feel provide sufficient yield pick-up over
shorter-term munis based on the interest rate outlook.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 5/31/97)
SP1+ 78%
SP1 22%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 11/30/96)
SP1+ 79%
SP1 21%
Annual Report Tax-Free Money Market 7
SCHEDULE OF INVESTMENTS
TAX-FREE MONEY MARKET
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
ARIZONA-1.2%
$ 1,000,000 East Valley Institute of Technology
District No. 401, Series 1994 B,
4.00%, 7/1/97 (AMBAC) $1,000,000
----------
CALIFORNIA-5.7%
1,950,000 California Rev. Anticipation Notes,
Series A, 4.50%, 6/30/97 1,950,789
3,000,000 Orange County Local Transportation
Auth. Sales Tax Rev. Commercial
Paper, 3.75%, 7/18/97 (LOC:
Union Bank of Switzerland) 3,000,000
----------
4,950,789
----------
COLORADO-5.2%
1,000,000 Colorado Tax and Rev. Anticipation
Notes, Series A, 4.50%, 6/27/97 1,000,405
3,500,000 Denver Multi-Family Housing Rev.,
Series A, (Cottonwood Creek
Project), VRDN, 4.25%, 6/3/97
(LOC: GE Capital Corp.) 3,500,000
----------
4,500,405
----------
FLORIDA-17.1%
2,000,000 Broward County Housing Finance
Auth. Multi-Family Housing Rev.,
Series A, (Palmaire-Oxford),
VRDN, 4.20%, 6/4/97 (SBBPA:
Continental Casualty Co.) 2,000,000
1,000,000 City of Jacksonville Commercial
Paper, 3.90%, 7/18/97 (LOC:
Bayerische Landesbank
Girozentrale and Suntrust Bank,
Miami) 1,000,000
1,435,000 Florida Housing Finance Agency
Rev., Series 1989 E, VRDN,
4.15%, 6/4/97 (LOC: Comerica
Bank) 1,435,000
2,000,000 Florida Housing Finance Agency
Rev., (Country Club Apartments),
VRDN, 4.15%, 6/2/97 (LOC:
Northern Trust Company) 2,000,000
2,400,000 Florida Housing Finance Auth.
Multi-Family Housing Rev., Series
1990 B, (Belville-Oxford),
VRDN, 4.20%, 6/4/97 (SBBPA:
Continental Casualty) 2,400,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Jacksonville Electric Rev.
Commercial Paper, 3.90%,
7/18/97 (LOC: Credit Suisse
First Boston, Inc.) $ 1,000,000
2,000,000 Jacksonville Electric Rev.
Commercial Paper, 3.75%,
8/8/97 (SBBPA: Morgan
Guaranty Trust Co. of New York) 2,000,000
1,000,000 Marion County Housing Finance
Auth. Multi-Family Housing Rev.,
Series F, (Paddock Place Project),
VRDN, 4.00%, 6/5/97 (LOC:
Suntrust Bank, Atlanta) 1,000,000
2,000,000 Sunshine State Government
Financing Committee Commercial
Paper, 3.75%, 8/8/97 (LOC:
National Westminster Bank PLC,
Union Bank of Switzerland, and
Morgan Guaranty Trust Co. of
New York) 2,000,000
----------
14,835,000
----------
GEORGIA-2.1%
1,800,000 Cobb County Multi-Family Housing
Rev., Series 1996, (Terrell Mill),
VRDN, 4.10%, 6/4/97 (LOC:
GE Capital Corp.) 1,800,000
----------
HAWAII-3.0%
2,600,000 Hawaii State Housing Finance and
Development Corporation Rev.,
(Affordable Rental Housing),
VRDN, 3.95%, 6/4/97 (LOC:
Banque Nationale De Paris S.A.) 2,600,000
----------
ILLINOIS-10.0%
1,625,000 Bartlett Multi-Family Housing Rev.,
Series A, (Bartlett Square
Apartments), VRDN, 3.95%,
6/5/97 (LOC: La Salle National
Bank) 1,625,000
3,000,000 Illinois Health Facility Auth. Rev.,
Series 1985 B, (Methodist
Medical Center), VRDN, 4.05%,
6/4/97 (LOC: Sumitomo Ltd.) 3,000,000
2,000,000 Illinois Health Facility Auth. Rev.,
Series 1996 B, (Franciscan
Eldercare), VRDN, 3.95%,
6/4/97 (LOC: ABN Amro
Bank N.V.) 2,000,000
See Notes to Financial Statements
8 Tax-Free Money Market American Century Investments
SCHEDULE OF INVESTMENTS
TAX-FREE MONEY MARKET
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,000,000 McCook Village Rev., Series 1996 B,
(St. Andrew Society), VRDN,
3.90%, 6/5/97 (LOC: Northern
Trust Company) $2,000,000
----------
8,625,000
----------
INDIANA-4.1%
1,000,000 Huntington Economic Development
Rev., (Allied Signal Inc. Project),
VRDN, 4.05%, 6/4/97
(Corporate Guarantee: Allied
Signal Inc.) 1,000,000
500,000 Lawrenceburg Multi-School
Building Corporation Rev., 4.00%,
8/1/97 (FSA) 500,000
2,100,000 Westfield Economic Development
Rev., (Porter Project), VRDN,
4.00%, 6/5/97 (LOC: Bank
of America) 2,100,000
----------
3,600,000
----------
KANSAS-2.3%
2,000,000 Burlington Pollution Control Rev.,
Series 1985 A, Commercial
Paper, 3.70%, 7/25/97
(LOC: Toronto Dominion Bank) 2,000,000
----------
KENTUCKY-4.3%
1,320,000 Kentucky Housing Corp. Rev.,
Series D, 4.00%,12/31/97
(GIC: Bayerische Landesbank
Girozentrale) 1,320,000
2,400,000 Mayfield Multi-City Lease Rev.,
Series 1996, VRDN, 4.15%,
6/4/97 (LOC: PNC Bank) 2,400,000
----------
3,720,000
----------
LOUISIANA-9.7%
2,000,000 Calcasieu Parish Sales Tax Rev.,
(District No. 4-A Sales and
Use Tax), VRDN, 3.90%, 6/5/97
(LOC: National Westminster
Bank PLC) 2,000,000
800,000 Louisiana Public Facility Auth. Rev.,
(Green Briar Hospital), VRDN,
4.05%, 6/4/97 (LOC: Societe
Generale) 800,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,000,000 Louisiana Public Facility Auth. Rev.,
(Linlake Ventures), VRDN, 3.95%,
6/2/97 (LOC: Lincoln National
Corp.) $3,000,000
2,600,000 South Louisiana Port Commission
Rev., Series 1997, (Holnam Inc.
Project), VRDN, 4.00%, 6/4/97
(LOC: ABN Amro Bank N.V.) 2,600,000
----------
8,400,000
----------
MISSOURI-5.2%
2,500,000 Missouri Housing Development
Commission Mortgage Rev.,
4.05%, 4/15/98 (GIC: AMBAC) 2,500,000
2,000,000 Missouri Industrial Development
Board Rev., Series 1989, VRDN,
4.30%, 6/4/97 (LOC: Dai-Ichi
Kangyo Bank, Ltd. and Industrial
Bank of Japan) 2,000,000
----------
4,500,000
----------
MONTANA-2.3%
2,000,000 Montana Tax and Rev. Anticipation
Notes, 4.50%, 6/27/97 2,001,119
----------
NEVADA-0.9%
800,000 Clark County Industrial
Development Rev., Series
1995 A, (Nevada Power), VRDN,
4.15%, 6/4/97 (LOC: Barclays
Bank PLC) 800,000
----------
NEW MEXICO-3.7%
2,200,000 Farmington Pollution Control Rev.,
Series 1997 A, (San Juan
Project), VRDN, 4.05%, 6/4/97
(LOC: Bank of America) 2,200,000
1,000,000 Santa Fe Gross Receipts Tax Rev.,
Series A, 3.90%,
6/1/97 (AMBAC) 1,000,000
----------
3,200,000
----------
See Notes to Financial Statements
Annual Report Tax-Free Money Market 9
SCHEDULE OF INVESTMENTS
TAX-FREE MONEY MARKET
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
OHIO-6.1%
$ 3,255,000 Ohio State Building Auth. Rev.,
Series A, (Adult Correctional
Building), 4.50%, 4/1/98 $ 3,265,888
2,000,000 Ohio State Water Development
Pollution Control Rev., Commercial
Paper, Series 1988 A, 3.85%,
7/16/97 (FGIC, General
Electric Capital Corp. Liquidity) 2,000,000
----------
5,265,888
----------
OREGON-1.2%
1,000,000 Oregon State GO, (Veterans
Welfare), 4.05%, 2/2/98 1,000,000
----------
SOUTH CAROLINA-2.3%
2,000,000 Berkeley County Pollution Control
Rev., Series 1996, VRDN, 3.90%,
6/5/97 (LOC: Royal Bank of
Canada) 2,000,000
----------
TENNESSEE-2.3%
2,000,000 Chattanooga Industrial Development
Rev., (Market Street Limited
Project), VRDN, 3.95%, 6/4/97
(LOC: Credit Suisse First Boston,
Inc.) 2,000,000
----------
TEXAS-5.7%
575,000 Arlington Hospital Auth. Rev.,
(Arlington Memorial Hospital),
5.50%, 12/1/97 (FSA) 579,932
500,000 Dallas GO, (Denton and Collin Co.),
4.20%, 2/15/98 500,000
780,000 Houston Water and Sewer System
Rev., 8.00%, 12/1/97,
Prerefunded at 102% of Par(1) 812,069
3,000,000 Texas Tax and Rev. Anticipation
Notes, 4.75%, 8/29/97 3,005,861
----------
4,897,862
----------
Principal Amount Value
- --------------------------------------------------------------------------------
WASHINGTON-1.2%
$ 1,000,000 Washington State Housing Finance
Commission Rev., Series 1A,
4.00%, 4/1/98 (GIC: FGIC) $ 1,000,000
----------
WISCONSIN-4.4%
1,800,000 Pleasant Prairie Industrial
Development Rev., Series 1995,
(Muskie Enterprises), VRDN,
4.05%, 6/5/97 (LOC: Bank of
Montreal) 1,800,000
2,000,000 Whitewater Industrial Development
Rev., (Mac Lean Fogg Co.
Project), VRDN, 4.00%,
6/4/97 (LOC: Bank of America) 2,000,000
----------
3,800,000
----------
TOTAL INVESTMENT SECURITIES-100.0% $86,496,063
===========
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Association
GIC = Guaranteed Investment Contract
GO = General Obligation
LOC = Letter of Credit
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
May 31, 1997.
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
10 Tax-Free Money Market American Century Investments
<TABLE>
<CAPTION>
INTERMEDIATE-TERM TAX-FREE
30-Day 30-Day Tax-Equivalent Yields
SEC 28% 31% 36% 39.6%
Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
CURRENT YIELDS AS OF MAY 31, 1997
<S> <C> <C> <C> <C> <C>
Intermediate-Term Tax-Free 4.30% 5.97% 6.23% 6.72% 7.12%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TOTAL RETURNS AS OF MAY 31, 1997
Intermediate-Term Tax-Free ................. 1.23% 6.16% 5.64% 6.01% 6.82%
Lehman 5-Year General Obligation Index ..... 1.28% 6.08% 5.90% 6.02% 6.82%
Average Intermediate Municipal
Debt Fund(1) ............................... 1.28% 6.23% 5.79% 6.01% 6.98%
Fund's Ranking Among Intermediate
Municipal Debt Funds(1) .................... -- 72 out of 133 61 out of 100 16 out of 36 11 out of 20
(1) According to Lipper Analytical Services.
</TABLE>
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER TEN YEARS
Value on 5/31/97
Intermediate-Term Tax-Free $19,336
Lehman 5-Year GO Index $19,335
Intermediate-Term Tax-Free Lehman 5-Year GO Index
May-87 $10,000 $10,000
Jun-87 $10,208 $10,211
Jul-87 $10,397 $10,329
Aug-87 $10,379 $10,349
Sep-87 $10,000 $10,001
Oct-87 $10,095 $10,148
Nov-87 $10,297 $10,270
Dec-87 $10,426 $10,383
Jan-88 $10,742 $10,639
Feb-88 $10,832 $10,746
Mar-88 $10,751 $10,705
Apr-88 $10,835 $10,803
May-88 $10,775 $10,673
Jun-88 $10,830 $10,750
Jul-88 $10,886 $10,800
Aug-88 $10,884 $10,768
Sep-88 $10,996 $10,873
Oct-88 $11,122 $10,967
Nov-88 $11,047 $10,909
Dec-88 $11,117 $10,939
Jan-89 $11,246 $11,096
Feb-89 $11,141 $10,978
Mar-89 $11,087 $10,908
Apr-89 $11,278 $11,096
May-89 $11,469 $11,297
Jun-89 $11,562 $11,421
Jul-89 $11,727 $11,588
Aug-89 $11,660 $11,543
Sep-89 $11,647 $11,548
Oct-89 $11,745 $11,558
Nov-89 $11,933 $11,705
Dec-89 $12,039 $11,800
Jan-90 $12,069 $11,806
Feb-90 $12,125 $11,894
Mar-90 $12,078 $11,857
Apr-90 $12,020 $11,819
May-90 $12,267 $12,035
Jun-90 $12,375 $12,123
Jul-90 $12,539 $12,267
Aug-90 $12,369 $12,225
Sep-90 $12,403 $12,251
Oct-90 $12,647 $12,431
Nov-90 $12,848 $12,610
Dec-90 $12,863 $12,657
Jan-91 $13,092 $12,843
Feb-91 $13,190 $12,960
Mar-91 $13,173 $12,930
Apr-91 $13,334 $13,092
May-91 $13,424 $13,158
Jun-91 $13,390 $13,157
Jul-91 $13,499 $13,288
Aug-91 $13,681 $13,459
Sep-91 $13,891 $13,624
Oct-91 $13,995 $13,728
Nov-91 $14,014 $13,771
Dec-91 $14,361 $14,081
Jan-92 $14,370 $14,108
Feb-92 $14,319 $14,117
Mar-92 $14,262 $14,070
Apr-92 $14,379 $14,193
May-92 $14,535 $14,320
Jun-92 $14,780 $14,527
Jul-92 $15,246 $14,908
Aug-92 $15,015 $14,796
Sep-92 $15,162 $14,889
Oct-92 $15,012 $14,841
Nov-92 $15,259 $15,020
Dec-92 $15,393 $15,125
Jan-93 $15,624 $15,288
Feb-93 $16,145 $15,687
Mar-93 $15,850 $15,509
Apr-93 $15,999 $15,608
May-93 $16,026 $15,664
Jun-93 $16,285 $15,875
Jul-93 $16,228 $15,886
Aug-93 $16,575 $16,102
Sep-93 $16,786 $16,218
Oct-93 $16,818 $16,242
Nov-93 $16,676 $16,195
Dec-93 $16,959 $16,417
Jan-94 $17,161 $16,572
Feb-94 $16,731 $16,262
Mar-94 $16,319 $15,899
Apr-94 $16,382 $16,060
May-94 $16,496 $16,150
Jun-94 $16,449 $16,112
Jul-94 $16,667 $16,288
Aug-94 $16,722 $16,366
Sep-94 $16,551 $16,243
Oct-94 $16,366 $16,153
Nov-94 $16,145 $16,049
Dec-94 $16,366 $16,190
Jan-95 $16,630 $16,346
Feb-95 $16,951 $16,583
Mar-95 $17,103 $16,846
Apr-95 $17,183 $16,892
May-95 $17,552 $17,262
Jun-95 $17,554 $17,276
Jul-95 $17,739 $17,518
Aug-95 $17,876 $17,694
Sep-95 $17,945 $17,748
Oct-95 $18,121 $17,822
Nov-95 $18,309 $17,974
Dec-95 $18,445 $18,072
Jan-96 $18,658 $18,288
Feb-96 $18,609 $18,225
Mar-96 $18,356 $18,129
Apr-96 $18,348 $18,102
May-96 $18,320 $18,080
Jun-96 $18,406 $18,208
Jul-96 $18,609 $18,328
Aug-96 $18,616 $18,366
Sep-96 $18,761 $18,505
Oct-96 $18,943 $18,677
Nov-96 $19,210 $18,936
Dec-96 $19,147 $18,908
Jan-97 $19,174 $18,959
Feb-97 $19,318 $19,094
Mar-97 $19,111 $18,878
Apr-97 $19,189 $18,972
May-97 $19,336 $19,335
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
5/31/97 5/31/96
Number of Securities 51 54
Weighted Average Maturity 7.4 years 7.2 years
Average Duration 5.4 years 5.4 years
Expense Ratio 0.67% 0.70%
Many of the investment terms in this report are
defined in the Glossary on page 37.
Annual Report Intermediate-Term Tax-Free 11
INTERMEDIATE-TERM TAX-FREE
Management Q & A
An interview with Joel Silva, a portfolio manager on the Tax-Free funds
management team.
How did the fund perform?
The fund produced a favorable return for the period. For the fiscal year ended
May 31, 1997, the fund's total return of 6.16% nearly matched the 6.23% average
return of the 133 "Intermediate Municipal Debt Funds" tracked by Lipper
Analytical Services. (See the Total Returns table on the previous page for other
fund performance comparisons.)
You decreased the percentage of California municipal securities in the fund from
19% six months ago to only 9% at the end of the period. Why?
As we mentioned in the previous report, we purchased some California municipals
at very attractive prices after the Orange County bankruptcy. Thanks to our
strong credit staff, we also found many California municipal securities outside
of Orange County that we felt had a strong potential to appreciate.
As California's economy continued to improve, the market's trepidation over
buying municipals issued by the state largely dissipated, causing California
municipal securities in general to appreciate. The securities that benefited the
most from California's improving economy were general obligation bonds (GOs),
which are backed by the full faith and credit of the issuer and are repaid from
the revenues that the issuer generates.
When we felt that the prices on some of the fund's California GOs had topped
out, we decided to lock in gains by selling them. We used the proceeds to
purchase municipals in a few other states that we felt offered similar
opportunities to add value to the fund's returns.
[bar graph - data below]
INTERMEDIATE-TERM TAX-FREE'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS (Periods
ended May 31)
Intermediate-Term Tax-Free Lehman 5-Year GO Index
5/88 7.75% 6.73%
5/89 6.44% 5.85%
5/90 6.95% 6.37%
5/91 9.43% 9.34%
5/92 8.33% 8.83%
5/93 10.27% 9.38%
5/94 2.90% 3.10%
5/95 6.40% 6.89%
5/96 4.38% 4.74%
5/97 6.16% 6.08%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 36 for a definition of the index.
12 Intermediate-Term Tax-Free American Century Investments
INTERMEDIATE-TERM TAX-FREE
Is that why the fund's percentage of New York municipals rose over the last six
months?
That's right. Late in 1996, New York issued a larger-than-normal amount of
municipal securities at very attractive prices. We added some of these
securities to the fund because we expected New York to benefit from generally
improving economic and credit conditions. That expectation paid off handsomely.
New York had a large fiscal surplus in 1996, and although the state still has
some welfare issues to tackle, its economy continued to improve. Rather than
GOs, however, the types of undervalued securities that we looked for in New York
were COPs and lease agreements. These types of municipals are issued to finance
public property improvements and equipment purchases and usually offer higher
yields than GOs. As awareness of these attractively priced COPs and lease
agreements increased, their values rose.
Why did you increase the fund's holdings of revenue bonds?
Primarily to take advantage of the relatively range-bound nature of the market.
During such periods, interest payments generally contribute more to a fund's
returns than price appreciation. We bought revenue bonds, COPs and lease
agreements because they tend to offer relatively high yields.
Have you changed the fund's positioning in the past six months?
Yes. The main adjustments we made were to the fund's structure. By early 1997,
we had shifted the fund toward more of a barbell. (A barbell overweights a fund
in short- and long-term securities and underweights intermediate-term
maturities.) That helped the fund's returns as concerns that the Federal Reserve
would raise rates caused the yield curve to flatten.
However, we recently shifted the fund to more of a bullet. (A bullet clusters a
fund's bond maturities around a single, usually intermediate-term, maturity.) A
bullet tends to perform best when the yield curve is moving from flat to steep.
We made only slight adjustments to the fund's duration, keeping it
conservatively positioned within a narrow range around 5.4 years--roughly
neutral to the fund's peers.
TOP FIVE STATES (% of fund investments)
As of As of
5/31/97 11/30/96
Washington 17% California 19%
Texas 16% Texas 17%
California 9% Washington 12%
New York 9% Illinois 6%
Florida 6% Oklahoma 5%
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 5/31/97)
Revenue Bonds 60%
GO 22%
COPs/Leases 11%
Prerefunded/ETM 7%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 11/30/96)
Revenue Bonds 43%
GO 19%
COPs/Leases 12%
Other 26%
Annual Report Intermediate-Term Tax-Free 13
INTERMEDIATE-TERM TAX-FREE
How will the proposed merger with the Benham Intermediate-Term Tax-Exempt fund
affect this fund?
Shareholders will see no change to the fund's management. The new, combined fund
will have all of this fund's investment objectives and policies, so we'll
continue to manage the new fund in the same way we've managed this one. The only
significant difference is that the new fund will carry the performance history
of the Intermediate-Term Tax-Exempt fund.
What is your outlook for interest rates over the next six months?
Currently, the market seems to be expecting economic growth to slow, allowing
the Fed to hold short-term rates steady. However, we disagree somewhat with that
notion. Consumer confidence remains at a 28-year high, and the manufacturing
sector continues to show surprising strength. With labor markets already tight,
that combination may cause inflation to appear on the horizon.
On the other hand, the federal funds rate--the rate at which Federal Reserve
member banks borrow money from each other to meet overnight cash reserve
requirements--is already at a historically restrictive level. That means that
economic growth going forward will likely stay fairly well contained. As such,
we believe that the Fed should not need to raise rates dramatically to keep
inflation within manageable levels.
What is your outlook for the municipal market?
If U.S. economic growth continues to slow, municipal securities could rally; but
any signs of an overheating economy will likely push municipal bond prices
lower.
Another important factor is the relative performance of municipal and Treasury
securities. For the first five months of 1997, municipals significantly
outperformed Treasurys, a situation caused in part by relatively low municipal
issuance.
Although municipal issuance should remain fairly light for the near future, the
likelihood that municipal bonds will continue to outperform Treasurys is
diminishing--municipal prices have reached levels that are considered
historically expensive compared with like-maturity Treasurys. If municipals
continue this trend much longer, investor demand could eventually shift back to
Treasurys, removing a key support for municipal bond prices.
With this outlook in mind, what are your plans for the fund going forward?
We plan to maintain the fund's current neutral position, which we believe will
allow us to respond appropriately if the economic outlook changes dramatically.
In addition, we will continue to monitor the performance of municipal versus
Treasury securities. With the help of our credit research team, we'll look for
securities that we believe will enhance the fund's returns.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 5/31/97)
AAA 65%
AA 15%
A 15%
BBB 5%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 11/30/96)
AAA 68%
AA 18%
A 13%
BBB 1%
14 Intermediate-Term Tax-Free American Century Investments
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM TAX-FREE
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
ALABAMA-1.7%
$ 1,000,000 Alabama Municipal Electric Power
Auth. Rev., 6.10%, 9/1/99 (MBIA) $1,038,980
----------
ALASKA-0.9%
500,000 Anchorage Hospital Rev., Series
1991, (Sisters of Providence),
6.50%, 10/1/99 520,440
----------
CALIFORNIA-9.3%
2,170,000 California Housing Finance Agency
Rev., 5.60%, 8/1/09 (MBIA) 2,219,020
1,100,000 California Public Works Board Rev.
Certificates of Participation,
(Various Universities), 6.15%,
11/1/09 1,176,989
1,100,000 Sacramento Regional Transportation
Certificates of Participation, Series
A, 6.20%, 3/1/00 1,147,443
1,000,000 State of California GO, 5.75%,
10/1/10 1,059,770
----------
5,603,222
----------
FLORIDA-6.1%
700,000 Broward County School District
GO, 6.75%, 2/15/00 740,439
1,000,000 Dade County Rev., (Seaport),
6.25%, 10/1/06 (MBIA) 1,104,440
1,000,000 Dade County Water and Sewer
System Rev., 5.125%, 10/1/09
(FGIC) 1,000,840
775,000 Lakeland Electric and Water Rev.,
Series B, 6.00%, 10/1/09 (FGIC) 839,333
----------
3,685,052
----------
GEORGIA-4.6%
2,495,000 Fulton County Water and Sewer
Rev., 6.25%, 1/1/09 (FGIC) 2,746,995
----------
HAWAII-1.8%
1,000,000 Hawaii GO, Series A, 7.00%,
6/1/00 (FGIC)(1) 1,071,080
----------
Principal Amount Value
- --------------------------------------------------------------------------------
ILLINOIS-5.2%
$ 2,000,000 City of Chicago GO, (Emergency
Telephone), 5.25%, 1/1/04
(FGIC) $2,041,720
1,000,000 Illinois Education Facility Auth. Rev.,
Series A, (Loyola University),
6.30%, 7/1/98 1,025,020
30,000 Metropolitan Pier and Exposition
Auth. Rev., (McCormick Place
Project), 5.20%, 6/15/99(1) 30,568
----------
3,097,308
----------
INDIANA-1.6%
1,000,000 South Montgomery Industrial
Building Improvement Certificates
of Participation, 3.94%, 1/1/98
(AMBAC)(2) 977,390
----------
MASSACHUSETTS-1.7%
1,000,000 Massachusetts GO, Series A,
5.40%, 11/1/06 1,032,370
----------
MICHIGAN-2.5%
1,500,000 Detroit Water Supply System Rev.,
Series A, 5.30%, 7/1/09 (MBIA) 1,524,450
----------
NEW JERSEY-1.8%
1,000,000 New Jersey Transportation Trust
Fund Auth. Rev., Series A, 6.00%,
12/15/05 (MBIA) 1,080,710
----------
NEW YORK-8.7%
1,000,000 New York State Dormitory Auth.
Rev. Certificates of Participation,
Series A, (Mental Health Service
Facility), 5.30%, 2/15/04 1,004,960
1,000,000 New York State Dormitory Auth.
Rev., Series E, (Mental Health
Service Facility), 6.00%,
8/15/04 (AMBAC) 1,067,920
1,000,000 New York State Thruway Auth.
Rev., Series A, (Highway &
Bridge Trust Fund), 6.00%,
4/1/07 (AMBAC) 1,079,700
1,000,000 New York State Thruway Auth.
Service Contract Rev. Certificates
of Participation, 5.30%, 4/1/04 1,005,050
See Notes to Financial Statements
Annual Report Intermediate-Term Tax-Free 15
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM TAX-FREE
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 New York State Urban
Development Corp. Rev.
Certificates of Participation,
6.25%, 4/1/05 (MBIA) $1,085,880
----------
5,243,510
----------
NORTH CAROLINA-3.6%
2,000,000 North Carolina Eastern Municipal
Power Agency Rev., Series 1993,
6.00%, 1/1/06 (FSA) 2,136,700
----------
OHIO-1.8%
1,000,000 Ohio State Building Auth. Rev.
Certificates of Participation,
Series A, (Correctional Facility),
6.25%, 10/1/00 1,053,890
----------
OKLAHOMA-4.7%
2,500,000 Oklahoma Industrial Auth. Health
System Rev., Series 1995 C,
7.00%, 8/15/04 (AMBAC) 2,827,500
----------
PENNSYLVANIA-3.1%
1,000,000 Philadelphia Parking Auth. Rev.,
5.50%, 9/1/04 (AMBAC) 1,037,720
845,000 Philadelphia Water and Wastewater
Rev., 5.00%, 6/15/12 (FGIC) 802,125
----------
1,839,845
----------
TEXAS-15.8%
115,000 Austin County GO, Series C,
6.75%, 9/1/00, Prerefunded
at Par(1) 122,864
885,000 Austin County GO, Series C, 6.75%,
9/1/01 946,207
1,000,000 Denison Hospital Auth. Rev.,
(Texoma Medical Center), 5.90%,
8/15/07 1,011,360
1,500,000 Harris County Health Facility
Memorial Hospital Rev., (Systems
Project), 6.80%, 6/1/01(1) 1,621,380
500,000 North Texas Higher Education
Student Loan Rev., 6.875%,
4/1/02 (AMBAC) 527,635
1,000,000 State of Texas GO, Series 1995,
6.50%, 10/1/03 1,096,710
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,000,000 Texas Municipal Power Agency Rev.,
5.75%, 9/1/02 (MBIA) $ 2,101,800
1,000,000 Texas Municipal Power Agency Rev.,
5.25%, 9/1/09 (MBIA) 1,012,100
1,000,000 Texas Turnpike Auth. Rev., Series
1990 A, 7.00%, 1/1/99,
Prerefunded at 102% of Par
(AMBAC)(1) 1,061,130
----------
9,501,186
----------
UTAH-4.2%
1,465,000 Utah Housing Finance Agency
Single Family Mortgage Rev.,
5.65%, 7/1/06 1,493,582
1,000,000 Utah State MFC University Rev.,
Series 1991, (Utah Hospital),
6.60%, 5/15/00 1,054,840
----------
2,548,422
----------
WASHINGTON-17.3%
1,000,000 Pierce County School District No.
3 GO, Series B, 5.80%, 12/1/99 1,033,320
1,000,000 Pierce County School District No.
320 GO, 5.75%, 12/1/02 1,044,430
1,435,000 Port Seattle Rev., Series B, 5.10%,
10/1/03 (FGIC) 1,444,155
2,000,000 Snohomish County Public Utility
District Rev., Series 1993,
5.625%, 1/1/05 (FGIC) 2,083,140
1,000,000 Snohomish County School District
No. 15 GO, 6.125%, 12/1/03 1,051,020
1,000,000 Spokane County School District No.
356 GO, 6.00%, 12/1/06 (FGIC) 1,074,130
1,000,000 Washington Public Power Supply
System Rev., (Project No. 1),
7.10%, 7/1/01 (FGIC) 1,084,810
1,000,000 Washington Public Power Supply
System Rev., (Project No. 1),
5.50%, 7/1/04 1,025,280
500,000 Washington Public Power Supply
System Rev., Series C, 7.00%,
7/1/01 (FGIC) 541,890
----------
10,382,175
----------
See Notes to Financial Statements
16 Intermediate-Term Tax-Free American Century Investments
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM TAX-FREE
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
WISCONSIN-3.6%
$ 1,000,000 Wisconsin State Health and
Educational Facility Rev., (Aurora
Medical Group), 6.00%,
11/15/00 (FSA) $ 1,072,210
1,060,000 Wisconsin State Health and
Educational Facility Rev., Series B,
(Wausau Hospital), 6.30%,
8/15/00 (AMBAC) 1,113,997
----------
2,186,207
----------
TOTAL INVESTMENT SECURITIES-100.0% $60,097,432
(Cost $58,207,224) ===========
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Association
GO = General Obligation
MBIA = Municipal Bond Insurance Association
(1) Escrowed in U.S. Government Securities.
(2)Security is a zero-coupon municipal bond. The yield to maturity at May 31,
1997, is indicated. Zero-coupon securities are purchased at a substantial
discount from their value at maturity.
See Notes to Financial Statements
Annual Report Intermediate-Term Tax-Free 17
<TABLE>
<CAPTION>
LONG-TERM TAX-FREE
30-Day 30-Day Tax-Equivalent Yields
SEC 28% 31% 36% 39.6%
Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
CURRENT YIELDS AS OF MAY 31, 1997
<S> <C> <C> <C> <C> <C>
Long-Term Tax-Free 4.85% 6.74% 7.03% 7.58% 8.03%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TOTAL RETURNS AS OF MAY 31, 1997
Long-Term Tax-Free ....................... 1.76% 8.41% 6.80% 7.26% 7.85%
Lehman Long-Term Municipal Bond Index .... 1.65% 10.04% 8.47% 8.05% 9.40%
Average General Municipal
Debt Fund(1) ............................. 1.36% 7.60% 6.46% 6.65% 7.87%
Fund's Ranking Among General
Municipal Debt Funds(1) .................. -- 47 out of 226 61 out of 174 15 out of 106 35 out of 67
(1) According to Lipper Analytical Services.
</TABLE>
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER TEN YEARS
Value on 5/31/97
Long-Term Tax-Free $21,296
Lehman Long-Term Municipal Index $24,564
Long-Term Tax-Free Lehman Long-Term Municipal Index
May-87 $10,000 $10,000
Jun-87 $10,179 $10,319
Jul-87 $10,270 $10,414
Aug-87 $10,267 $10,460
Sep-87 $9,738 $10,033
Oct-87 $9,641 $10,033
Nov-87 $9,870 $10,353
Dec-87 $10,028 $10,488
Jan-88 $10,473 $10,907
Feb-88 $10,585 $11,035
Mar-88 $10,368 $10,877
Apr-88 $10,445 $10,963
May-88 $10,432 $10,974
Jun-88 $10,601 $11,188
Jul-88 $10,672 $11,263
Aug-88 $10,702 $11,308
Sep-88 $10,876 $11,564
Oct-88 $11,094 $11,827
Nov-88 $10,986 $11,700
Dec-88 $11,154 $11,904
Jan-89 $11,348 $12,184
Feb-89 $11,222 $12,013
Mar-89 $11,218 $12,023
Apr-89 $11,479 $12,376
May-89 $11,743 $12,662
Jun-89 $11,892 $12,855
Jul-89 $12,066 $13,025
Aug-89 $11,877 $12,827
Sep-89 $11,742 $12,788
Oct-89 $11,896 $12,957
Nov-89 $12,146 $13,232
Dec-89 $12,228 $13,330
Jan-90 $12,078 $13,195
Feb-90 $12,227 $13,344
Mar-90 $12,214 $13,358
Apr-90 $11,980 $13,195
May-90 $12,424 $13,567
Jun-90 $12,524 $13,701
Jul-90 $12,802 $13,942
Aug-90 $12,389 $13,611
Sep-90 $12,360 $13,589
Oct-90 $12,670 $13,877
Nov-90 $12,962 $14,229
Dec-90 $13,043 $14,292
Jan-91 $13,235 $14,483
Feb-91 $13,251 $14,585
Mar-91 $13,269 $14,620
Apr-91 $13,467 $14,846
May-91 $13,601 $15,021
Jun-91 $13,519 $14,993
Jul-91 $13,707 $15,225
Aug-91 $13,888 $15,444
Sep-91 $14,126 $15,667
Oct-91 $14,285 $15,831
Nov-91 $14,277 $15,851
Dec-91 $14,728 $16,228
Jan-92 $14,657 $16,218
Feb-92 $14,684 $16,244
Mar-92 $14,629 $16,285
Apr-92 $14,765 $16,440
May-92 $15,018 $16,681
Jun-92 $15,346 $17,003
Jul-92 $16,007 $17,627
Aug-92 $15,691 $17,390
Sep-92 $15,719 $17,467
Oct-92 $15,386 $17,176
Nov-92 $15,839 $17,659
Dec-92 $16,084 $17,888
Jan-93 $16,281 $18,057
Feb-93 $17,141 $18,897
Mar-93 $16,810 $18,669
Apr-93 $17,114 $18,925
May-93 $17,212 $19,081
Jun-93 $17,526 $19,440
Jul-93 $17,457 $19,459
Aug-93 $17,973 $19,957
Sep-93 $18,239 $20,217
Oct-93 $18,224 $20,255
Nov-93 $17,997 $20,010
Dec-93 $18,377 $20,526
Jan-94 $18,591 $20,769
Feb-94 $18,022 $20,081
Mar-94 $17,259 $18,882
Apr-94 $17,273 $19,028
May-94 $17,478 $19,250
Jun-94 $17,368 $19,019
Jul-94 $17,742 $19,508
Aug-94 $17,732 $19,549
Sep-94 $17,464 $19,096
Oct-94 $17,120 $18,509
Nov-94 $16,854 $18,021
Dec-94 $17,247 $18,660
Jan-95 $17,723 $19,482
Feb-95 $18,206 $20,274
Mar-95 $18,358 $20,518
Apr-95 $18,341 $20,507
May-95 $18,927 $21,381
Jun-95 $18,696 $20,988
Jul-95 $18,834 $21,095
Aug-95 $19,021 $21,392
Sep-95 $19,169 $21,559
Oct-95 $19,543 $22,081
Nov-95 $19,998 $22,650
Dec-95 $20,299 $23,004
Jan-96 $20,342 $23,103
Feb-96 $20,150 $22,821
Mar-96 $19,734 $22,403
Apr-96 $19,618 $22,314
May-96 $19,637 $22,325
Jun-96 $19,855 $22,669
Jul-96 $20,036 $22,894
Aug-96 $20,054 $22,864
Sep-96 $20,371 $23,372
Oct-96 $20,585 $23,658
Nov-96 $20,920 $24,166
Dec-96 $20,761 $24,021
Jan-97 $20,817 $23,973
Feb-97 $21,027 $24,232
Mar-97 $20,758 $23,813
Apr-97 $20,976 $24,094
May-97 $21,296 $24,564
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
5/31/97 5/31/96
Number of Securities 42 36
Weighted Average Maturity 17.4 years 17.3 years
Average Duration 7.8 years 8.0 years
Expense Ratio 0.67% 0.70%
Many of the investment terms in this report are
defined in the Glossary on page 37.
18 Long-Term Tax-Free American Century Investments
LONG-TERM TAX-FREE
Management Q & A
An interview with Dave MacEwen, a senior portfolio manager on the Tax-Free funds
management team.
How did the fund perform?
The fund performed very well relative to its peers. For the fiscal year ended
May 31, 1997, the fund returned 8.41%, compared with the 7.60% average return of
the 226 "General Municipal Debt Funds" tracked by Lipper Analytical Services.
The fund's longer-term returns are also quite strong. For example, the fund's
five-year return places it in the top 15% of its peer group. (See the Total
Returns table on the previous page for other fund performance comparisons.)
Security selection and our conservative, team-oriented management approach were
responsible for the fund's strong performance.
How was the fund positioned during the period?
We made minor adjustments to its positioning during the period in response to
changing market conditions. The fund's average maturity as of May 31, 1997, was
17.4 years, little changed from 17.3 years at the beginning of the period.
However, its duration was slightly lower at period-end because we took profits
by selling some long-term securities in late May. We extended the fund's
duration back out by the first week of June in anticipation of slower economic
growth--a move that benefited the fund as the market rallied throughout early
June.
The fund can now hold securities rated BBB. What impact has this had on the
fund's performance?
Our ability to buy the entire spectrum of investment-grade securities helped the
fund's performance
[bar graph - data below]
LONG-TERM TAX-FREE'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS (Periods ended May
31)
Long-Term Tax-Free Lehman Long-Term Municipal Bond Index
5/88 4.37% 9.75%
5/89 12.57% 15.38%
5/90 5.80% 7.15%
5/91 9.48% 10.71%
5/92 10.47% 11.05%
5/93 14.64% 14.39%
5/94 1.53% 0.89%
5/95 8.29% 11.07%
5/96 3.75% 4.41%
5/97 8.41% 10.04%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 36 for a definition of the index.
Annual Report Long-Term Tax-Free 19
LONG-TERM TAX-FREE
and allowed us to make better use of our municipal credit research team. We made
several purchases of attractively valued BBB-rated securities during the period.
We sold many of them at a profit as credit spreads--the difference in yield
between securities with different credit ratings--declined.
While narrowing credit spreads made it difficult to find good values among
lower-rated municipal securities, the New York municipal market still offered
some opportunities. Though New York still has some welfare issues to contend
with, the state's improving economy helped make its municipal securities
particularly attractive. These undervalued, lower-rated bonds boosted the fund's
yield and return as spreads contracted.
Why are credit spreads narrowing?
Primarily because of the strong growth of the economy. Strong economic growth
has boosted local tax revenues and improved municipal budgets. As a result,
municipal credit quality improved throughout the period (see page 4). Heavy
demand for lower-rated, higher-yielding municipals also contributed to tighter
spreads--with the bond market trading in a range, investors are trying to
enhance performance by grabbing yield. These factors combined to send credit
spreads to historic lows.
You are also able to invest up to 20% of the fund's assets in AMT paper. Have
you taken advantage of this new investment policy?
Yes. AMT paper generally offers relatively high yields, but tighter yield
spreads made it more difficult to find attractive values in this sector. We used
the opportunity to sell some of our AMT holdings at a profit.
You held some Treasury put options at the end of the period. Why?
We bought Treasury put options as a form of insurance against a bond market
decline. (A put option allows the bondholder to sell a security at a
pre-determined price on a specified date.) Hedging the fund with Treasury puts
allowed us to hold more long-term municipal securities than we otherwise would
have felt comfortable with. That helped the fund during the period as long-term
municipal bonds performed well.
TOP FIVE STATES (% of fund investments)
As of As of
5/31/97 11/30/96
Illinois 19% Illinois 16%
Massachussetts 10% Washington 9%
California 9% California 9%
Florida 9% Texas 8%
Washington 8% Florida 8%
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 5/31/97)
Revenue Bonds 68%
Prerefunded/ETM 15%
Land-Secured 6%
COPs/Leases 5%
GO 2%
Other 4%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 11/30/96)
Revenue Bonds 51%
COPs/Leases 14%
Prerefunded/ETM 10%
Other 25%
20 Long-Term Tax-Free American Century Investments
LONG-TERM TAX-FREE
How will the proposed merger with the Benham Long-Term Tax-Exempt fund affect
this fund?
Shareholders will see no change to the fund's management. The new, combined fund
will have all of this fund's investment objectives and policies, so we'll
continue to manage the new fund in the same way we've managed this one. The only
significant difference is that the new fund will carry the performance history
of the Long-Term Tax-Exempt fund.
What is your outlook for the municipal market over the next six months?
Whether the bond market can sustain the rally begun in early June depends on the
economy, Federal Reserve interest rate policy and inflation. Our current
expectation is that economic growth will slow from its unsustainable
first-quarter pace. Inflation seems tame, having risen just 2.2% over the last
12 months. In addition, "real" short-term interest rates (the nominal federal
funds rate minus the inflation rate) are already at levels that should inhibit
economic growth. As a result, we think municipal securities could rally if the
economy continues to slow. Nevertheless, if wage pressures increase, fear of a
Fed rate hike may send municipal bond prices lower.
Another important factor is the relative performance of municipals and
Treasurys. Lately, municipal securities have significantly outperformed
Treasurys, a situation caused in part by relatively low municipal debt issuance.
Although municipal issuance should remain fairly light in the near future, the
likelihood that municipal bonds will continue to outperform Treasurys is
diminishing--their prices are currently considered historically expensive
relative to Treasurys. If investor demand shifts back to Treasurys, municipal
prices would lose a key support.
With this outlook in mind, what are your plans for the fund going forward?
We'll likely keep the fund's duration slightly longer than its peer group
average. That would help the fund's performance if the economy continues to
slow. We think it's possible that slower economic growth and high real interest
rates could cause the market to begin to rally. We will also continue to work
with our credit research team to look for attractively valued securities.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 5/31/97)
AAA 48%
AA 43%
A 6%
BBB 3%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 11/30/96)
AAA 51%
AA 39%
A 7%
BBB 3%
Annual Report Long-Term Tax-Free 21
SCHEDULE OF INVESTMENTS
LONG-TERM TAX-FREE
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
ALABAMA-3.3%
$ 2,000,000 Alabama Special Care Facility
Financing Auth. Rev., (Daughters
of Charity), 5.00%, 11/1/25 $1,800,140
----------
CALIFORNIA-7.2%
1,000,000 Anaheim Public Financing Auth.
Lease Rev. Certificates of
Participation, Series C, (Public
Improvement Projects), 6.00%,
9/1/16 (FSA) 1,071,800
1,500,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series A, 5.25%, 7/1/27
(MBIA) 1,429,200
1,700,000 Los Angeles Wastewater Rev.,
Series 1993 D, 4.70%, 11/1/19
(FGIC) 1,469,854
----------
3,970,854
----------
FLORIDA-5.8%
855,000 Broward County Resource Recovery
Facility Rev., Series 1984, (South
Project), 7.95%, 12/1/08 931,753
1,000,000 Orlando Water and Electric Auth.
Rev., Series D, 6.75%, 10/1/17 1,167,350
1,000,000 St. Petersburg Health Auth. Rev.,
(Allegheny Health), 7.00%,
12/1/15 (MBIA) 1,092,160
----------
3,191,263
----------
GEORGIA-2.0%
1,000,000 Georgia Municipal Electric Auth.
Rev., 6.50%, 1/1/12 (MBIA) 1,119,160
----------
ILLINOIS-17.3%
1,965,000 Chicago Metropolitan Water
Reclamation District Capital
Improvement GO, 6.25%,
12/1/14 2,094,906
1,500,000 Illinois Dedicated Tax Rev., (Civic
Center Project), 6.25%,
12/15/20 (AMBAC) 1,631,790
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,500,000 Illinois Development Finance Auth.
Pollution Control Rev., Series B,
(Central Illinois Public Service),
7.60%, 3/1/14 $1,620,195
700,000 Illinois Health Facilities Auth. Rev.,
Series C, (Evangelical Hospital),
6.75%, 4/15/02, Prerefunded
at 102% of Par(1) 773,794
1,140,000 Illinois Health Facilities Auth. Rev.,
Series C, (Evangelical Hospital),
6.75%, 4/15/12(1) 1,261,547
2,000,000 Springfield Water Rev., 6.50%,
3/1/15 2,087,100
----------
9,469,332
----------
INDIANA-4.2%
1,000,000 Indiana Municipal Power Agency
Rev., Series A, 7.10%, 1/1/00,
Prerefunded at 102% of Par
(AMBAC)(1) 1,082,750
1,000,000 Indiana Transportation Financing
Auth. Highway Rev., Series A,
7.25%, 6/1/15 1,197,740
----------
2,280,490
----------
MASSACHUSETTS-10.0%
1,500,000 Massachusetts Bay Transportation
Auth. Rev., Series A, 5.50%,
3/1/22 (MBIA) 1,451,625
1,000,000 Massachusetts Health and
Education Auth. Rev., Series F,
6.25%, 7/1/12 (AMBAC) 1,091,770
1,690,000 Massachusetts Housing Finance
Agency Rev., Series 1992 H,
6.75%, 11/15/12 (FNMA) 1,790,285
1,115,000 Massachusetts Housing Finance
Agency Rev., Series 1993 A,
6.375%, 4/1/21 1,151,973
----------
5,485,653
----------
See Notes to Financial Statements
22 Long-Term Tax-Free American Century Investments
SCHEDULE OF INVESTMENTS
LONG-TERM TAX-FREE
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
NEW YORK-5.5%
$ 2,000,000 New York State Urban
Development Corporation Rev.
Certificates of Participation,
(Correctional Facilities), Series 4,
5.375%, 1/1/23 $1,836,240
1,250,000 Port Authority New York and New
Jersey Rev., 5.20%, 7/15/21
(AMBAC) 1,189,738
----------
3,025,978
----------
PENNSYLVANIA-3.3%
2,000,000 Pennsylvania Intergovernmental
Special Tax Rev., 5.00%,
6/15/22 (MBIA) 1,805,840
----------
RHODE ISLAND-4.2%
1,100,000 Rhode Island Clean Water Agency
Rev., 6.70%, 1/1/15 (AMBAC) 1,205,919
1,000,000 Rhode Island Depositors Economic
Special Obligation, 6.25%,
8/1/16 (MBIA) 1,084,960
----------
2,290,879
----------
SOUTH CAROLINA-5.2%
1,500,000 Piedmont Municipal Power Agency
Electric Rev., 6.75%, 1/1/19
(FGIC) 1,734,090
860,000 Piedmont Municipal Power Agency
Electric Rev., Series 1991 A,
6.50%, 1/1/16 (FGIC) 966,262
140,000 Piedmont Municipal Power Agency
Electric Rev., Series 1991 A,
6.50%, 1/1/16 (FGIC)(1) 156,422
----------
2,856,774
----------
TEXAS-5.0%
600,000 Lower Colorado River Auth. Rev.,
5.25%, 1/1/15(1) 591,504
2,000,000 San Antonio Electric and Gas
System Rev., 5.46%, 2/1/09
(FGIC)(2) 1,066,660
1,000,000 Tarrant County Health Facility Rev.,
6.00%, 5/15/11 (MBIA) 1,067,900
----------
2,726,064
----------
Principal Amount Value
- --------------------------------------------------------------------------------
UTAH-2.3%
$ 1,000,000 Salt Lake City Hospital Rev.,
Series A, (Intermountain Health
Corporation), 8.125%, 5/15/15(1) $ 1,236,310
----------
VIRGINIA-5.3%
1,000,000 Hampton Industrial Development
Auth. Rev., Series A, (Sentara
General Hospital), 6.50%,
11/1/12 1,067,770
1,750,000 Virginia State Housing Development
Auth. Rev., Series F, (Single
Family Mortgage), 7.10%,
1/1/17 1,823,045
----------
2,890,815
----------
WASHINGTON-8.1%
1,405,000 Port of Seattle Rev., 7.50%,
12/1/00, Prefunded at 102%
of Par (AMBAC)(1) 1,565,451
1,625,000 Seattle Metropolitan Sewer Rev.,
Series T, 6.875%, 1/1/00,
Prerefunded at 102% of Par(1) 1,749,394
1,000,000 Washington State GO, Series A,
6.75%, 2/1/15 1,150,520
----------
4,465,365
----------
WISCONSIN-4.0%
1,900,000 Wisconsin State Clean Water Rev.,
6.875%, 6/1/11 2,194,215
----------
TOTAL MUNICIPAL SECURITIES-92.7% 50,809,132
----------
(Cost $47,863,309)
PURCHASED PUT OPTIONS
Contracts
45 U.S. Treasury Bond Futures-
September 1997 Contract Strike
@ 106 Expires 8/23/97 24,610
----------
(Cost $37,716)
See Notes to Financial Statements
Annual Report Long-Term Tax-Free 23
SCHEDULE OF INVESTMENTS
LONG-TERM TAX-FREE
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
ARIZONA-0.4%
$ 200,000 Phoenix Industrial Development
Auth. Multifamily Housing Rev.,
(Del Mar Terrace Apartment
Project), VRDN, 3.90%, 6/5/97
(LOC: Bank of America) $ 200,000
----------
CALIFORNIA-1.8%
1,000,000 Richmond Joint Powers Financing
Auth. Lease Rev., VRDN, 4.00%,
6/2/97 (LOC: Union Bank of
California) 1,000,000
----------
FLORIDA-3.3%
1,800,000 University Athletic Association
Capital Improvement Rev.,
(University of Florida Stadium
Project), VRDN, 3.90%, 6/2/97
(LOC: Suntrust Bank Central
Florida, N.A.) 1,800,000
----------
ILLINOIS-1.8%
1,000,000 Chicago O'Hare International
Airport Rev., VRDN, 4.05%,
6/2/97 (LOC: Royal Bank of
Canada 1,000,000
----------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES-7.3% 4,000,000
----------
(Cost $4,000,000)
TOTAL INVESTMENT SECURITIES-100.0% $54,833,742
===========
(Cost $51,901,025)
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FNMA = Federal National Mortgage Association
FSA = Financial Security Association
GO = General Obligation
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
May 31, 1997.
(1)Escrowed in U.S. Government Securities.
(2)Security is a zero-coupon municipal bond. The yield to maturity at May 31,
1997, is indicated. Zero-coupon securities are purchased at a substantial
discount from their value at maturity.
See Notes to Financial Statements
24 Long-Term Tax-Free American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
MAY 31, 1997
TAX-FREE INTERMEDIATE-TERM LONG-TERM
MONEY MARKET TAX-FREE TAX-FREE
ASSETS
Investment securities, at value (amortized cost for
Tax-Free Money Market; identified cost of $58,207,224
<S> <C> <C> <C> <C> <C>
and $51,901,025, respectively) (Note 3) ....................... $86,496,063 $60,097,432 $54,833,742
Cash ............................................................ 31,429 -- 4,552
Receivable for investments sold ................................. 1,700,000 731,087 --
Interest receivable ............................................. 653,233 1,053,056 970,084
Prepaid expenses and other assets ............................... 920 1,579 532
---------- ---------- ----------
88,881,645 61,883,154 55,808,910
---------- ---------- ----------
LIABILITIES
Disbursements in excess of demand deposit cash .................. 40,976 60,579 1,007,543
Payable for investments purchased ............................... 3,000,000 1,002,129 2,620,324
Payable for capital shares redeemed ............................. 53,109 67,428 106,355
Payable to affiliates (Note 2) .................................. 48,824 34,269 29,289
Dividends payable ............................................... 7,059 16,174 7,326
Accrued expenses and other liabilities .......................... 1,285 -- 1,014
---------- ---------- ----------
3,151,253 1,180,579 3,771,851
---------- ---------- ----------
Net Assets Applicable to Outstanding Shares ..................... $85,730,392 $60,702,575 $52,037,059
=========== =========== ===========
CAPITAL SHARES
Outstanding (Unlimited number of shares authorized) ............. 85,730,392 5,630,908 4,479,317
========== ========= =========
Net Asset Value Per Share ....................................... $1.00 $10.78 $11.62
========== ========= =========
NET ASSETS CONSIST OF:
Capital paid in ................................................. $85,730,392 $58,703,137 $49,187,843
Accumulated net realized gain (loss) on investment transactions . -- 109,230 (83,501)
Net unrealized appreciation on investments (Note 3) ............. -- 1,890,208 2,932,717
---------- ---------- ----------
$85,730,392 $60,702,575 $52,037,059
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
Annual Report Statements of Assets and Liabilities 25
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31, 1997
TAX-FREE INTERMEDIATE-TERM LONG-TERM
MONEY MARKET TAX-FREE TAX-FREE
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ....................................................... $3,217,484 $3,462,907 $3,161,398
---------- ---------- ----------
Expenses (Note 2):
Investment advisory fees ....................................... 383,093 268,199 229,610
Administrative fees ............................................ 84,467 59,163 50,657
Transfer agency fees ........................................... 61,414 42,037 40,010
Printing and postage ........................................... 28,735 17,296 15,126
Auditing and legal fees ........................................ 22,577 16,857 14,877
Registration and filing fees ................................... 21,484 16,503 16,263
Custodian fees ................................................. 16,184 9,472 10,988
Telephone expenses ............................................. 6,176 2,916 1,843
Trustees' fees and expenses .................................... 4,731 3,331 2,783
Other operating expenses ....................................... 9,129 16,586 11,599
---------- ---------- ----------
Total expenses ............................................... 637,990 452,360 393,756
Amount waived (Note 2) ......................................... (41,239) (33,983) (34,210)
---------- ---------- ----------
Net expenses ................................................. 596,751 418,377 359,546
---------- ---------- ----------
Net investment income .......................................... 2,620,733 3,044,530 2,801,852
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ............................... -- 546,887 344,419
Change in net unrealized appreciation on investments ........... -- 170,155 1,220,273
---------- ---------- ----------
Net realized and unrealized
gain on investments ............................................ -- 717,042 1,564,692
---------- ---------- ----------
Net Increase in Net Assets
Resulting from Operations ...................................... $2,620,733 $3,761,572 $4,366,544
========== ========== ==========
</TABLE>
See Notes to Financial Statements
26 Statements of Operations American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED MAY 31, 1997
AND MAY 31, 1996
TAX-FREE INTERMEDIATE-TERM LONG-TERM
MONEY MARKET TAX-FREE TAX-FREE
Increase (Decrease) in Net Assets 1997 1996 1997 1996 1997 1996
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ...............$ 2,620,733 $ 2,878,179 $ 3,044,530 $ 3,047,444 $ 2,801,852 $ 2,701,979
Net realized gain on investments .... -- -- 546,887 346,493 344,419 735,144
Change in net unrealized appreciation
(depreciation) on investments ..... -- -- 170,155 (671,581) 1,220,273 (1,549,360)
--------- --------- --------- --------- --------- ---------
Net increase in net assets
resulting from operations ......... 2,620,733 2,878,179 3,761,572 2,722,356 4,366,544 1,887,763
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .......... (2,620,733) (2,878,179) (3,044,530) (3,047,444) (2,801,852) (2,701,979)
--------- --------- --------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 79,662,054 93,328,673 18,099,578 12,956,225 46,165,912 64,939,756
Proceeds from reinvestment of
distributions ..................... 2,479,220 2,751,052 2,309,108 2,324,043 2,122,387 2,023,443
Payments for shares redeemed ........ (87,528,514)(96,996,191) (23,323,252) (16,958,622) (49,197,675)(62,081,385)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net assets
from capital share transactions ... (5,387,240) (916,466) (2,914,566) (1,678,354) (909,376) 4,881,814
--------- --------- --------- --------- --------- ---------
Net increase (decrease)
in net assets ..................... (5,387,240) (916,466) (2,197,524) (2,003,442) 655,316 4,067,598
NET ASSETS
Beginning of year ................... 91,117,632 92,034,098 62,900,099 64,903,541 51,381,743 47,314,145
--------- --------- --------- --------- --------- ---------
End of year ......................... $85,730,392 $91,117,632 $60,702,575 $62,900,099 $52,037,059 $51,381,743
=========== =========== =========== =========== =========== ===========
TRANSACTIONS IN SHARES OF THE FUNDS
Sold ................................ 79,662,054 93,328,673 1,678,585 1,196,927 4,024,839 5,611,693
Issued in reinvestment of
distributions ..................... 2,479,220 2,751,052 214,593 214,867 184,335 175,401
Redeemed ............................ (87,528,514)(96,996,191) (2,163,552) (1,570,164) (4,279,706) (5,361,215)
----------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) ............. (5,387,240) (916,466) (270,374) (158,370) (70,532) 425,879
========== ======== ======== ======== ======= =======
</TABLE>
See Notes to Financial Statements
Annual Report Statements of Changes in Net Assets 27
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. Organization and Summary of Significant Accounting Policies
Organization--American Century Municipal Trust (the Trust), is registered under
the Investment Company Act of 1940 as an open-end management investment company.
American Century - Benham Tax-Free Money Market Fund (Money Market), American
Century - Benham Intermediate-Term Tax-Free Fund (Intermediate-Term), and
American Century - Benham Long-Term Tax-Free Fund (Long-Term) (the Funds) are
three of the six funds issued by the Trust. The Funds are diversified under the
1940 Act. The Funds' objective is to seek as high a level of current income
exempt from federal income taxes as is consistent with prudent investment
management and conservation of shareholders' capital. The Funds invest primarily
in municipal obligations with maturities based on each Fund's investment
objectives. The Funds may concentrate their investments in certain states and
therefore may have more exposure to credit risk related to those states than
funds that have broader geographical diversification. The following significant
accounting policies, related to the Funds, are in accordance with accounting
policies generally accepted in the investment company industry.
Security Valuations--Securities held by Money Market are valued at amortized
cost, which approximates current market value. Securities held by
Intermediate-Term and Long-Term (collectively the "Variable-Price Funds") 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. When valuations are not
readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Trustees.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. 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
amortization of premiums and discounts. Premium and original issue discount is
amortized daily using the effective interest rate method for the Variable-Price
Funds. Market discount is recognized as income upon the sale or maturity of the
security for the Variable-Price Funds. Premium and discount are amortized daily
on a straight-line basis for securities held by Money Market.
Income Tax Status--It is the policy of the Funds to distribute all net
investment income and net realized capital gains to shareholders and to
otherwise qualify as a regulated investment company under the provisions of the
Internal Revenue Code. Accordingly, no provision has been made for federal or
state taxes.
Distributions to Shareholders--Distributions from net investment income for the
Variable-Price Funds are declared daily and distributed monthly. Distributions
from net realized gains for these Funds are declared and paid annually. Money
Market's dividends are declared and credited daily and distributed monthly. The
Money Market Fund does not expect to realize any long-term capital gains, and
accordingly, does not expect to pay any capital gain distributions.
For the year ended May 31, 1997, 100% of the Funds' distributions from net
investment income have been designated as exempt from federal income taxes.
At May 31, 1997, the Long-Term Fund had accumulated net realized loss carryovers
of $83,501 (expiring in 2004) which may be used to offset future taxable gains.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes due to differences in the recognition of income and
expense items for financial reporting and tax purposes.
Supplementary Information--Certain officers and trustees of the Trust are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the Trust's investment advisor,
Benham Management Corporation (BMC), the Trust's distributor, American Century
Investment Services, Inc. (ACIS), and the Trust's transfer agent, American
Century Services Corporation (ACSC).
Futures Contracts--The Variable-Price Funds may buy and sell interest rate
futures contracts relating to debt securities and write and buy put and call
options relating to interest rate futures contracts. The Variable-Price Funds
may use futures and options transactions to maintain cash reserves while
remaining fully invested, to facilitate trading, to reduce transaction costs, or
to pursue higher investment returns when a futures contract is priced more
attractively than its underlying security or index. One of the risks of entering
into futures may include the possibility that the changes in value of the
contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the Fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the Fund. The variation margin is equal to
the daily change in the contract value and is recorded as an unrealized gain or
loss. The Fund recognizes a realized gain or loss when the contract is closed or
expires.
28 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
Use of Estimates-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
- --------------------------------------------------------------------------------
2. Transactions with Related Parties
The Trust has entered into an Investment Advisory Agreement with BMC that
provides the Trust with investment advisory services in exchange for an
investment advisory fee. ACSC pays all compensation of Trust officers and
trustees who are officers or directors of ACC or any of its subsidiaries. In
addition, promotion and distribution expenses are paid by BMC. The investment
advisory fee is paid monthly by each Fund based on its pro rata share of the
dollar amount derived from applying the Trust's average daily closing net assets
to the following annualized investment advisory fee schedule.
0.50% of the first $100 million
0.45% of the next $100 million
0.40% of the next $100 million
0.35% of the next $100 million
0.30% of the next $100 million
0.25% of the next $1 billion
0.24% of the next $1 billion
0.23% of the next $1 billion
0.22% of the next $1 billion
0.21% of the next $1 billion
0.20% of the next $1 billion
0.19% of the average daily net assets over $6.5 billion
The Trust has an Administrative Services and Transfer Agency Agreement with
ACSC. Under the agreement, ACSC provides substantially all administrative and
transfer agency services necessary to operate the Funds. Fees for these services
are based on transaction volume, number of accounts, and average daily closing
net assets for funds advised by BMC.
The Trust has an additional agreement with BMC pursuant to which BMC established
a contractual expense guarantee that limits Fund expenses (excluding items such
as brokerage commissions, taxes, interest, custodian earnings credits, and
extraordinary expenses) to 0.67% of average daily net assets for the Funds. The
agreement provides that BMC may recover amounts (representing expenses in excess
of the Fund's expense guarantee rate) absorbed during the preceding 11 months,
if, and to the extent that, for any given month, the Fund's expenses are less
than the expense guarantee rate in effect at that time.
The payables to affiliates as of May 31, 1997, based on the above agreements
were as follows:
Intermediate-
Money Market Term Long-Term
Investment Advisor .... $30,707 $22,152 $18,685
Administrative Services
and Transfer Agent .... 18,117 12,117 10,604
------ ------ ------
$48,824 $34,269 $29,289
========= ======== ========
On April 25, 1997, the Board of Trustees approved a plan to implement a unified
management fee, which would replace the existing contracts between the Funds and
related parties. Such plan is subject to shareholder approval and will be voted
on in July, 1997. The results of the vote were unknown at the time this report
was printed.
The Trust has a distribution agreement with ACIS, which is responsible for
promoting sales of and distributing the Trust's shares.
- --------------------------------------------------------------------------------
3. Investment Transactions
The aggregate cost of municipal debt obligations purchased (excluding short-term
investments) for the year ended May 31, 1997, for Intermediate-Term and
Long-Term totaled $24,908,955 and $40,101,582, respectively. The proceeds from
sales of municipal debt obligations (excluding short-term investments) for the
year ended May 31, 1997, for Intermediate-Term and Long-Term totaled $26,909,077
and $38,745,073, respectively.
As of May 31, 1997, accumulated net unrealized appreciation for
Intermediate-Term and Long-Term were $1,890,208 and $2,932,717, respectively,
consisting of unrealized appreciation of $1,897,615 and $3,096,989, and
unrealized depreciation of $7,407 and $164,272, respectively. The aggregate cost
of investments for federal income tax purposes was the same as the cost for
financial reporting purposes.
Annual Report Notes to Financial Statements 29
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
TAX-FREE MONEY MARKET
For a Share Outstanding Throughout the Years Ended May 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year .............................. $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income From Investment Operations
Net Investment Income ........................ 0.03 0.03 0.03 0.02 0.02
---- ---- ---- ---- ----
Distributions
From Net Investment Income ................... (0.03) (0.03) (0.03) (0.02) (0.02)
----- ----- ----- ----- -----
Net Asset Value, End of Year ................... $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return(1) .............................. 2.98% 3.19% 2.95% 1.92% 2.12%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......................... 0.67% 0.65% 0.66% 0.67% 0.68%
Ratio of Net Investment Income
to Average Net Assets .......................... 2.93% 3.12% 2.88% 1.89% 2.10%
Net Assets, End
of Year (in thousands) ......................... $85,730 $91,118 $92,034 $109,818 $109,875
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
30 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERMEDIATE-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended May 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year .............................. $10.66 $10.71 $10.60 $10.90 $10.48
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ........................ 0.52 0.52 0.50 0.51 0.52
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ................... 0.12 (0.05) 0.15 (0.19) 0.53
---- ----- ---- ----- ----
Total From Investment Operations ............. 0.64 0.47 0.65 0.32 1.05
---- ---- ---- ---- ----
Distributions
From Net Investment Income ................... (0.52) (0.52) (0.50) (0.51) (0.52)
From Net Realized Capital Gains .............. -- -- (0.04) (0.11) (0.11)
----- ----- ----- ----- -----
Total Distributions .......................... (0.52) (0.52) (0.54) (0.62) (0.63)
----- ----- ----- ----- -----
Net Asset Value, End of Year ................... $10.78 $10.66 $10.71 $10.60 $10.90
====== ====== ====== ====== ======
Total Return(1) .............................. 6.16% 4.38% 6.40% 2.93% 10.26%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......................... 0.67% 0.70% 0.66% 0.67% 0.72%
Ratio of Net Investment Income
to Average Net Assets .......................... 4.87% 4.73% 4.82% 4.61% 4.81%
Portfolio Turnover Rate ........................ 40% 46% 47% 46% 36%
Net Assets, End
of Year (in thousands) ......................... $60,703 $62,900 $64,904 $70,925 $67,550
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
Annual Report Financial Highlights 31
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
LONG-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended May 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year .............................. $11.29 $11.47 $11.26 $11.92 $11.26
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ........................ 0.60 0.61 0.62 0.62 0.63
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ................... 0.33 (0.18) 0.27 (0.42) 0.92
---- ----- ---- ----- ----
Total From Investment Operations ............. 0.93 0.43 0.89 0.20 1.55
---- ---- ---- ---- ----
Distributions
From Net Investment Income ................... (0.60) (0.61) (0.62) (0.62) (0.63)
From Net Realized Capital Gains .............. -- -- (0.06) (0.24) (0.26)
----- ----- ----- ----- -----
Total Distributions .......................... (0.60) (0.61) (0.68) (0.86) (0.89)
----- ----- ----- ----- -----
Net Asset Value, End of Year ................... $11.62 $11.29 $11.47 $11.26 $11.92
====== ====== ====== ====== ======
Total Return(1) ................................ 8.41% 3.75% 8.29% 1.54% 14.61%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......................... 0.67% 0.70% 0.66% 0.67% 0.72%
Ratio of Net Investment Income
to Average Net Assets .......................... 5.21% 5.22% 5.59% 5.16% 5.40%
Portfolio Turnover Rate ........................ 75% 49% 34% 39% 105%
Net Assets, End
of Year (in thousands) ......................... $52,037 $51,382 $47,314 $57,330 $54,241
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
32 Financial Highlights American Century Investments
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
American Century Municipal Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investment securities, of American Century - Benham Tax-Free
Money Market Fund, American Century - Benham Intermediate-Term Tax-Free Fund and
American Century - Benham Long-Term Tax-Free Fund (three of the series
comprising American Century Municipal Trust) (the Funds) as of May 31, 1997 and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of the
Funds as of May 31, 1997, the results of their operations, the changes in their
net assets and the financial highlights for the periods indicated above, in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
July 7, 1997
Annual Report Independent Auditors' Report 33
NOTES
34 Notes American Century Investments
NOTES
Annual Report Notes 35
BACKGROUND INFORMATION
Investment Philosophy & Policies
American Century Investments offers 42 fixed-income funds, ranging from money
market funds to long-term bond funds and including both taxable and tax-exempt
funds.
Tax-Free Money Market seeks to provide interest income exempt from federal
income taxes by investing in short-term municipal securities. Investments in
Tax-Free Money Market are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable net asset value of $1 per share.
Intermediate-Term Tax-Free is a variable-price bond fund that seeks to provide
interest income exempt from federal income taxes by investing in municipal
securities. The fund maintains a weighted average maturity of from five to 10
years.
Long-Term Tax-Free is a variable-price bond fund that seeks to provide interest
income exempt from federal income taxes by investing in municipal securities.
The fund maintains a weighted average maturity of 10 or more years.
Comparative Indices
The indices listed below are used in the report to serve as a comparison for the
performance of a fund. They are not investment products available for purchase.
The Lehman Brothers Five-Year Municipal General Obligation Index is a municipal
bond index composed of more than 11,000 bonds with maturities of four to six
years. The bonds are rated BBB or higher by Standard & Poor's, with an average
rating of AA. The average maturity of the index is five years.
The Lehman Brothers Long-Term Municipal Bond Index is composed of 8,000
municipal bonds. The bonds are all investment-grade, fixed-rate, long-term
maturities (greater than two years) and are selected from issues larger than $50
million dated since January 1994.
Lipper Rankings
Lipper Analytical Services, Inc. is an independent mutual fund ranking service
that groups funds according to their investment objectives. Rankings are based
on average annual returns for each fund in a given category for the periods
indicated. Rankings are not included for periods less than one year.
The Lipper categories for the Tax-Free funds are:
Tax-Exempt Money Market Funds (Tax-Free Money Market)--funds that intend to
maintain a constant net asset value and that invest in high- quality municipal
obligations with dollar-weighted average maturities of less than 90 days.
Intermediate Municipal Debt Funds (Tax-Free Intermediate-Term)--funds that
invest in municipal debt issues with dollar-weighted average maturities of five
to 10 years.
General Municipal Debt Funds (Tax-Free Long-Term)--funds that invest at least
65% of their assets in municipal debt issues in the top four credit ratings
(AAA, AA, A and BBB).
PORTFOLIO MANAGEMENT TEAM
Senior Municipal Portfolio Manager Dave MacEwen
Municipal Portfolio Managers Bryan Karcher, Joel Silva
Associate Municipal Portfolio Manager Ken Salinger
Municipal Credit Research Manager Steven Permut
Credit Analysts Scott Lord, Bill McClintock,
David Moore, Tim Benham
36 Background Information American Century Investments
GLOSSARY
Returns
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 30-32.
Yields
o 7-Day Current Yield is calculated based on the income generated by an
investment in the fund over a seven-day period and is expressed as an annual
percentage rate.
o 7-Day Effective Yield is calculated similarly, although this figure is
slightly higher than the fund's 7-Day Current Yield because of the effects of
compounding. The 7-Day Effective Yield assumes that income earned from the
fund's investments is reinvested and generating additional income.
o 30-Day SEC Yield represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's investment income, and it may not equal the fund's actual
income distribution rate, the income paid to a shareholder's account, or the
income reported in the fund's financial statements.
o Tax-Equivalent Yields show the taxable yields that investors in a federal
income tax bracket would have to earn before taxes to equal the fund's tax-free
yield.
Investment Terms
o Basis Point--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%).
o Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Portfolio Statistics
o Number of Securities--the number of different securities held by a fund on a
given date.
o Weighted Average Maturity (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
o Average Duration--another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio.
o Expense Ratio--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
Types of Municipal Securities
o AMT Paper--instruments with income subject to the federal alternative minimum
tax.
o COPs/Leases--securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases.
o GO Bonds--general obligation securities backed by the taxing power of the
issuer.
o Land-Secured Bonds--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
o Municipal Commercial Paper (CP)--high-grade short-term securities backed by a
line of credit from a bank.
o Municipal Notes--securities with maturities of two years or less.
o Prerefunded Bonds/ETM Bonds--securities refinanced or escrowed to maturity by
the issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
o Revenue Bonds--securities backed by revenues from sales taxes or from a
specific project, system or facility (such as a hospital, electric utility or
water system).
o Variable-Rate Demand Notes (VRDNs)--securities that track market interest
rates and stabilize their market values using periodic (daily or weekly)
interest rate adjustments.
Annual Report Glossary 37
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUNICIPAL TRUST
Investment Manager
Benham Management Corporation
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.
9707 [recycled logo]
SH-BKT-9000 Recycled
<PAGE>
ANNUAL REPORT
[american century logo]
American
Century(sm)
May 31, 1997
BENHAM
GROUP
Florida Municipal Money Market
Florida Intermediate-Term Municipal
[front cover]
TABLE OF CONTENTS
Report Highlights........................................... 1
Our Message to You.......................................... 2
Period Overview............................................. 3
Florida Municipal Credit Review............................. 4
Florida Municipal Money Market
Performance & Portfolio Information...................... 5
Management Q & A......................................... 6
Schedule of Investments.................................. 8
Financial Highlights.....................................23
Florida Intermediate-Term Municipal
Performance & Portfolio Information......................11
Management Q & A.........................................12
Schedule of Investments..................................15
Financial Highlights.....................................24
Statements of Assets and Liabilities........................17
Statements of Operations....................................18
Statements of Changes in Net Assets.........................19
Notes to Financial Statements...............................20
Independent Auditors' Report................................25
Background Information
Investment Philosophy & Policies.........................28
Comparative Indices......................................28
Lipper Rankings..........................................28
Portfolio Management Team................................28
Glossary....................................................29
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
AMERICAN CENTURY INVESTMENTS - FAMILY OF FUNDS
BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Florida Municipal
Money Market
Florida Intermediate-Term
Municipal
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
Period Overview
o The U.S. economy grew at a healthy clip during the fiscal year ended May 31,
1997, while inflation remained relatively subdued. A steady increase in new jobs
and strong consumer spending helped fuel that growth.
o Concerned that strong economic growth might lead to higher inflation, the
Federal Reserve raised short-term interest rates in late March--the first
increase since February 1995.
o Municipal bonds posted strong returns despite the Fed's decision to raise
interest rates.
o After falling in response to the Fed's rate hike, municipal bond prices
rallied in May thanks to a string of economic data that has provided evidence of
moderating economic growth.
Florida Municipal Credit Review
o Florida's economy prospered during the fiscal year, improving the state's
municipal credit quality during the fiscal year.
o The state's credit rating was upgraded because of greater-than-expected
general fund revenues and sound financial management.
o Going forward, Florida's burgeoning population and a growing wave of anti-tax
sentiment could cause repercussions that will bear close scrutiny. Despite these
concerns, our outlook for Florida's credit quality is optimistic.
Florida Municipal Money Market
o The fund's performance resulted in an impressive ranking among its peers for
the fiscal year with the help of a management expense waiver that ended in
December 1996.
o The fund's shortened average maturity allowed us to more quickly reinvest in
higher-yielding securities after the Fed's March interest rate increase.
o Going forward, we will look to buy longer-maturity securities that we feel
provide sufficient pick-up over short-term municipals.
Florida Intermediate-Term Municipal
o The fund produced a strong return for the fiscal year, finishing strongly
compared with its peer group.
o Successful swap trades--exchanges of securities between the fund and a
broker--were the main reason behind the fund's solid performance.
o With net assets exceeding the $25 million mark in mid-June, investors should
now be able to monitor the fund's performance in their local newspapers.
o Going forward, with the help of our credit research team, we will continue to
look for undervalued securities that we believe have the chance to appreciate.
We also plan to continue swapping securities enhance fund returns.
Florida Municipal
Money Market
Total Returns: AS OF 5/31/97
6 Months 1.73%*
1 Year 3.55%
7-Day Current Yield: 3.42%
Net Assets: $112.1 million
(AS of 5/31/97)
Inception Date: 4/11/94
Ticker Symbol: BEFXX
Florida
Intermediate-Term Municipal
Total Returns: AS OF 5/31/97
6 Months 1.95%*
1 Year 6.63%
Net Assets: $16.5 million
(AS of 5/31/97)
Inception Date: 4/11/94
Ticker Symbol: ACBFX
* Not annualized.
Many of the investment terms in this report are
defined in the Glossary on page 29.
Annual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
During the fiscal year ended May 31, 1997, investors in the Benham Florida
municipal funds earned solid, competitive returns as municipal securities
outperformed Treasurys for much of the period. The extended economic expansion
that propelled U.S. stock markets to new highs also benefited municipal and
corporate bonds, and low levels of inflation provided bond investors with higher
real rates of return. In Florida, a strong economy and low levels of
unemployment boosted tax revenues for local governments, leading to credit
quality upgrades.
American Century's municipal bond management team is well positioned to take
advantage of attractive opportunities in the municipal markets. We have
continued to expand our very talented team of municipal credit analysts, most
recently adding David Moore, who comes to us from Keystone Investments in
Boston. The credit team contributed significantly to our ability to find
undervalued municipal securities that ultimately enhanced fund returns.
We also strengthened our corporate team. In June, Bill Lyons, American Century's
chief operating officer, was named president, assuming full responsibility for
the company's day-to-day operations. This change will allow Jim Stowers III to
focus more time on developing and refining new investment technologies and tools
that build on and leverage the proprietary system his father pioneered 25 years
ago. One of our goals is to ensure that we continue to evolve and
innovate--building the investment tools today that will help lead us and our
investors to success in the next century.
We appreciate your confidence in American Century and look forward to continuing
to serve you.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
Chief Executive Officer Vice Chairman
American Century Companies American Century Companies
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. Economy
The U.S. economy grew at a healthy pace during the 12 months ended May 31, 1997.
After expanding at a 2.2% annual rate in the third quarter of 1996, the U.S.
economy surged ahead at an impressive 3.8% rate in the fourth quarter. Economic
growth hit a 10-year high of 5.9% in the first quarter of 1997. Strong consumer
spending and rising consumer confidence, which reached a 28-year high in April,
fueled the robust growth. In addition, the unemployment rate fell from 5.4% in
January to a 23-year low of 4.8% in May.
Inflation--as measured by the government's consumer price index--rose at a
modest 1.4% annual rate during the first five months of 1997. That stands in
sharp contrast to 1996, when prices rose by 3.6% --the largest yearly gain since
1990.
Concerned that vigorous economic growth might lead to higher inflation, the
Federal Reserve (the Fed) raised short-term interest rates in March--the first
such increase since February 1995. Though the Fed held rates steady at its May
interest rate policy meeting, tight labor markets and strong manufacturing
activity have kept market participants from ruling out another rate hike.
Municipal Bond Market
Municipal bonds produced strong returns as interest rates declined overall
during the 12-month period. Longer-term securities, which usually appreciate
more than short-term securities when rates fall, performed best. For the period,
the Lehman Long-Term Municipal Bond Index rose by 10.04%, while the Lehman
Five-Year General Obligation Index rose by 6.09%.
Bond yields were at their highest point at the beginning of the period, when
strong job growth led many to believe that the Fed was poised to raise rates.
However, expectations for higher rates softened after economic growth moderated
in the third quarter and the Fed continued to hold interest rates steady. Aided
by strong demand from insurance companies, municipal bond prices rallied and
yields fell. By December, short-term municipal yields had fallen nearly 60 basis
points from where they began the period, while long-term municipal yields were
nearly 70 basis points lower.
Signs of stronger-than-expected economic growth near the end of the first
quarter of 1997 resurrected fears that the Fed would raise rates to keep
inflation in check. As a result, municipal bond yields rose steadily in March
and April.
Recent data suggest that the rate of U.S. economic growth slowed during the
second quarter, fueling a municipal market rally in May and June. Municipal
bonds are also benefiting from relatively low levels of new municipal debt
issuance. Although demand from retail investors has tapered off recently, retail
demand was strong during much of the fiscal year. Any renewed surge in demand
would support bond prices and dampen market volatility.
[line graph - data below]
MUNICIPAL YIELD CURVES
Years to Maturity 5/31/96 5/31/97
1 3.800 3.850
2 4.150 4.150
3 4.370 4.350
4 4.520 4.500
5 4.640 4.600
6 4.740 4.660
7 4.840 4.720
8 4.940 4.780
9 5.040 4.840
10 5.140 4.900
11 5.230 4.976
12 5.320 5.052
13 5.410 5.128
14 5.500 5.204
15 5.590 5.280
16 5.624 5.308
17 5.658 5.336
18 5.692 5.364
19 5.726 5.392
20 5.760 5.420
21 5.768 5.426
22 5.776 5.432
23 5.784 5.438
24 5.792 5.444
25 5.800 5.450
26 5.804 5.454
27 5.808 5.458
28 5.812 5.462
29 5.816 5.466
30 5.820 5.470
Source: Bloomberg Financial Markets
Annual Report Period Overview 3
FLORIDA MUNICIPAL CREDIT REVIEW
Strong economic growth improved Florida municipal credit quality during the 12
months ended May 31, 1997. Though the pace of economic growth has slowed,
Florida's economy expanded faster than the national average during 1996.
As the accompanying graph indicates, Florida's unemployment rate fell during the
period. By June 1997, the state's unemployment rate stood at 4.9%, compared with
a national rate of 5.0%. Employment growth was concentrated in construction,
services and trade jobs.
Over the past decade, the state's unemployment rate declined despite a
burgeoning population. During that period, Florida's working-age population
expanded by 30%, while the overall population grew approximately twice as fast
as the national average. In addition, Florida residents' per capita income rose
faster than the nation as a whole.
Florida continued to benefit from its advantageous geographic position.
Internationally, the state is well positioned to benefit from the growth of the
emerging markets of the Caribbean and Central and South America. Florida also
remains a popular tourist destination, with an estimated 44 million tourists
expected to visit the state in 1997.
Florida's strong economic growth contributed to greater-than-expected general
fund revenues during fiscal 1996, the latest period for which data are
available. In addition, the state continued to demonstrate sound financial
management, building a constitutionally mandated budget stabilization reserve
over the last several years. As a result, the state's credit rating was recently
upgraded by Standard and Poor's, Inc.
Nevertheless, the state is likely to face capital needs in regard to education
and development in coming years. Rapid population growth is straining the
state's infrastructure, particularly its public school system. Florida has made
significant progress on welfare reform, due largely to declining caseloads.
However, the ultimate success of welfare reform will depend on the state's
ability to generate employment opportunities for current welfare recipients.
Running counter to these long-term capital needs is a growing wave of anti-tax
sentiment. Florida voters have often failed to approve new taxes to fund local
school improvements, while the threat of anti-tax ballot measures looms. It
remains to be seen how the state will address its need for large capital outlays
in the future.
Despite these potentially negative factors, our outlook for Florida's credit
quality is optimistic. Florida and its municipalities follow generally
conservative fiscal practices, and we expect the state's credit quality to
remain stable for the next two or three years.
[line graph - data below]
FLORIDA UNEMPLOYMENT RATE
3/31/93 7.1%
6/30/93 7.0%
9/30/93 6.9%
12/31/93 7.0%
3/31/94 6.9%
6/30/94 6.7%
9/30/94 6.4%
12/31/94 5.9%
3/31/95 5.4%
6/30/95 5.5%
9/30/95 5.5%
12/31/95 5.4%
3/31/96 5.4%
6/30/96 5.0%
9/30/96 5.4%
12/31/96 4.5%
3/31/97 5.0%
6/30/97 4.9%
Source: Bureau of Labor Statistics
4 Florida Municipal Credit Review American Century Investments
<TABLE>
<CAPTION>
FLORIDA MUNICIPAL MONEY MARKET
7-Day 7-Day 7-Day Tax-Equivalent Yields
Current Effective 28% 31% 36% 39.6%
Yield Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
YIELDS AS OF MAY 31, 1997
Florida Municipal
<S> <C> <C> <C> <C> <C> <C>
Money Market 3.42% 3.48% 4.75% 4.96% 5.34% 5.66%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
TOTAL RETURNS AS OF MAY 31, 1997
Florida Municipal Money Market ........................... 1.73% 3.55% 3.71% 3.67%
Average Other States Tax-Exempt Money Market Fund(1) ..... 1.57% 3.12% 3.23% 3.22%(2)
Fund's Ranking Among Other States
Tax-Exempt Money Market Funds(1) ......................... -- 1 out of 33 1 out of 18 1 out of 17(2)
(1) According to Lipper Analytical Services.
(2) Since 4/30/94, the date nearest the fund's inception for which data are
available. Inception date was April 11, 1994.
</TABLE>
See pages 28-29 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
5/31/97 5/31/96
Number of Securities 50 55
Weighted Average Maturity 48 days 50 days
Expense Ratio 0.12%* 0%*
* Until December 31, 1996, the fund's management fees were waived by Benham
Management Corporation (BMC). As of January 1, 1997, management fees are being
phased in at a rate of 0.10% each month until the 0.61% annual expense cap is
reached.
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable $1.00 share price.
Annual Report Florida Municipal Money Market 5
FLORIDA MUNICIPAL MONEY MARKET
Management Q & A
An interview with Bryan Karcher, a portfolio manager on the Florida municipal
funds management team.
How did the fund perform?
The fund continued to perform very well. For the fiscal year ended May 31, 1997,
the fund returned 3.55%, compared with the 3.12% average return of the 33 "Other
States Tax-Exempt Money Market Funds" tracked by Lipper Analytical Services. For
the fiscal year, the fund ranked #1 in its Lipper category, and its longer-term
returns are similarly strong. (See the Total Returns table on the previous page
for other fund performance comparisons.)
The fund's returns were helped by the fact that Benham Management Corporation
waived its management fee through December 31, 1996. The absence of these fees
helped the fund achieve its #1 ranking.
Even with the management fee, the fund continues to produce tax-free income in
line with its peer group average. According to the June 20, 1997 Money Fund
Report, the fund's 7-day current yield was 3.32%, compared with the 3.33%
average for Florida money market funds.
Can you explain the recent changes to the fund's management fee?
Sure. On January 1, 1997, the fund began absorbing expenses at a rate of 10
basis points per month. As of May 31, 1997, the management fee stood at 50 basis
points. The fund will continue to absorb expenses until reaching the contractual
expense cap of 61 basis points in July.
How was the fund positioned during the period?
We allowed the fund's average maturity to decline because of a lack of
attractively priced one-year municipal securities. For much of the first quarter
of 1997, one-year munis traded in a range between 3.55% and 3.65%, which wasn't
much of a yield pick-up over shorter-term munis considering the outlook for
interest rates. With the expectation that the Fed would eventually raise
short-term interest rates, it didn't make sense to purchase relatively
low-yielding one-year securities. Instead, we preferred to hold floaters that
reset their interest rates quickly to better capture the rise in rates.
As a result, we allowed the fund's average maturity to fall to a low of 24 days
at the beginning of April, compared with a 46-day average maturity for the
fund's peers. The fund's shorter maturity proved beneficial when the Federal
Reserve raised short-term interest rates in late March. (Reducing the average
maturity in a rising interest rate environment allowed the fund to more quickly
reinvest matured assets in higher-yielding securities.)
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 5/31/97)
VRDNs 63%
Bonds less than 1 Year 18%
Commercial Paper 16%
Municipal Notes 3%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 11/30/96)
VRDNs 72%
Commercial Paper 15%
Bonds less than 1 Year 13%
6 Florida Municipal Money Market American Century Investments
FLORIDA MUNICIPAL MONEY MARKET
But you aggressively extended the fund's average maturity in April. Why?
We lengthened the fund's maturity because one-year munis began to offer more
attractive yields. We were able to buy one-year notes at an average yield of
3.99%. We used this buying opportunity to extend the fund's average maturity to
around 50 days by early May. That extension proved timely because yields on
one-year Florida paper dropped back down to around 3.80% by early June.
Why were one-year securities more attractive in April compared with the rest of
the period?
Yields rose in April partly because of expectations for further Fed rate hikes,
despite the fact that the economy was slowing. That concern caused the spread,
or difference in yield, between shorter paper and one-year securities to widen,
making one-year munis more attractive. In addition, money market fund outflows
typically increase during the April tax season. These outflows reduce the demand
for notes and may actually cause money market fund managers to sell one-year
notes if redemptions are greater than expected.
You increased the fund's weighting of commercial paper in May. Why?
We typically increase the fund's weighting of commercial paper each May to
lengthen the fund's average maturity. We use these securities to bridge June and
July, when a flood of coupon payments and maturing securities tends to cause
short-term muni yields to fall. So far, however, demand for short-term paper
hasn't been as strong as in years past--we suspect that many investors have been
putting their available cash to work in the stock market. As a result, muni
rates haven't fallen as sharply as they typically do. Still, many municipal
notes mature in July, which should bring some cash back to the muni market.
What's your outlook for interest rates going forward?
Our current expectation is that economic growth will continue to slow from its
breakneck first-quarter pace. Inflation seems tame, having risen just 2.2% over
the last 12 months. In addition, the "real" federal funds rate (the nominal
federal funds rate minus the inflation rate) is already at a level that should
inhibit economic growth. As a result, we think further Fed rate increases are
unlikely. Still, if wage pressures increase, fear of a Fed rate hike may send
short-term muni yields higher.
With this outlook in mind, what are your plans for the fund going forward?
We will look for opportunities to add more one-year paper to the fund in the
coming months if it looks attractive relative to shorter-term munis. But we
don't plan on buying one-year paper solely to maintain a longer average
maturity--we're only planning to buy securities that we feel provide sufficient
yield pick-up over shorter-term munis based on the interest rate outlook.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 5/31/97)
SP1+ 75%
SP1 25%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 11/30/96)
SP1+ 76%
SP1 22%
SP2 2%
Annual Report Florida Municipal Money Market 7
SCHEDULE OF INVESTMENTS
FLORIDA MUNICIPAL MONEY MARKET
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
$ 2,000,000 Brevard County Housing Finance
Auth. Rev., (Palm Place), VRDN,
4.00%, 6/4/97 (LOC: Chase
Manhattan Bank) $2,000,000
1,000,000 Broward County Housing Finance
Auth. Multi-Family Housing Rev.,
(Margate Project), VRDN, 4.00%,
6/4/97 (LOC: Chase Manhattan
Bank) 1,000,000
4,750,000 Broward County Housing Finance
Auth. Multi-Family Housing Rev.,
Series A, (Palm Aire Oxford),
VRDN, 4.20%, 6/4/97 (SBBPA:
Continental Casualty Co.) 4,750,000
3,250,000 Broward County Housing Finance
Auth. Single Family Mortgage
Rev., Series B, 4.05%, 4/1/98
(GIC: GE Capital Corporation) 3,250,000
1,270,000 Broward County Industrial
Development Rev., (Fast Real
Estate Partners), VRDN, 4.00%,
6/4/97 (LOC: Suntrust Bank
South Florida, N.A.) 1,270,000
2,500,000 Broward County Industrial
Development Rev., (HEICO),
VRDN, 4.00%, 6/4/97 (LOC:
Suntrust Bank South Florida,
N.A.) 2,500,000
2,615,000 Broward County Industrial
Development Rev., (MDR Fitness
Project), VRDN, 4.00%, 6/4/97
(LOC: Suntrust Bank, Miami,
N.A.) 2,615,000
3,000,000 Broward County School District
Rev., Series C, 4.50%, 4/22/98 3,014,639
4,000,000 City of Jacksonville Commercial
Paper, 3.75%, 7/11/97 (LOC:
Bayerische Landesbank
Girozentrale and Suntrust Bank,
Miami, N.A.) 4,000,000
1,860,000 Coral Springs Industrial
Development Rev., (Royal
Plastics Group Project), VRDN,
4.00%, 6/4/97 (LOC: Suntrust
Bank South Florida, N.A.) 1,860,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,000,000 Dade County Housing Finance
Agency Single-Family Rev.,
4.00%, 10/1/97 $2,000,000
605,000 Dade County Industrial
Development Auth. Rev., (DNS
Mfg. #237), VRDN, 4.10%,
6/4/97 (LOC: Barnett Bank,
N.A.) 605,000
4,495,000 Dade County Industrial
Development Auth. Rev., (IVAX
Labs), VRDN, 4.30%, 6/4/97
(LOC: Bank of Tokyo-Mitsubishi,
Ltd.) 4,495,000
1,000,000 Dade County Industrial
Development Auth. Rev.,
(Stephen M. Greene), VRDN,
4.15%, 6/4/97 (LOC: Suntrust
Bank, Miami, N.A.) 1,000,000
2,200,000 Dade County Resource Recovery
Rev., 4.00%, 10/1/97 (AMBAC) 2,200,000
1,880,000 Dade County School Board
Certificates of Participation,
Series B, 4.25%, 8/1/97
(AMBAC) 1,881,267
4,295,000 Dade County Special Obligation
Capital Asset Acquisition Rev.,
VRDN, 4.30%, 6/4/97 (LOC:
Sanwa Bank Ltd.) 4,295,000
1,500,000 Escambia County Housing Finance
Auth. Single Family Mortgage
Rev., Series B, 3.75%, 2/20/98
(GIC: Bayerishe Landesbank
Girozentrale) 1,500,000
1,965,000 Escambia County Housing Finance
Auth. Single Family Mortgage
Rev., VRDN, 4.10%, 6/5/97
(LOC: Merrill Lynch & Co. Inc.) 1,965,000
3,900,000 Escambia County Industrial
Development Auth. Rev., (Gelman
Sciences), VRDN, 3.95%,
6/4/97 (LOC: NBD Bank
Detroit) 3,900,000
2,355,000 Florida Housing Finance Agency
Multi-Family Housing Rev., Series
1989 E, (Fairmont Oaks
Project), VRDN, 4.15%, 6/4/97 (LOC:
Comerica Bank) 2,355,000
See Notes to Financial Statements
8 Florida Municipal Money Market American Century Investments
SCHEDULE OF INVESTMENTS
FLORIDA MUNICIPAL MONEY MARKET
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,650,000 Florida Housing Finance Agency
Rev., (Ashley Lakes Project),
VRDN, 4.00%, 6/4/97 (LOC:
Barclays Bank PLC) $4,650,000
4,400,000 Florida Housing Finance Agency
Rev., (Belville-Oxford), VRDN,
4.20%, 6/4/97 (SBBPA:
Continental Casualty Co.) 4,400,000
4,500,000 Florida Housing Finance Agency
Rev., (Caribbean Key), VRDN,
3.95%, 6/4/97 (LOC: KeyBank,
N.A.) 4,500,000
4,800,000 Florida Housing Finance Agency
Rev., (Country Club Apartments),
VRDN, 4.15%, 6/2/97 (LOC:
Northern Trust Corp.) 4,800,000
2,500,000 Florida Housing Finance Agency
Rev., (Heron Park Project),
VRDN, 4.00%, 6/4/97 (LOC:
NationsBank N.A.) 2,500,000
2,000,000 Florida Housing Finance Agency
Rev., (Tiffany Club), VRDN, 4.00%,
6/4/97 (LOC: NationsBank N.A.) 2,000,000
500,000 Florida State Board of Education
Capital Outlay GO, Series B,
5.625%, 6/1/98 507,997
2,000,000 Highlands County Housing Finance
Agency Rev., Series 1996 B,
VRDN, 3.95%, 6/5/97 (LOC:
Canadian Imperial Holdings, Inc.
and Capital Markets Assurance
Corp.) 2,000,000
2,200,000 Hillsborough County Aviation Auth.
Rev. Commercial Paper, 3.75%,
8/15/97 (LOC: National
Westminster Bank PLC) 2,200,000
1,465,000 Hillsborough County Port District
Rev., (Tampa Port Auth.), 4.50%,
6/1/97 (FSA) 1,465,000
2,000,000 Indian River County Hospital
Commercial Paper, 3.70%,
8/15/97 (LOC: Kredietbank N.V.) 2,000,000
950,000 Indian River County Industrial
Development Rev., (Florida
Convales), VRDN, 3.95%,
6/2/97 (LOC: Toronto Dominion
Bank) 950,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,000,000 Jacksonville Electric Commercial
Paper, 3.90%, 7/18/97 (LOC:
Credit Suisse First Boston, Inc.) $3,000,000
1,535,000 Jacksonville Excise Tax Rev.,
Series B, 4.00%, 10/1/97 (FGIC) 1,535,829
1,300,000 Jacksonville Hospital Rev.,
(Methodist Hospital Project),
10.50%, 10/1/97, Prerefunded
at 102% of Par(1) 1,353,958
500,000 Marion County Housing Finance
Auth. Multi-Family Rev., (Summer
Trace Apartments), VRDN, 4.00%,
6/5/97 (LOC: Suntrust Bank,
Atlanta, GA) 500,000
940,000 Martin County Industrial
Development Auth. Rev., (R.F.
Labs, Inc.), VRDN, 4.00%,
6/4/97 (LOC: Suntrust Bank
Central Florida, N.A.) 940,000
300,000 Martin County Industrial
Development Auth. Rev., (Tampa
Farm Service, Inc.), VRDN, 4.00%,
6/4/97 (LOC: Suntrust Bank
Central Florida, N.A.) 300,000
1,210,000 Monroe County School Board
Certificates of Participation,
3.70%, 8/1/97 (AMBAC) 1,210,000
1,900,000 Ocean Highway and Port Auth.
Rev., Series 1990, VRDN, 3.95%,
6/4/97 (LOC: ABN Amro Bank,
N.A.) 1,900,000
200,000 Ocean Highway and Port Auth.
Rev., VRDN, 3.95%, 6/4/97
(LOC: ABN Amro Bank, N.A.) 200,000
1,000,000 Orange County Health Facility
Auth. Rev., (Adventist Health
System), VRDN, 3.85%, 6/5/97
(LOC: Rabobank) 1,000,000
2,000,000 Pasco County School Board
Certificates of Participation, Series
1996, VRDN, 3.90%, 6/5/97
(AMBAC) 2,000,000
2,100,000 Pinellas County Industrial
Development Rev., (Hunter
Douglas Project), VRDN, 4.00%,
6/4/97 (LOC: ABN Amro Bank
N.V.) 2,100,000
See Notes to Financial Statements
Annual Report Florida Municipal Money Market 9
SCHEDULE OF INVESTMENTS
FLORIDA MUNICIPAL MONEY MARKET
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,960,000 Putnam County Development Auth.
Rev., (Seminole Electric), 3.55%,
9/15/97 (Guaranteed: National
Rural Utilities Cooperative Finance
Corp.) $ 1,960,000
3,300,000 Sunshine State Government Finance
Commercial Paper, 3.65%,
7/14/97 (LOC: National
Westminster Bank, Union Bank of
Switzerland, and Morgan Guaranty
Trust Co. of New York) 3,300,000
3,000,000 Sunshine State Government Finance
Commercial Paper, 3.85%,
7/16/97 (LOC: National
Westminster Bank, Union Bank of
Switzerland, and Morgan Guaranty
Trust Co. of New York) 3,000,000
1,500,000 Tampa Solid Waste System Rev.,
4.00%, 10/1/97 (FGIC) 1,501,392
900,000 Volusia County Industrial
Development Auth. Rev., (Daytona
Plastix Inc.), VRDN, 4.00%,
6/4/97 (LOC: Suntrust Bank
Central Florida, N.A.) 900,000
-----------
TOTAL INVESTMENT SECURITIES--100.0% $111,130,082
===========
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Association
GIC = Guaranteed Investment Contract
GO = General Obligation
LOC = Letter of Credit
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
May 31, 1997.
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
10 Florida Municipal Money Market American Century Investments
<TABLE>
<CAPTION>
FLORIDA INTERMEDIATE-TERM MUNICIPAL
30-Day 30-Day Tax-Equivalent Yields
SEC 28% 31% 36% 39.6%
Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
YIELDS AS OF MAY 31, 1997
<S> <C> <C> <C> <C> <C>
Florida Intermediate-Term Municipal 4.17% 5.79% 6.04% 6.52% 6.90%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
TOTAL RETURNS AS OF MAY 31, 1997
Florida Intermediate-Term Municipal ..................... 1.95% 6.63% 6.08% 6.41%
Lehman 5-Year General Obligation Index .................. 1.28% 6.08% 5.90% 5.93%(2)
Average Florida Intermediate
Municipal Debt Fund(1) .................................. 1.19% 5.75% 5.53% 5.61%(2)
Fund's Ranking Among Florida Intermediate
Municipal Debt Funds(1) ................................. -- 2 out of 18 2 out of 14 2 out of 13(2)
(1) According to Lipper Analytical Services.
(2) Since 4/30/94, the date nearest the fund's inception for which data are
available. Inception date was April 11, 1994.
</TABLE>
See pages 28-29 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER THE LIFE OF THE FUND
Value on 5/31/94
$10,000 investment made 4/30/94
Florida Intermediate-Term Municipal $12,068
Lehman 5-Year GO Index $11,945
Florida Intermediate-Term Municipal Lehman 5-Year GO Index
Apr-94 $10,000 $10,000
May-94 $10,093 $10,056
Jun-94 $10,054 $10,033
Jul-94 $10,195 $10,142
Aug-94 $10,252 $10,191
Sep-94 $10,173 $10,114
Oct-94 $10,045 $10,058
Nov-94 $9,876 $9,993
Dec-94 $10,032 $10,081
Jan-95 $10,212 $10,178
Feb-95 $10,471 $10,326
Mar-95 $10,539 $10,490
Apr-95 $10,592 $10,518
May-95 $10,830 $10,749
Jun-95 $10,811 $10,757
Jul-95 $10,930 $10,908
Aug-95 $11,021 $11,018
Sep-95 $11,069 $11,051
Oct-95 $11,195 $11,097
Nov-95 $11,297 $11,192
Dec-95 $11,386 $11,253
Jan-96 $11,513 $11,387
Feb-96 $11,481 $11,349
Mar-96 $11,328 $11,288
Apr-96 $11,310 $11,271
May-96 $11,300 $11,258
Jun-96 $11,351 $11,338
Jul-96 $11,477 $11,413
Aug-96 $11,476 $11,436
Sep-96 $11,552 $11,522
Oct-96 $11,663 $11,629
Nov-96 $11,819 $11,791
Dec-96 $11,802 $11,774
Jan-97 $11,837 $11,805
Feb-97 $11,936 $11,889
Mar-97 $11,820 $11,755
Apr-97 $11,865 $11,814
May-97 $12,068 $11,945
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The graph begins on 4/30/94, the date nearest the fund's 4/11/94
inception date for which index return data are available.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
5/31/97 5/31/96
Number of Securities 34 26
Weighted Average Maturity 7.8 years 7.9 years
Average Duration 5.4 years 5.5 years
Expense Ratio 0.65% 0.13%*
* Until December 31, 1995, the fund's management fees were waived by Benham
Management Corporation (BMC). As of January 1, 1996, management fees were phased
in at a rate of 0.10% each month until the 0.67% annual expense cap was reached.
Annual Report Florida Intermediate-Term Municipal 11
FLORIDA INTERMEDIATE-TERM MUNICIPAL
Management Q & A
An interview with senior portfolio manager Dave MacEwen and associate portfolio
manager Ken Salinger. Dave and Ken are members of the Florida municipal funds
management team.
How did the fund perform?
The fund posted a strong return, finishing second in its peer group category.
For the fiscal year ended May 31, 1997, the fund's total return was 6.63%+,
strongly outpacing the 5.75% average return of the 18 "Florida Intermediate
Municipal Debt Funds" tracked by Lipper Analytical Services. (See the Total
Returns table on the previous page for other fund performance comparisons.)
What were some of the reasons behind the fund's strong performance?
One reason was the fund's portfolio structure, which--particularly in recent
months--was positioned to take advantage of changing interest rates. By late in
the first quarter, the yield curve began to flatten as growing expectations of
an interest rate increase by the Federal Reserve (the Fed) caused short-term
rates to rise faster than long-term rates.
Once the curve had flattened about as much as we believed likely, we shifted the
fund's portfolio to more of a bulleted position. (A bullet structure clusters
the fund's bond maturities around its average maturity. This structure tends to
perform best when the yield curve is moving from flat to steep.) That strategy
paid off as expectations for another near-term rate hike by the Fed largely
dissipated, causing short-term rates to fall and the yield curve to steepen.
Our success in enhancing the fund's return through swap trades, however, was
probably the main reason behind the fund's strong performance.
What are swap trades and why did you use them?
In a typical swap trade, we exchange one of the fund's securities with a broker
for one of their securities that we believe is undervalued. There are several
benefits to using swap trades.
One is that they allow the fund to take advantage of occasional market
inefficiencies that can create attractive buying and selling opportunities.
Another benefit is that swap trades allow us to quickly adjust the fund's
structure. In addition, swap trades reduce the fund's exposure to market
risk--
[bar graph - data below]
Florida Intermediate-Term Municipal Lehman 5-Year GO Index
5/94* 0.93 0.56
5/95 7.31 6.89
5/96 4.34 4.74
5/97 6.63 6.08
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns for the 1996 and 1997 fiscal
years include operating expenses, while the comparative index's returns do not.
See page 28 for a definition of the index.
* Return from 4/30/94 (the date nearest the fund's inception for which index
data are available) to 5/31/94.
+ Benham Management Corporation absorbed 7 basis points of the fund's expenses
during June 1996; however, the fund's ranking would have been the same if the
expenses had not been waived.
12 Florida Intermediate-Term Municipal American Century Investments
FLORIDA INTERMEDIATE-TERM MUNICIPAL
that is, the chance that interest rates will change while we are looking for a
replacement security. Swapping also helped us stay more fully invested in
municipal securities, thus increasing the fund's return over the period by
decreasing the amount of time the fund was forced to hold cash.
How did you manage the fund's duration over the fiscal year?
We kept the fund's duration roughly neutral to its peers, staying in a range of
5.0-5.7 years. Within that range, we shifted the fund's position slightly as
conditions warranted to take advantage of the relatively stable nature of the
municipal market during the period.
Securities rated AAA and AA continued to be the fund's staple. Why?
Investors searching for higher yields continued to show strong demand for
lower-rated municipal securities during the period, causing the yield advantage
of lower-rated municipals to diminish. In addition, fairly low levels of new
municipal security issuance caused bond insurers to lower their premiums to
capture more business. This allowed us to maintain a high level of credit
quality for the fund while sacrificing very little yield.
The fund received a large amount of discretionary investment capital from Benham
Management Corporation beginning in April 1997. Why?
We wanted to give fund investors the opportunity to monitor the fund's
performance in their local newspapers. To list the fund in the paper, we needed
to bring the fund's assets to over $25 million--the threshold required by the
National Association of Securities Dealers (NASD). Shareholders will no longer
need to call us to receive share price quotes.
How did you use this large influx of cash?
We used the investment as an opportunity to shift the fund's portfolio to more
of a bulleted position.
In addition, we enhanced the fund's yield by purchasing some housing revenue
municipals. These types of securities are isssued by local and state housing
authorities to finance construction projects for housing, plants, pollution
control facilities, or similar endeavors. Housing revenue municipals tend to
perform well when interest rates stay within a relatively narrow range.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 5/31/97)
Revenue Bonds 61%
Land-Secured 15%
GO 13%
COPs/Leases 8%
Prerefunded/ETM 1%
Other 2%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 11/30/96)
Revenue Bonds 74%
GO 13%
Tax Allocation 6%
Prerefunded/ETM 5%
Other 2%
Annual Report Florida Intermediate-Term Municipal 13
FLORIDA INTERMEDIATE-TERM MUNICIPAL
What is your outlook for the municipal market over the next six months?
Whether the bond market can sustain the rally begun in early June depends on the
economy, Federal Reserve interest rate policy and inflation. Our current
expectation is that economic growth will slow from its unsustainable
first-quarter pace. Inflation seems tame, having risen just 2.2% over the last
12 months. In addition, "real" short-term interest rates (nominal short-term
rates minus the inflation rate) are already at levels that should inhibit
economic growth. As a result, we think municipal securities could rally if the
economy continues to slow. Nevertheless, if wage pressures increase, fear of a
Fed rate hike may send municipal bond prices lower.
Another important factor is the relative performance of municipals and
Treasurys. Lately, municipal securities have significantly outperformed
Treasurys, a situation caused in part by relatively low municipal debt issuance.
Although municipal issuance should remain fairly light in the near future, the
likelihood that municipal bonds will continue to outperform Treasurys is
diminishing--their prices are currently considered historically expensive
relative to Treasurys. If investor demand shifts back to Treasurys, municipal
prices would lose a key support.
With this outlook in mind, what are your plans for the fund going forward?
We plan to continue using swap trades in an attempt to enhance the fund's
returns. In addition, we will likely maintain the fund's current neutral
duration until market conditions call for a different strategy.
We will also look for what we believe are undervalued securities that will
enhance the fund's yield with the help of our credit research team. In addition,
we will continue to monitor the relative performance of Treasury versus
municipal securities.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 5/31/97)
AAA 63%
AA 37%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 11/30/96)
AAA 70%
AA 30%
14 Florida Intermediate-Term Municipal American Century Investments
SCHEDULE OF INVESTMENTS
FLORIDA INTERMEDIATE-TERM MUNICIPAL
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
$ 300,000 Boca Raton Water and Sewer Rev.,
6.40%, 10/1/02 $ 314,787
150,000 Broward County Educational Auth.
Rev., (Nova Southeastern
University), 5.40%, 4/1/02
(Connie Lee) 154,289
300,000 Broward County School District
GO, 6.75%, 2/15/00 317,331
525,000 Clay County School Board
Certificates of Participation,
4.90%, 7/1/03 (MBIA) 527,856
1,000,000 Dade County Aviation Rev., Series
A, (Miami International Airport),
5.50%, 10/1/02 (FSA) 1,031,590
500,000 Dade County Aviation Rev., Series
E, 5.50%, 10/1/10 (AMBAC) 510,435
750,000 Dade County Water and Sewer
System Rev., 5.125%, 10/1/09
(FGIC) 750,630
500,000 Duval County School District GO,
6.25%, 8/1/05 (AMBAC) 540,270
500,000 East County Water Control District
Rev., Series 1994, 5.375%,
11/1/01 (Asset Guarantee) 513,510
300,000 Escambia County Housing Finance
Auth. Single Family Mortgage
Rev., 6.00%, 4/1/02 308,574
350,000 Florida Housing Finance Agency
Multi-Family Housing Rev., 5.35%,
6/1/00 (Guaranteed) 353,766
450,000 Florida Housing Finance Agency
Rev., (Williamsburg Village
Apartments), 5.60%, 12/1/07
(AMBAC) 459,311
500,000 Florida Housing Finance Agency
Rev., (Windwood), 5.65%,
12/1/07 (AXA Insurance) 508,090
1,000,000 Florida State Board of Education
Capital Outlay Rev., 5.00%,
6/1/04 1,015,640
1,000,000 Florida State Board of Finance
Department of General Services
Rev., 5.00%, 7/1/05 (AMBAC) 1,010,890
350,000 Gainesville Florida Utilities System
Rev., Series A, 5.75%, 10/1/09 370,780
Principal Amount Value
- --------------------------------------------------------------------------------
$ 400,000 Hillsborough County Port District
Special Rev., 6.50%, 6/1/04
(FSA) $ 437,552
400,000 Indian Trace Community
Development Auth. Rev., Series
1995 A, (District Water
Management), 5.25%, 5/1/03
(MBIA) 410,716
480,000 Jacksonville Electric Auth. Rev.,
(St. John's River Power Project),
6.00%, 10/1/05 518,640
500,000 Jacksonville Electric Auth. Special
Obligation, 4th Series, (St. John's
River Power Project), 6.50%,
10/1/01 538,050
500,000 Jacksonville Excise Tax Rev.,
5.20%, 10/1/04 (FGIC) 509,550
300,000 Lakeland Water and Electric Rev.,
6.00%, 10/1/07 (FGIC) 326,364
550,000 Orange County Health Facilities
Auth. Rev., Series A, 6.00%,
10/1/04 (MBIA) 588,786
1,000,000 Orange County School Board
Certificates of Participation,
Series A, 4.875%, 8/1/03 (MBIA) 1,005,760
450,000 Orlando and Orange County
Expressway Auth. Rev., 6.50%,
7/1/11 (FGIC) 506,200
500,000 Orlando Utility Commission Water
and Electric Rev., 5.70%,
10/1/04 528,305
300,000 Pensacola Airport Rev., Series A,
6.00%, 10/1/01 (MBIA) 305,337
500,000 Pensacola Airport Rev., Series B,
5.40%, 10/1/07 (MBIA) 512,300
200,000 Reedy Creek Improvement District
Utility Rev., Series 1991, 6.25%,
10/1/01, Prerefunded at 101%
of Par (MBIA)(1) 215,078
400,000 St. Cloud Utility Rev., 6.40%,
8/1/06 (MBIA) 431,956
175,000 Tampa Palms Community
Development Special Assessment
Rev., 4.90%, 5/1/99 (MBIA) 176,813
500,000 Volusia County School District GO,
6.20%, 8/1/03 (FGIC) 536,595
----------
TOTAL MUNICIPAL SECURITIES--90.5% 16,235,751
(Cost $15,928,619) ----------
See Notes to Financial Statements
Annual Report Florida Intermediate-Term Municipal 15
SCHEDULE OF INVESTMENTS
FLORIDA INTERMEDIATE-TERM MUNICIPAL
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
$ 600,000 St. Lucie Solid Waste Disposal Rev.,
(Florida Light & Power Project),
VRDN, 4.25%, 6/2/97 $ 600,000
1,100,000 Sunshine State Government
Finance Commercial Paper,
3.85%, 7/8/97 (LOC: National
Westminster Bank, Union Bank
of Switzerland, and Morgan
Guaranty Trust Co. of New York) 1,100,176
----------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES--9.5% 1,700,176
(Cost $1,700,000) ----------
TOTAL INVESTMENT SECURITIES--100.0% $17,935,927
(Cost $17,628,619) ==========
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Association
GO = General Obligation
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
May 31, 1997.
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
16 Florida Intermediate-Term Municipal American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
MAY 31, 1997
FLORIDA FLORIDA
MUNICIPAL INTERMEDIATE-TERM
MONEY MARKET MUNICIPAL
ASSETS
<S> <C> <C>
Investment securities, at value (amortized cost and identified
cost of $17,628,619, respectively) (Note 3) ................................ $111,130,082 $17,935,927
Cash ......................................................................... 587,875 --
Investment in affiliated money market fund (Note 2) .......................... -- 601,610
Interest receivable .......................................................... 533,162 207,088
Prepaid expenses and other assets ............................................ 3,760 2,254
----------- ----------
112,254,879 18,746,879
----------- ----------
LIABILITIES
Disbursements in excess of demand deposit cash ............................... 1,171 129,029
Payable for investments purchased ............................................ -- 2,079,664
Payable for capital shares redeemed .......................................... 47,663 14,754
Payable to affiliates (Note 2) ............................................... 57,931 7,770
Dividends payable ............................................................ 3,297 2,000
Accrued expenses and other liabilities ....................................... 15,616 1,047
----------- ----------
125,678 2,234,264
----------- ----------
Net Assets Applicable to Outstanding Shares .................................. $112,129,201 $16,512,615
============ ===========
CAPITAL SHARES
Outstanding (unlimited number of shares authorized) .......................... 112,129,201 1,597,668
============ ===========
Net Asset Value Per Share .................................................... $1.00 $10.34
============ ===========
NET ASSETS CONSIST OF:
Capital paid in .............................................................. $112,129,201 $16,153,855
Accumulated net realized gain on investments ................................. -- 51,452
Net unrealized appreciation on investments (Note 3) ......................... -- 307,308
----------- ----------
$112,129,201 $16,512,615
============ ===========
</TABLE>
See Notes to Financial Statements
Annual Report Statements of Assets and Liabilities 17
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31, 1997
FLORIDA FLORIDA
MUNICIPAL INTERMEDIATE-TERM
MONEY MARKET MUNICIPAL
INVESTMENT INCOME
Income:
<S> <C> <C>
Interest .................................................................... $4,751,569 $587,727
---------- --------
Expenses (Note 2):
Investment advisory fees .................................................... 565,080 48,457
Administrative fees ......................................................... 124,867 10,678
Transfer agency fees ........................................................ 42,747 10,178
Printing and postage ........................................................ 38,276 7,417
Custodian fees .............................................................. 34,638 6,641
Auditing and legal fees ..................................................... 31,431 5,773
Telephone expenses .......................................................... 9,910 460
Registration and filing fees ................................................ 7,414 1,564
Trustees' fees and expenses ................................................. 5,690 557
Organizational expenses ..................................................... 1,316 1,174
Other operating expenses .................................................... 11,146 7,304
---------- --------
Total expenses ............................................................ 872,515 100,203
Amount waived ............................................................... (711,288) (24,856)
---------- --------
Net expenses .............................................................. 161,227 75,347
---------- --------
Net investment income ....................................................... 4,590,342 512,380
---------- --------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 3)
Net realized gain on investments ............................................ -- 51,857
Change in net unrealized appreciation on investments ........................ -- 177,601
---------- --------
Net realized and unrealized
gain on investments ......................................................... -- 229,458
---------- --------
Net Increase in Net Assets
Resulting from Operations ................................................... $4,590,342 $741,838
========== ========
See Notes to Financial Statements
</TABLE>
18 Statements of Operations American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED MAY 31, 1997
AND MAY 31, 1996
FLORIDA FLORIDA
MUNICIPAL INTERMEDIATE-TERM
MONEY MARKET MUNICIPAL
Increase in Net Assets 1997 1996 1997 1996
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............................ $ 4,590,342 $ 2,956,034 $ 512,380 $ 532,966
Net realized gain on investments ................. -- -- 51,857 60,069
Change in net unrealized appreciation
(depreciation) on investments .................. -- -- 177,601 (154,774)
--------- --------- ------- -------
Net increase in net assets resulting
from operations ................................ 4,590,342 2,956,034 741,838 438,261
--------- --------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ....................... (4,590,342) (2,956,034) (512,380) (532,966)
From net realized gains from
investment transactions ........................ -- -- (39,475) (43,635)
--------- --------- ------- -------
Decrease in net assets from distributions ........ (4,590,342) (2,956,034) (551,855) (576,601)
--------- --------- ------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........................ 211,673,148 196,163,359 14,609,503 7,316,860
Proceeds from reinvestment of distributions ...... 4,249,244 2,887,312 409,403 403,119
Payments for shares redeemed ..................... (203,786,255) (144,204,430) (9,015,107) (6,794,465)
------------ ------------ ---------- ----------
Net increase in net assets from
capital share transactions ..................... 12,136,137 54,846,241 6,003,799 925,514
---------- ---------- --------- -------
Net increase in net assets ....................... 12,136,137 54,846,241 6,193,782 787,174
NET ASSETS
Beginning of year ................................ 99,993,064 45,146,823 10,318,833 9,531,659
---------- ---------- ---------- ---------
End of year ...................................... $112,129,201 $99,993,064 $16,512,615 $10,318,833
============ =========== =========== ===========
TRANSACTIONS IN SHARES OF THE FUNDS
Sold ............................................. 211,673,148 196,163,359 1,420,596 703,119
Issued in reinvestment of distributions .......... 4,249,244 2,887,312 39,811 38,875
Redeemed ......................................... (203,786,255) (144,204,430) (876,033) (654,017)
------------ ------------ -------- --------
Net increase ..................................... 12,136,137 54,846,241 584,374 87,977
========== ========== ======= ======
</TABLE>
See Notes to Financial Statements
Annual Report Statements of Changes in Net Assets 19
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. Organization and Summary of Significant Accounting Policies
Organization--American Century Municipal Trust (the Trust) is registered under
the Investment Company Act of 1940 as an open-end management investment company.
American Century - Benham Florida Municipal Money Market Fund (Money Market
Fund) and American Century - Benham Florida Intermediate-Term Municipal Fund
(Intermediate-Term Fund) (the Funds) are two of the six Funds issued by the
Trust. The Funds are non-diversified under the 1940 Act. Their investment
objective is to seek as high a level of current income exempt from federal
income taxes as is consistent with prudent investment management and
conservation of shareholders' capital. The Money Market Fund invests primarily
in short-term Florida municipal obligations and maintains a weighted average
maturity of 90 days or less. The Intermediate-Term Fund invests primarily in
intermediate-term Florida municipal obligations and maintains a weighted average
maturity from five to ten years. The Funds concentrate their investments in a
single state and therefore may have more exposure to credit risk related to the
state of Florida than a fund with a broader geographical diversification. The
following significant accounting policies relating to the Funds are in
accordance with accounting policies generally accepted in the investment company
industry.
Security Valuations--Securities held by the Money Market Fund are valued at
amortized cost, which approximates current market value. Securities held by the
Intermediate-Term Fund are valued through valuations obtained from a commercial
pricing service or at the mean of the most recent bid and asked prices. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Trustees.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. 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
amortization of discounts and premiums. Premiums and original issue discounts
are amortized daily using the effective interest rate method for the
Intermediate-Term Fund. Market discounts are recognized as income upon the sale
or maturity of securities for the Intermediate-Term Fund. Premiums and discounts
are amortized daily on a straight-line basis for securities held by the Money
Market Fund.
Income Tax Status--It is the Funds' policy to distribute all net investment
income and net realized capital gains to shareholders and to otherwise qualify
as a regulated investment company under the provisions of the Internal Revenue
Code. Accordingly, no provision has been made for federal or state taxes.
Distributions to Shareholders--Distributions from net investment income for the
Intermediate-Term Fund are declared daily and distributed monthly. Distributions
from net realized gains for the Intermediate-Term Fund are declared and paid
annually. The Money Market Fund's distributions from net investment income are
declared and credited daily and distributed monthly. The Money Market Fund does
not expect to realize any long-term capital gains, and accordingly, does not
expect to pay any capital gain distributions. For the year ended May 31, 1997,
100% of the Funds' distributions from net investment income have been designated
as exempt from federal income taxes.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes due to differences in the recognition of income and
expense items for financial statement and tax purposes.
Supplementary Information--Certain officers and trustees of the Trust are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the Trust's investment manager,
Benham Management Corporation (BMC), the Trust's distributor, American Century
Investment Services, Inc. (ACIS), and the Trust's transfer agent, American
Century Services Corporation (ACSC).
Futures Contracts--The Intermediate-Term Fund may buy and sell interest rate
futures contracts relating to debt securities and write and buy put and call
options relating to interest rate futures contracts. The Fund may use futures
and options transactions to maintain cash reserves while remaining fully
invested, to facilitate trading, to reduce transaction costs, or to pursue
higher investment returns when a futures contract is priced more attractively
than its underlying security or index. One of the risks of entering into futures
may include the possibility that the changes in value of the contract may not
correlate with the changes in value of the underlying securities. Upon entering
into a futures contract, the Fund is required to deposit either cash or
securities in an amount equal to a certain percentage of the contract value
(initial margin). Subsequent payments (variation margin) are made or received
daily, in cash, by the Fund. The variation margin is
20 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
equal to the daily change in the contract value and is recorded as an unrealized
gain or loss. The Fund recognizes a realized gain or loss when the contract is
closed or expires. There were no open futures contracts at May 31, 1997.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
- --------------------------------------------------------------------------------
2. Transactions with Related Parties
The Trust has entered into an Investment Advisory Agreement with BMC that
provides the Trust with investment advisory services in exchange for an
investment advisory fee. ACSC pays all compensation of Trust officers and
trustees who are officers or directors of ACC or any of its subsidiaries. In
addition, promotion and distribution expenses are paid by BMC. The investment
advisory fee is paid monthly by each Fund based on its pro rata share of the
dollar amount derived from applying the Trust's average daily closing net assets
to the following annualized investment advisory fee schedule.
0.50% of the first $100 million
0.45% of the next $100 million
0.40% of the next $100 million
0.35% of the next $100 million
0.30% of the next $100 million
0.25% of the next $1 billion
0.24% of the next $1 billion
0.23% of the next $1 billion
0.22% of the next $1 billion
0.21% of the next $1 billion
0.20% of the next $1 billion
0.19% of average daily net assets over $6.5 billion
The Trust has an Administrative Services and Transfer Agency Agreement with
ACSC. Under the Agreement, ACSC provides substantially all administrative and
transfer agency services necessary to operate the Funds. Fees for these services
are based on transaction volume, number of accounts and average daily closing
net assets for funds advised by BMC.
The Trust has an additional agreement with BMC pursuant to which BMC established
a contractual expense guarantee that limits Fund expenses (excluding items such
as brokerage commissions, taxes, interest, custodian earnings credits, and
extraordinary expenses) to 0.61% of average daily closing net assets for the
Money Market Fund and 0.67% for the Intermediate-Term Fund. The agreement
provides that BMC may recover amounts (representing expenses in excess of the
Fund's expense guarantee rate) absorbed during the preceding 11 months, if, and
to the extent that, for any given month, the Fund's expenses are less than the
expense guarantee rate in effect at that time. BMC voluntarily agreed to absorb
all expenses of the Money Market Fund through December 31, 1996. In January
1997, the Money Market Fund began adding expenses at a rate of 0.10% of average
daily closing net assets per month and will continue to add expenses at this
rate until the contractual expense rate of 0.61% is reached.
The payables to affiliates as of May 31, 1997, based on the above agreements,
were as follows:
Intermediate-
Money Market Term
Investment Advisor ......... $34,908 $4,669
Administrative Services and
Transfer Agent ........... 23,023) 3,101
--------- --------
$57,931 $7,770
========= ========
As of May 31, 1997, Intermediate-Term had invested $601,610 in shares of the
Money Market Fund. The terms of such transactions were identical to those with
non-related entities except that, to avoid duplicate investment advisory fees
and administrative fees, Intermediate-Term did not pay BMC investment advisory
fees and ACSC administrative fees with respect to assets invested in shares of
the Money Market Fund.
On April 25, 1997, the Board of Trustees approved a plan to implement a unified
management fee, which would replace the existing contracts between the Funds and
related parties. Such plan is subject to shareholder approval and will be voted
on in July, 1997. Results of the vote were unknown at the time this report was
printed.
The Trust has a Distribution Agreement with ACIS which is responsible for
promoting sales of and distributing the Trust's shares.
Annual Report Notes to Financial Statements 21
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
3. Investment Transactions
Purchases and sales of securities (excluding short-term investments) for the
year ended May 31, 1997, for the Intermediate-Term Fund totaled $15,343,297 and
$9,268,472, respectively.
As of May 31, 1997, accumulated net unrealized appreciation for the
Intermediate-Term Fund was $307,308, consisting of unrealized appreciation of
$312,718, and unrealized depreciation of $5,410. The aggregate cost of
investments for federal income tax purposes was the same as the cost for
financial reporting purposes.
22 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FLORIDA MUNICIPAL MONEY MARKET
For a Share Outstanding Throughout the Years Ended May 31 (except as noted)
1997 1996 1995 1994(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......................... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Income From Investment Operations
Net Investment Income ....................................... 0.03 0.04 0.04 --
----- ----- ----- -----
Distributions
From Net Investment Income .................................. (0.03) (0.04) (0.04) --
----- ----- ----- -----
Net Asset Value, End of Period ................................ $1.00 $1.00 $1.00 $1.00
===== ===== ===== =====
Total Return(2) ............................................. 3.55% 3.86% 3.71% 0.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ...................................... 0.12% 0.01% -- --
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver)(3) ......................... 0.66% 0.71% 0.88% 1.58%(4)
Ratio of Net Investment
Income to Average Net Assets .................................. 3.48% 3.75% 3.93% 2.99%(4)
Ratio of Net Investment Income to Average
Net Assets (Before Expense Waiver) ............................ 2.94% 3.05% 3.05% 1.41%(4)
Net Assets, End of Period (in thousands) .....................$112,129 $99,993 $45,147 $5,565
(1) April 11, 1994 (incepton) through May 31, 1994.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) The ratios for the periods subsequent to May 31, 1995, include expenses
paid through expense offset arrangements.
(4) Annualized.
</TABLE>
See Notes to Financial Statements
Annual Report Financial Highlights 23
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FLORIDA INTERMEDIATE-TERM MUNICIPAL
For a Share Outstanding Throughout the Years Ended May 31 (except as noted)
1997 1996 1995 1994(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $10.18 $10.30 $10.11 $10.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income .................................... 0.46 0.52 0.52 0.07
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............................... 0.20 (0.08) 0.19 0.11
---- ----- ---- ----
Total From Investment Operations ......................... 0.66 0.44 0.71 0.18
---- ---- ---- ----
Distributions
From Net Investment Income ............................... (0.46) (0.52) (0.52) (0.07)
From Net Realized Capital Gains .......................... (0.04) (0.04) -- --
---- ---- ---- ----
Total Distributions ...................................... (0.50) (0.56) (0.52) (0.07)
----- ----- ----- -----
Net Asset Value, End of Period ............................. $10.34 $10.18 $10.30 $10.11
====== ====== ====== ======
Total Return(2) .......................................... 6.63% 4.34% 7.31% 1.79%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ...................................... 0.65% 0.13% -- --
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver) ......................... 0.86% 0.88% 1.09% 1.92%(3)
Ratio of Net Investment
Income to Average Net Assets ............................... 4.42% 5.05% 5.23% 5.02%(3)
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver) ................. 4.21% 4.30% 4.14% 3.10%(3)
Portfolio Turnover Rate .................................... 82% 66% 37% 6%
Net Assets, End of Period (in thousands) ................... $16,513 $10,319 $9,532 $5,892
(1) April 11, 1994 (inception) through May 31, 1994.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
24 Financial Highlights American Century Investments
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
American Century Municipal Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investment securities, of American Century - Benham Florida
Municipal Money Market Fund and American Century - Benham Florida
Intermediate-Term Municipal Fund (two of the series comprising American Century
Municipal Trust) (the Funds) as of May 31, 1997 and the related statements of
operations for the year then ended, the statements of changes in net assets for
the two years then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of the
Funds as of May 31, 1997, the results of their operations, the changes in their
net assets and the financial highlights for the periods indicated above, in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
July 7, 1997
Annual Report Independent Auditors' Report 25
NOTES
26 Notes American Century Investments
NOTES
Annual Report Notes 27
BACKGROUND INFORMATION
Investment Philosophy & Policies
The Benham Group offers 42 fixed-income funds, ranging from money market funds
to long-term bond funds and including both taxable and tax-exempt funds.
The Florida municipal funds seek to provide interest income exempt from federal
income taxes by investing at least 65% of their net assets in Florida municipal
securities. Fund shares are intended to be exempt from the Florida intangibles
tax.
Florida Municipal Money Market seeks interest income exempt from federal income
taxes. The fund invests primarily in high-quality, short-term Florida municipal
securities. Investments in Florida Municipal Money Market are neither insured
nor guaranteed by the U.S. government. Yields will fluctuate, and there can be
no assurance that the fund will be able to maintain a stable net asset value of
$1 per share.
Florida Intermediate-Term Municipal is a variable-price bond fund that invests
primarily in intermediate-term Florida municipal securities with maturities of
four or more years. The fund maintains a weighted average maturity of 5-10
years.
Comparative Indices
The index listed below is used in the report as a fund performance comparison.
It is not an investment product available for purchase.
The Lehman 5-Year Municipal General Obligation Index is a municipal bond index
composed of more than 11,000 bonds with maturities of four to six years. The
bonds are rated BBB or higher by Standard & Poor's, with an average rating of
AA. The average maturity of the index is five years.
Lipper Rankings
Lipper Analytical Services, Inc. is an independent mutual fund ranking service.
Rankings are based on average annual returns for each fund in a given category
for the periods indicated. Rankings are not included for periods less than one
year.
The Lipper categories for the Florida Municipal funds are:
Other States Tax-Exempt Money Market Funds (Florida Municipal Money
Market)--funds that invest in high quality municipal obligations with
dollar-weighted average maturities of less than 90 days.
Florida Intermediate Municipal Debt Funds (Florida Intermediate-Term
Municipal)--funds that invest at least 65% of their assets in municipal debt
issues that are exempt from taxation in Florida, with dollar-weighted average
maturities of 5-10 years.
PORTFOLIO MANAGEMENT TEAM
Senior Municipal
Portfolio Manager Dave MacEwen
Municipal Portfolio Manager Bryan Karcher
Associate Municipal
Portfolio Manager Ken Salinger
Municipal Credit Research Manager Steven Permut
Credit Analysts Scott Lord, Bill McClintock,
David Moore, Tim Benham
28 Background Information American Century Investments
GLOSSARY
Returns
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 23-24.
Yields
o 7-Day Current Yield is calculated based on the income generated by an
investment in the fund over a seven-day period and is expressed as an annual
percentage rate.
o 7-Day Effective Yield is calculated similarly, although this figure is
slightly higher than the fund's 7-Day Current Yield because of the effects of
compounding. The 7-Day Effective Yield assumes that income earned from the
fund's investments is reinvested and generating additional income.
o 30-Day SEC Yield represents net investment income earned by the fund over a
30-day period, expressed as an annualized percentage rate based on the fund's
share price at the end of the 30-day period. The SEC yield should be regarded as
an estimate of the fund's investment income, and it may not equal the fund's
actual income distribution rate, the income paid to a shareholder's account, or
the income reported in the fund's financial statements.
o Tax-Equivalent Yields show the taxable yields that investors in a federal
income tax bracket would have to earn before taxes to equal the fund's tax-free
yield.
Investment Terms
o Basis Point--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%).
o Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Portfolio Statistics
o Number of Securities--the number of different securities held by a fund on a
given date.
o Weighted Average Maturity (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
o Average Duration--another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio.
o Expense Ratio--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
Types of Municipal Securities
o COPs/Leases--securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases. Certificates of
participation represent long-term debt obligations, while leases have a higher
risk profile than GOs because they require annual appropriation.
o GO Bonds--general obligation securities backed by the taxing power of the
issuer.
o Land-Secured Bonds--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
o Prerefunded Bonds/ETM Bonds--securities refinanced or escrowed to maturity by
the issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
o Revenue Bonds--securities backed by revenues from sales taxes or from a
specific project, system or facility (such as a hospital, electric utility or
water system).
Annual Report Glossary 29
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUNICIPAL TRUST
Investment Manager
Benham Management Corporation
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.
9707 [recycled logo]
SH-BKT-9001 Recycled
<PAGE>
ANNUAL REPORT
[american century logo]
May 31, 1997
BENHAM
GROUP
Arizona Intermediate-Term Municipal
[front cover]
TABLE OF CONTENTS
Report Highlights........................................... 1
Our Message to You.......................................... 2
Period Overview............................................. 3
Arizona Municipal Credit Review............................. 4
Performance & Portfolio Information......................... 5
Management Q & A............................................ 6
Schedule of Investments..................................... 8
Statement of Assets and Liabilities.........................10
Statement of Operations.....................................11
Statements of Changes in Net Assets.........................12
Notes to Financial Statements...............................13
Financial Highlights........................................15
Independent Auditors' Report................................16
Background Information
Investment Philosophy & Policies.........................20
Comparative Indices......................................20
Lipper Rankings..........................................20
Portfolio Management Team................................20
Glossary....................................................21
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Arizona
Intermediate-Term Municipal
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
Period Overview
o The U.S. economy grew at a healthy clip during the fiscal year ended May
31, 1997, while inflation remained relatively subdued.
o The Federal Reserve raised short-term interest rates in late March--the first
increase since February 1995--in an effort to keep inflation from accelerating.
o Municipal bonds posted strong returns despite shifting interest rate
expectations.
o Relatively low levels of new municipal issuance should continue to support
prices for the near future.
Arizona Municipal Credit Review
o Strong economic growth improved Arizona municipal credit quality during the
fiscal year.
o Arizona's healthy economy translated into increased retail sales, which has
boosted the state's tax revenues.
o As we anticipated, Maricopa County's credit rating was upgraded by several
independent rating agencies.
o Going forward, we expect Arizona municipal credit quality to remain stable
and strong, but we will continue to monitor potential credit threats, such as
the state's rising inflation levels.
Arizona Intermediate-Term Municipal
o The fund produced strong returns for the fiscal year despite shifting market
expectations.
o We kept the fund's duration conservatively positioned, making only slight
adjustments as conditions warranted.
o Going forward, we will focus more strongly on the difference between the
yields of shorter- and longer-term municipals.
o With the help of our credit research team, we will continue to look for
undervalued securities that we believe have the chance to appreciate.
ARIZONA INTERMEDIATE-
TERM MUNICIPAL
TOTAL RETURNS: AS OF 5/31/97
6 Months 0.94%*
1 Year 5.77%
NET ASSETS: $30.6 million
(AS of 5/31/97)
INCEPTION DATE: 4/11/94
TICKER SYMBOL: BEAMX
* Not annualized.
Many of the investment terms in this report are
defined in the Glossary on page 21.
Annual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
During the fiscal year ended May 31, 1997, investors in the Benham Arizona
Intermediate-Term fund earned solid, competitive returns as municipal securities
outperformed Treasurys for much of the period. The extended economic expansion
that propelled U.S. stock markets to new highs also benefited municipal and
corporate bonds, and low levels of inflation provided bond investors with higher
real rates of return. In Arizona, surging retail sales and low levels of
unemployment boosted tax revenues for local governments, leading to credit
quality upgrades.
American Century's municipal bond management team is well positioned to take
advantage of attractive opportunities in the municipal markets. We have
continued to expand our very talented team of municipal credit analysts, most
recently adding David Moore, who comes to us from Keystone Investments in
Boston. The credit team contributed significantly to our ability to find
undervalued municipal securities that ultimately enhanced fund returns.
We also strengthened our corporate team. In June, Bill Lyons, American Century's
chief operating officer, was named president, assuming full responsibility for
the company's day-to-day operations. This change will allow Jim Stowers III to
focus more time on developing and refining new investment technologies and tools
that build on and leverage the proprietary system his father pioneered 25 years
ago. One of our goals is to ensure that we continue to evolve and
innovate--building the investment tools today that will help lead us and our
investors to success in the next century.
We appreciate your confidence in American Century and look forward to continuing
to serve you.
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
President and Chief Executive Officer Vice Chairman
American Century Companies American Century Companies
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. Economy
The U.S. economy grew at a healthy pace during the 12 months ended May 31, 1997.
After expanding at a 2.2% annual rate in the third quarter of 1996, the U.S.
economy surged ahead at an impressive 3.8% rate in the fourth quarter. Economic
growth hit a ten-year high of 5.9% in the first quarter of 1997. Fueling robust
growth were strong consumer spending and rising consumer confidence, which
reached a 28-year high in April. In addition, the unemployment rate fell from
5.4% in January to a 23-year low of 4.8% in May.
Inflation--as measured by the government's consumer price index--rose at a
modest 1.4% annual rate during the first five months of 1997. That stands in
sharp contrast to 1996, when prices rose by 3.6% --the largest yearly gain since
1990.
Concerned that vigorous economic growth might lead to higher inflation, the
Federal Reserve (the Fed) raised short-term interest rates in March--the first
such increase since February 1995. Though the Fed held rates steady at its May
interest rate policy meeting, tight labor markets and strong manufacturing
activity have kept market participants from ruling out another rate hike.
Municipal Bond Market
Municipal bonds produced strong returns as interest rates declined overall
during the 12-month period. Longer-term securities, which usually appreciate
more than short-term securities when rates fall, performed best. For the period,
the Lehman Long-Term Municipal Bond Index rose by 10.04%. The Lehman Five-Year
General Obligation Index rose by 6.09%.
Bond yields fluctuated throughout the period. Yields were at their highest point
at the beginning of the period, when strong job growth led many to believe that
the Fed was poised to raise rates. However, expectations for higher rates
softened after economic growth moderated in the third quarter and the Fed
continued to hold interest rates steady. Aided by strong demand from insurance
companies, municipal bond prices rallied and yields fell. By December,
short-term municipal yields had fallen nearly 60 basis points from where they
began the period, while long-term municipal yields were nearly 70 basis points
lower.
Interest rates rose near the end of the first quarter of 1997 as signs of
stronger-than-expected economic growth resurrected fears that the Fed would
raise rates to keep inflation in check. As a result, municipal bond yields rose
steadily through April.
Recent data suggest that the rate of U.S. economic growth slowed during the
second quarter, fueling a municipal market rally in May and June. Municipal
bonds are also benefiting from relatively low levels of new municipal debt
issuance. Although demand from retail investors has tapered off recently, retail
demand was strong during much of the fiscal year. Any renewed surge in demand
would support bond prices and dampen market volatility.
[line graph]
MUNICIPAL YIELD CURVES
Years to Maturity 5/31/96 5/31/97
1 3.800 3.850
2 4.150 4.150
3 4.370 4.350
4 4.520 4.500
5 4.640 4.600
6 4.740 4.660
7 4.840 4.720
8 4.940 4.780
9 5.040 4.840
10 5.140 4.900
11 5.230 4.976
12 5.320 5.052
13 5.410 5.128
14 5.500 5.204
15 5.590 5.280
16 5.624 5.308
17 5.658 5.336
18 5.692 5.364
19 5.726 5.392
20 5.760 5.420
21 5.768 5.426
22 5.776 5.432
23 5.784 5.438
24 5.792 5.444
25 5.800 5.450
26 5.804 5.454
27 5.808 5.458
28 5.812 5.462
29 5.816 5.466
30 5.820 5.470
Source: Bloomberg Financial Markets
Annual Report Period Overview 3
ARIZONA MUNICIPAL CREDIT REVIEW
Strong economic growth improved Arizona municipal credit quality during the 12
months ended May 31, 1997. As we anticipated, Maricopa County's credit rating
was upgraded by several independent rating agencies during the period. Though
the pace of economic growth slowed slightly in early 1997, Arizona was the
second fastest growing state in the nation during 1996.
As the accompanying graph indicates, Arizona's economy supported impressive
rates of job growth. The state unemployment rate fell to 4.9% during March 1997,
compared with a national rate of 5.2% for the same period. Labor-force growth
has been most impressive in Phoenix and Tucson, where March unemployment rates
were 3.4% and 3.5%, respectively.
The state's population expanded rapidly during the period, with growth forecast
to remain strong through 2005. Arizona's growth has been fueled by immigration
from neighboring high-cost states, attracting companies and workers from
California in particular. In addition, retirees continue to be drawn by the
state's desirable climate and quality of life. The rapid growth of Arizona's
population and employment has been mirrored by the growth of personal incomes,
which expanded by 8.8% during 1996.
The combination of strong economic and population growth buoyed the state's
construction sector. Though total building permit issuance remains at a high
annual level, residential permit issuance actually tapered off during 1996 and
1997 (see the accompanying graph). Nevertheless, commercial construction remains
strong and should support the sector for the near future.
Despite the recent expansion of the state's high technology, construction and
retail sectors, tourism remains a vital component of Arizona's economy. Nearly
24 million tourists are estimated to have visited Arizona in 1996.
Arizona's healthy economy translated into increased retail sales in 1996 and
similar trends continue thus far in 1997. The steady increase in taxable sales
has been good for the state's budget--general fund tax revenues are up almost 8%
on a year-over-year basis in fiscal 1997.
Going forward, we expect Arizona municipal credit quality to remain stable and
strong. Nevertheless, we continue to monitor potentially negative credit trends.
Inflation is rising in Arizona, with the inflation rate in the Phoenix
metropolitan area about twice the national average. As a result, the state's
traditional cost advantage may be disappearing. In addition, unemployment has
fallen so low in Arizona that a shortage of skilled workers may constrain
economic growth going forward. Rapid economic and population growth are
straining the state's infrastructure, which could result in the need for
significant capital outlays. Arizona's future credit quality will continue to
depend largely on the state's and localities' ability to manage capital plans
and debt issuance.
[line graph - data below]
ARIZONA RESIDENTIAL BUILDING PERMITS AND EMPLOYMENT
Residential Building Permits Employment
(left scale in thousands) (right scale in millions)
1987 39.635 1.39
1988 32.528 1.42
1989 23.315 1.45
1990 22.883 1.48
1991 23.421 1.49
1992 31.365 1.52
1993 38.379 1.58
1994 51.018 1.69
1995 52.648 1.80
1996 52.497 1.90
Source: DRI/McGraw-Hill
4 Arizona Municipal Credit Review American Century Investments
<TABLE>
<CAPTION>
PERFORMANCE & PORTFOLIO INFORMATION
30-Day 30-Day Tax-Equivalent Yields
SEC 31.02% 33.90% 34.59% 39.33%
Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
CURRENT YIELDS AS OF MAY 31, 1997
<S> <C> <C> <C> <C> <C>
Arizona Intermediate-Term Municipal 4.18% 6.06% 6.32% 6.39% 6.89%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
TOTAL RETURNS AS OF MAY 31, 1997
Arizona Intermediate-Term Municipal ........ 0.94% 5.77% 5.98% 6.37%
Lehman 5-Year General Obligation Index ..... 1.28% 6.08% 5.90% 5.93%(2)
Average Other States Intermediate
Municipal Debt Fund(1) ..................... 1.21% 6.01% 5.44% 5.54%(2)
Fund's Ranking Among Other States
Intermediate Municipal Debt Funds(1) ....... -- 48 out of 67 5 out of 53 3 out of 52(2)
(1) According to Lipper Analytical Services.
(2) Since 4/30/94, the date nearest the fund's inception for which data are
available. Inception date was April 11, 1994.
</TABLE>
See pages 20-21 for more information about returns, the comparative index and
Lipper fund rankings.
[line graph - data below]
GROWTH OF $10,000 OVER THE LIFE OF THE FUND
Value on 5/31/97
$10,000 investment made 4/30/94
Arizona Intermediate-Term Municipal $12,031
Lehman 5-Year GO Index $11,945
Arizona Intermediate-Term Municipal Lehman 5-Year GO Index
$10,000 $10,000
May-94 $10,092 $10,056
Jun-94 $10,064 $10,033
Jul-94 $10,234 $10,142
Aug-94 $10,280 $10,191
Sep-94 $10,202 $10,114
Oct-94 $10,083 $10,058
Nov-94 $9,973 $9,993
Dec-94 $10,098 $10,081
Jan-95 $10,268 $10,178
Feb-95 $10,443 $10,326
Mar-95 $10,562 $10,490
Apr-95 $10,625 $10,518
May-95 $10,852 $10,749
Jun-95 $10,855 $10,757
Jul-95 $10,985 $10,908
Aug-95 $11,085 $11,018
Sep-95 $11,130 $11,051
Oct-95 $11,233 $11,097
Nov-95 $11,343 $11,192
Dec-95 $11,426 $11,253
Jan-96 $11,574 $11,387
Feb-96 $11,541 $11,349
Mar-96 $11,365 $11,288
Apr-96 $11,378 $11,271
May-96 $11,357 $11,258
Jun-96 $11,428 $11,338
Jul-96 $11,540 $11,413
Aug-96 $11,539 $11,436
Sep-96 $11,614 $11,522
Oct-96 $11,724 $11,629
Nov-96 $11,900 $11,791
Dec-96 $11,853 $11,774
Jan-97 $11,874 $11,805
Feb-97 $11,948 $11,889
Mar-97 $11,809 $11,755
Apr-97 $11,852 $11,814
May-97 $12,031 $11,945
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The graph begins on 4/30/94, the date nearest the fund's 4/11/94
inception date for which index return data are available.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
5/31/97 5/31/96
Number of Securities 37 34
Weighted Average Maturity 7.2 years 7.1 years
Average Duration 5.0 years 5.4 years
Expense Ratio 0.66% 0.50%
Annual Report Performance & Portfolio Information 5
MANAGEMENT Q & A
An interview with Colleen Denzler, a senior municipal portfolio manager on the
Arizona Municipal funds management team.
How did the fund perform?
The fund produced a favorable return despite shifting market expectations. For
the fiscal year ended May 31, 1997, the fund's total return was 5.77%,+ compared
with the 6.01% return of the 67 "Other States Intermediate Municipal Debt Funds"
tracked by Lipper Analytical Services. (See the Total Returns table on the
previous page for other fund performance comparisons.)
Why did the fund underperform its peers?
The fund's peer group includes municipal intermediate-term funds from many other
states. Each state is subject to fiscal trends that can make its municipal
securities perform either better or worse than other state-issued municipals.
This discrepancy can have a sizable impact on how one state-specific municipal
fund's performance compares against another. The category includes only one
other Arizona municipal fund, which our fund strongly outperformed.
Did you change the fund's duration much during the fiscal year?
No. We made only slight adjustments to the fund's duration, keeping it
conservatively positioned within a narrow range around 5.0-5.4 years--roughly
neutral compared with its peers. We adjusted that position slightly as
conditions warranted but continued to avoid making interest rate bets that could
cause unwanted volatility in the fund's returns.
You held a Treasury put option during the period. Why?
We bought a Treasury put option as a form of insurance against a bond market
decline. (A put option allows the bondholder to sell a security at a
pre-determined price up until a specified date.) Since municipal prices were
falling less than Treasury prices during the first four months of 1997, hedging
the fund with a Treasury Put allowed us to capture appreciation on the put
option, while continuing to hold scarce intermediate-term municipal securities.
[bar graph - data below]
ARIZONA INTERMEDIATE-TERM MUNICIPAL'S ONE-YEAR RETURNS SINCE INCEPTION
(Periods ended May 31)
Arizona Intermediate-Term Municipal Lehman 5-Year GO Index
5/94* 0.92% 0.56%
5/95 7.52% 6.89%
5/96 4.65% 4.74%
5/97 5.77% 6.08%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns for the 1996 and 1997 fiscal
years include operating expenses, while the comparative index's returns do not.
See page 20 for a definition of the index.
* Return from 4/30/94 to 5/31/94.
+ Benham Management Corporation absorbed a small portion of the fund's expenses
during June 1996. The fund's ranking would have been lower if the fund's return
had been reduced by those expenses.
6 Management Q & A American Century Investments
MANAGEMENT Q & A
But why not purchase a municipal put option instead of a Treasury put?
Treasury puts are extremely liquid due to the vast amount of buyers and sellers
in the U.S. Treasury futures market. By contrast, the municipal futures market
is only a small fraction of that size and offers far less liquidity. In
purchasing a Treasury put instead of a municipal put, we ensured our ability to
sell the option without liquidity problems.
What is your outlook for the municipal market?
If U.S. economic growth continues to slow of its own accord, municipal
securities could rally, but any signs of an overheating economy will likely push
municipal bond prices lower.
Another important factor is the relative performance between municipal and
Treasury securities. For the first five months of 1997, municipals significantly
outperformed Treasurys, a situation caused in part by relatively low municipal
issuance. Although municipal issuance should remain fairly light for the near
future, the likelihood that municipal bonds will continue this outperformance is
diminishing--their prices have reached levels where they are considered
historically expensive compared with like-maturity Treasurys. If municipals
continue this trend much longer, investor demand could eventually shift back to
Treasurys, removing a key support for municipal bond prices.
With this outlook in mind, what are your plans for the fund going forward?
We plan to increase our focus on the spread, or difference, between the yields
of shorter- and longer-term municipals. With the help of our credit research
team, we will also look for undervalued securities that we believe will enhance
the fund's yield. We will also continue to monitor the relative performance of
Treasury versus municipal securities.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 5/31/97)
GO 51%
Revenue Bonds 20%
COPs/Leases 12%
Prerefunded/ETM 10%
Land-Secured 7%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 11/30/96)
Revenue Bonds 41%
GO 34%
COPs/Leases 12%
Prerefunded/ETM 11%
Other 2%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 5/31/97)
AAA 54%
AA 28%
A 9%
BBB 9%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 11/30/96)
AAA 65%
AA 24%
A 5%
BBB 6%
Annual Report Management Q & A 7
SCHEDULE OF INVESTMENTS
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
ARIZONA -- 96.9%
$ 1,000,000 Arizona State Transportation Board
Highway Rev., 6.00%, 7/1/08 $1,082,940
1,000,000 Arizona Transportation Board
Excise Tax Rev., 7.00%, 7/1/99,
Prerefunded at 102% of Par
(MBIA)(1) 1,073,140
900,000 Coconino/Yavapai County Sedona
Unified School District No. 9 GO,
5.60%, 7/1/06 (FGIC) 937,323
1,000,000 East Valley Institute of Technology
No. 401 GO, 5.00%, 7/1/03
(AMBAC) 1,015,940
1,025,000 Flagstaff GO, 6.50%, 7/1/03
(FGIC) 1,121,904
545,000 Gilbert County GO, Series C,
6.00%, 7/1/02 (MBIA) 579,351
1,000,000 Maricopa County Community
College GO, Series A, 6.80%,
7/1/98 1,031,610
500,000 Maricopa County GO, 6.25%,
7/1/03 (FGIC) 540,720
1,000,000 Maricopa County Hospital Rev.,
(Sun Health Corp.), 5.75%,
4/1/07 1,021,760
500,000 Maricopa County Industrial
Development Auth. Hospital
Facility Rev., (Samaritan Health
Services), 7.15%, 12/1/04
(MBIA) 569,050
1,000,000 Maricopa County Public Financing
Corporation Certificates of
Participation, Series 1994,
5.625%, 6/1/00 1,017,780
1,000,000 Maricopa County Unified School
District No. 1 GO, (Phoenix
Elementary), 5.50%, 7/1/09
(MBIA) 1,032,220
1,000,000 Maricopa County Unified School
District No. 41 GO, (Gilbert),
Series 1988 F, 6.20%, 7/1/02,
Prerefunded at Par (FGIC)(1) 1,073,420
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Maricopa County Unified School
District No. 48 GO, (Scottsdale),
6.60%, 7/1/12 $1,135,490
1,000,000 Maricopa County Unified School
District No. 90 GO, (Ruth Fisher
Elementary), 5.375%, 7/1/00 1,020,170
1,000,000 Maricopa County Unified School
District No. 97 GO, (Deer Valley),
Series A, 6.25%, 7/1/06 (MBIA) 1,102,230
300,000 Phoenix Airport Rev., Series 1994 C,
5.50%, 7/1/01 (MBIA) 309,153
635,000 Phoenix Civic Improvement Corp.
Wastewater Rev., 6.125%,
7/1/03, Prerefunded at 102%
of Par(1) 693,191
1,000,000 Phoenix Civic Improvement Corp.
Wastewater Rev. Certificates of
Participation, 4.85%, 7/1/07
(MBIA) 988,890
500,000 Phoenix Civic Improvement Corp.
Water Systems Rev., 6.00%,
7/1/02 530,585
550,000 Phoenix GO, 6.00%, 7/1/01 580,558
500,000 Phoenix Street and Highway Rev.,
Series 1992, 5.95%, 7/1/00 521,470
350,000 Phoenix Street and Highway Rev.,
Series 1992, 6.25%, 7/1/06 377,402
1,000,000 Pima County Sewer Rev., Series
1991, 6.20%, 7/1/00 (FGIC) 1,051,250
1,000,000 Pima County Unified School
District No. 10 GO,
(Amphitheater), 7.00%, 7/1/05
(MBIA) 1,144,150
1,000,000 Pima County Unified School
District No. 12 GO, (Sunnyside),
5.50%, 7/1/09 (MBIA) 1,024,730
1,000,000 Salt River Project Agricultural
Improvement and Power District
Rev., Series B, 6.50%, 1/1/04 1,097,040
480,000 Scottsdale GO, Series 1994,
7.50%, 7/1/02 542,112
1,275,000 Tempe GO, 6.25%, 7/1/05 1,398,076
525,000 Tucson Certificates of Participation,
5.70%, 7/1/02 530,407
200,000 Tucson Street and Highway Rev.,
4.50%, 7/1/98 201,374
See Notes to Financial Statements
8 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
MAY 31, 1997
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Tucson Street and Highway Rev.,
Series 1992, 5.70%, 7/1/01 $ 1,041,450
500,000 Yavapai County Unified School
District No. 28 GO, (Camp Verde),
Series 1995, 6.10%, 7/1/04
(FGIC) 540,345
1,000,000 Yuma County Jail District Rev., 5.25%,
7/1/12 (AMBAC) 986,130
----------
28,913,361
----------
GUAM -- 1.7%
500,000 Guam Power Auth. Rev., Series
1994A, 5.20%, 10/1/97 502,170
----------
PUERTO RICO -- 0.7%
200,000 Puerto Rico Public Education and
Health Rev., 7.60%, 7/1/97,
Prerefunded at 102% of Par
(FGIC)(1) 204,649
----------
TOTAL MUNICIPAL SECURITIES-99.3% 29,620,180
----------
(Cost $29,010,155)
SHORT-TERM MUNICIPAL SECURITIES - 0.7% 200,000 Phoenix Industrial Development
Auth.
Multifamily Housing Rev.,
(Del Mar Terrace Apartment
Project), VRDN, 3.90%, 6/5/97 200,000
----------
(Cost $200,000)
TOTAL INVESTMENT SECURITIES - 100.0% $29,820,180
==========
(Cost $29,210,155)
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
GO = General Obligation
MBIA = Municipal Bond Insurance Association
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used
in calculating the weighted average portfolio maturity. Rate shown is
effective May 31, 1997.
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
Annual Report Schedule of Investments 9
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
ASSETS
<S> <C>
Investment securities, at value (identified cost of $29,210,155) (Note 3) ......................... $29,820,180
Cash .............................................................................................. 107,903
Interest receivable ............................................................................... 677,629
Prepaid expenses and other assets ................................................................. 3,551
-----
30,609,263
----------
LIABILITIES
Disbursements in excess of demand deposit cash .................................................... 998
Payable for capital shares redeemed ............................................................... 31,317
Payable to affiliates (Note 2) .................................................................... 17,032
Dividends payable ................................................................................. 4,559
Accrued expenses and other liabilities ............................................................ 794
---
54,700
------
Net Assets Applicable to Outstanding Shares ....................................................... $30,554,563
===========
CAPITAL SHARES
Outstanding (unlimited number of shares authorized) ............................................... 2,926,974
=========
Net Asset Value Per Share ......................................................................... $10.44
======
NET ASSETS CONSIST OF:
Capital paid in ................................................................................... $29,945,116
Accumulated net realized loss on investment transactions .......................................... (578)
Net unrealized appreciation on investments (Note 3) ............................................... 610,025
-------
$30,554,563
===========
</TABLE>
See Notes to Financial Statements
10 Statement of Assets and Liabilities American Century Investments
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
INVESTMENT INCOME
Income:
<S> <C>
Interest .......................................................................................... $1,390,541
----------
Expenses (Note 2):
Investment advisory fees .......................................................................... 118,668
Administrative fees ............................................................................... 26,168
Transfer agency fees .............................................................................. 19,990
Printing and postage .............................................................................. 19,148
Auditing and legal fees ........................................................................... 8,838
Custodian fees .................................................................................... 8,269
Registration and filing fees ...................................................................... 4,997
Trustees' fees and expenses ....................................................................... 1,385
Organizational expenses ........................................................................... 1,012
Other operating expenses .......................................................................... 11,926
------
Total expenses .................................................................................. 220,401
Amount waived ..................................................................................... (36,963)
-------
Net expenses .................................................................................... 183,438
-------
Net investment income ............................................................................. 1,207,103
---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 3)
Net realized gain on investments .................................................................. 12,678
Change in net unrealized appreciation on investments .............................................. 303,847
-------
Net realized and unrealized
gain on investments ............................................................................... 316,525
-------
Net Increase in Net Assets
Resulting from Operations ......................................................................... $1,523,628
==========
</TABLE>
See Notes to Financial Statements
Annual Report Statement of Operations 11
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED MAY 31, 1997
AND MAY 31, 1996
Increase in Net Assets 1997 1996
OPERATIONS
<S> <C> <C>
Net investment income ......................................................... $ 1,207,103 $ 1,130,533
Net realized gain on investment transactions .................................. 12,678 88,040
Change in net unrealized appreciation (depreciation) on investments ........... 303,847 (276,781)
------- --------
Net increase in net assets resulting from operations .......................... 1,523,628 941,792
--------- -------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .................................................... (1,207,103) (1,130,533)
From net realized gains from investment transactions .......................... -- (12,741)
--------- -------
Decrease in net assets from distributions ..................................... (1,207,103) (1,143,274)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ..................................................... 15,353,294 11,716,512
Proceeds from reinvestment of distributions ................................... 917,406 884,795
Payments for shares redeemed .................................................. (11,821,630) (6,389,076)
----------- ----------
Net increase in net assets from capital share transactions .................... 4,449,070 6,212,231
--------- ---------
Net increase in net assets .................................................... 4,765,595 6,010,749
NET ASSETS
Beginning of year ............................................................. 25,788,968 19,778,219
---------- ----------
End of year ................................................................... $30,554,563 $25,788,968
=========== ===========
TRANSACTIONS IN SHARES OF THE FUND
Sold .......................................................................... 1,472,637 1,117,476
Issued in reinvestment of distributions ....................................... 88,040 84,549
Redeemed ...................................................................... (1,134,039) (611,773)
---------- --------
Net increase .................................................................. 426,638 590,252
======= =======
</TABLE>
See Notes to Financial Statements
12 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. Organization and Summary of Significant Accounting Policies
Organization--American Century Municipal Trust (the Trust) is registered under
the Investment Company Act of 1940 as an open-end management investment company.
American Century - Benham Arizona Intermediate-Term Municipal Fund (the Fund) is
one of the six funds issued by the Trust. The Fund is non-diversified under the
1940 Act. The objective of the Fund is to seek as high a level of current income
exempt from federal income taxes as is consistent with prudent investment
management and conservation of shareholders' capital. The Fund invests primarily
in intermediate-term municipal obligations and maintains a weighted average
maturity from five to ten years. The Fund concentrates its investments in a
single state and therefore may have more exposure to credit risk related to the
state of Arizona than a fund with a broader geographical diversification. The
following significant accounting policies related to the Fund are in accordance
with accounting policies generally accepted in the investment company industry.
Security Valuations--Securities are valued through valuations obtained from a
commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the Board of
Trustees.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. 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
amortization of discounts and premiums. Premiums and original issue discounts
are amortized daily using the effective interest rate method. Market discounts
are recognized as income upon the sale or maturity of securities.
Income Tax Status--It is the Fund's policy to distribute all net investment
income and net realized capital gains to shareholders and to otherwise qualify
as a regulated investment company under the provisions of the Internal Revenue
Code. Accordingly, no provision has been made for federal or state taxes.
Distributions to Shareholders-- Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized gains
are declared and paid annually. For the year ended May 31, 1997, 100% of the
Fund's distributions from net investment income have been designated as exempt
from federal income taxes.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes due to differences in the recognition of income and
expense items for financial reporting and tax purposes.
Supplementary Information--Certain officers and trustees of the Trust are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the Trust's investment advisor,
Benham Management Corporation (BMC), the Trust's distributor, American Century
Investment Services, Inc. (ACIS), and the Trust's transfer agent, American
Century Services Corporation (ACSC).
Futures Contracts--The Fund may buy and sell interest rate futures contracts
relating to debt securities and write and buy put and call options relating to
interest rate futures contracts. The Fund may use futures and options
transactions to maintain cash reserves while remaining fully invested, to
facilitate trading, to reduce transaction costs, or to pursue higher investment
returns when a futures contract is priced more attractively than its underlying
security or index. One of the risks of entering into futures may include the
possibility that the changes in value of the contract may not correlate with the
changes in value of the underlying securities. Upon entering into a futures
contract, the Fund is required to deposit either cash or securities in an amount
equal to a certain percentage of the contract value (initial margin). Subsequent
payments (variation margin) are made or received daily, in cash, by the Fund.
The variation margin is equal to the daily change in the contract value and is
recorded as an unrealized gain or loss. The Fund recognizes a realized gain or
loss when the contract is closed or expires. There were no open futures
contracts at May 31, 1997.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
Annual Report Notes to Financial Statements 13
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
2. Transactions with Related Parties
The Trust has entered into an Investment Advisory Agreement with BMC that
provides the Trust with investment advisory services in exchange for an
investment advisory fee. ACSC pays all compensation of Trust officers and
trustees who are officers or directors of ACC or any of its subsidiaries. In
addition, promotion and distribution expenses are paid by BMC. The investment
advisory fee is paid monthly by the Fund based on its pro rata share of the
dollar amount derived from applying the Trust's average daily closing net assets
to the following annualized investment advisory fee schedule.
0.50% of the first $100 million
0.45% of the next $100 million
0.40% of the next $100 million
0.35% of the next $100 million
0.30% of the next $100 million
0.25% of the next $1 billion
0.24% of the next $1 billion
0.23% of the next $1 billion
0.22% of the next $1 billion
0.21% of the next $1 billion
0.20% of the next $1 billion
0.19% of average daily net assets over $6.5 billion
The Trust has an Administrative Services and Transfer Agency Agreement with
ACSC. Under the agreement, ACSC provides substantially all administrative and
transfer agency services necessary to operate the Fund. Fees for these services
are based on transaction volume, number of accounts and the average daily
closing net assets of all funds advised by BMC.
The Trust has an additional agreement with BMC pursuant to which BMC established
a contractual expense guarantee that limits Fund expenses (excluding items such
as brokerage commissions, taxes, interest, custodian earnings credits, and
extraordinary expenses) to 0.67% of average daily closing net assets. The
agreement provides that BMC may recover amounts (representing expenses in excess
of the Fund's expense guarantee rate) absorbed during the preceding 11 months,
if, and to the extent that, for any given month, the Fund's expenses are less
than the expense guarantee rate in effect at that time. BMC voluntarily agreed
to absorb all expenses for the Fund through December 31, 1995. Beginning January
1, 1996, the Fund added expenses at a rate of 0.10% of average daily closing net
assets per month until the Fund reached the contractual expense rate of 0.67%.
The payable to affiliates as of May 31, 1997, based on the above agreements, was
as follows:
Investment Advisor $11,077
Administrative Services and
Transfer Agent 5,955
-------
$17,032
=======
On April 25, 1997, the Board of Trustees approved a plan to implement a unified
management fee, which would replace the existing contracts between the Fund and
related parties. Such plan is subject to shareholder approval and will be voted
on in July, 1997. Results of the vote were unknown at the time this report was
printed.
The Trust has a Distribution Agreement with ACIS, which is responsible for
promoting sales of and distributing the Trust's shares.
- --------------------------------------------------------------------------------
3. Investment Transactions
Purchases and sales of municipal debt obligations, other than short-term
investments totaled $29,769,416 and $21,804,953, respectively.
As of May 31, 1997, accumulated net unrealized appreciation was $610,025,
consisting of unrealized appreciation of $611,901, and unrealized depreciation
of $1,876. The aggregate cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes.
14 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended May 31 (except as noted)
1997 1996 1995 1994(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period ....................................... $10.31 $10.35 $10.13 $10.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income ................................... 0.45 0.51 0.51 0.07
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .............................. 0.13 (0.03) 0.22 0.13
---- ----- ---- ----
Total From Investment Operations ........................ 0.58 0.48 0.73 0.20
---- ---- ---- ----
Distributions
From Net Investment Income .............................. (0.45) (0.51) (0.51) (0.07)
From Net Realized Gains on
Investment Transactions ................................. -- (0.01) -- --
---- ---- ---- ----
Total Distributions ..................................... (0.45) (0.52) (0.51) (0.07)
----- ----- ----- -----
Net Asset Value, End of Period ............................ $10.44 $10.31 $10.35 $10.13
====== ====== ====== ======
Total Return(2) ........................................... 5.77% 4.65% 7.52% 1.99%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..................................... 0.66% 0.14% -- --
Ratio of Operating Expenses to Average
Net Assets (Before Expense Waiver) ........................ 0.79% 0.82% 1.01% 2.33%(3)
Ratio of Net Investment
Income to Average Net Assets .............................. 4.35% 4.85% 5.16% 5.08%(3)
Ratio of Net Investment Income to
Average Net Assets (Before Expense Waiver) ................ 4.22% 4.17% 4.15% 2.75%(3)
Portfolio Turnover Rate ................................... 81% 36% 33% 18%
Net Assets, End
of Period (in thousands) .................................. $30,555 $25,789 $19,778 $7,187
(1) April 11, 1994 (inception) through May 31, 1994.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
See Notes to Financial Statements
</TABLE>
Annual Report Financial Highlights 15
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
American Century Municipal Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investment securities, of American Century - Benham Arizona
Intermediate-Term Municipal Fund (one of the series comprising American Century
Municipal Trust) (the Fund) as of May 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
the two years then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of May 31, 1997, the results of its operations, the changes in its net
assets and its financial highlights for the periods indicated above, in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
July 7, 1997
16 Independent Auditors' Report American Century Investments
NOTES
Annual Report Notes 17
NOTES
18 Notes American Century Investments
NOTES
Annual Report Notes 19
BACKGROUND INFORMATION
Investment Philosophy & Policies
American Century Investments offers 42 fixed-income funds, ranging from money
market funds to long-term bond funds and including both taxable and tax-exempt
funds.
Arizona Intermediate-Term Municipal is a variable-price bond fund that seeks to
provide interest income exempt from both Arizona and federal income taxes. The
fund invests primarily in intermediate-term Arizona municipal securities with
maturities of four or more years and maintains a weighted average maturity of
five to 10 years.
Comparative Indices
The index listed below is used in the report to serve as a comparison for the
performance of a fund. It is not an investment product available for purchase.
The Lehman 5-Year Municipal General Obligation Index is a municipal bond index
composed of more than 11,000 bonds with maturities of four to six years. The
bonds are rated BBB or higher by Standard & Poor's, with an average rating of
AA. The average maturity of the index is five years.
Lipper Rankings
Lipper Analytical Services, Inc. is an independent mutual fund ranking service.
Rankings are based on average annual total returns for each fund in a given
category for the periods indicated. Rankings are not included for periods less
than one year.
The funds in Lipper's Other States Intermediate Municipal Debt Funds category
invest in municipal debt issues with dollar-weighted average maturities of five
to 10 years and which are exempt from taxation on a specified city or state
basis.
PORTFOLIO MANAGEMENT TEAM
Senior Municipal Portfolio Manager Colleen Denzler
Municipal Credit Research Manager Steven Permut
Credit Analysts Scott Lord, Bill McClintock,
David Moore, Tim Benham
20 Background Information American Century Investments
GLOSSARY
Returns
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on page 15.
Yields
o 30-Day SEC Yield represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's investment income, and it may not equal the fund's actual
income distribution rate, the income paid to a shareholder's account, or the
income reported in the fund's financial statements.
o Tax-Equivalent Yields show the taxable yields that investors in a federal
income tax bracket would have to earn before taxes to equal the fund's tax-free
yield.
Bond Portfolio Structures
o Barbell Structure--a structure that overweights a portfolio in short- and
long-term securities and underweights intermediate-term securities. This
structure tends to perform best when the yield curve is moving from steep to
flat. (Short-term rates are rising faster than long-term rates, or long-term
rates are falling faster than short-term rates.)
o Bullet Structure--a structure that clusters a portfolio's bond maturities
around a single maturity (usually an intermediate-term maturity). This structure
tends to perform best when the yield curve is moving from flat to steep
(long-term rates are rising faster than short-term rates, or short-term rates
are falling faster than long-term rates).
o Ladder Structure--a balanced structure that staggers bond maturities so they
occur at regular intervals. This structure tends to perform best when interest
rates are relatively stable, and it provides a regular schedule of maturing
securities.
Investment Terms
o Basis Point--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%).
o Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Portfolio Statistics
o Number of Securities--the number of different securities issuances held by a
fund on a given date.
o Weighted Average Maturity--measures the average amount of time until the
securities in a bond portfolio mature, weighted by dollar amount.
o Average Duration--measures the interest rate sensitivity of a bond portfolio.
Measured in years, average duration represents the approximate percentage change
in the value of a bond portfolio if interest rates move up or down by one
percentage point.
o Expense Ratio--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder's account.
Types of Municipal Securities
o COPs/Leases--securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases. Certificates of
participation represent long-term debt obligations, while leases have a higher
risk profile than GOs because they require annual appropriation.
o GO Bonds--general obligation securities backed by the taxing power of the
issuer.
o Land-Secured Bonds--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
o Prerefunded Bonds/ETM Bonds--securities refinanced or escrowed to maturity by
the issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
o Revenue Bonds--securities backed by revenues from sales taxes or from a
specific project, system or facility (such as a hospital, electric utility or
water system).
Annual Report Glossary 21
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUNICIPAL TRUST
Investment Manager
Benham Management Corporation
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.
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SH-BKT-9002 Recycled
