/front cover/
May 31, 1998
Annual Report
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American Century
[graphic of U.S. currency and two individuals walking up stairs]
Benham Group
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Arizona Intermediate-Term Municipal
[american century logo(reg.sm)]
American
Century(reg.tm)
/inside front cover/
A Note from the Founder
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in tern, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very
good information, from fund statistics and financials to Q&A's with fund
managers. We hope the new design will make the reports more interesting and
understandable, while helping you keep abreast of your fund's strategy and
performance.
What's New
The reports are designed to be attractive and easy to use whether you're
reading them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
The Bottom Line
The new design actually costs slightly less than the old one. We
reallocated costs and eliminated a cover letter and the envelope that previously
came with your report enclosed. This not only saves money but reduces the number
of mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-
friendly publication.
We hope you enjoy it.
[left margin]
Benham Group
Arizona Intermediate-Term Municipal
(BEAMX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
Our Message to You
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/photo James E. Stowers, Jr. with James E. Stowers III, seated/
James E. Stowers, Jr. with James E. Stowers III, seated
U.S. municipal bonds provided price gains as well as tax-exempt interest
income to investors during the year ended May 31, 1998. Low inflation, economic
turmoil overseas, and healthy economic and credit conditions in the U.S. created
a favorable investment climate for municipal bonds. Arizona Intermediate-Term
Municipal's positive return reflected this environment. In addition, Arizona
Intermediate-Term Municipal produced a higher return than the average of its
peers, reflecting the solid efforts of our municipal investment and credit
research teams.
Turning to the corporate front, we've had an eventful year at American
Century. We gained a powerful business partner in January when J.P. Morgan
became a substantial minority shareholder. Another significant event was the
retirement of Jim Benham, founder of the Benham Group, in December.
Overall, we've had a noteworthy record of continuity in the management of
American Century's tax-free and municipal funds. The investment team that
manages Arizona Intermediate-Term Municipal has expanded its resources and
hasn't experienced any portfolio manager turnover since the fund's inception.
The team's approach still adheres to investment philosophies that Jim Benham
helped develop during his 25 years as a mutual fund manager, but also blends in
new technology and resources that the merger with American Century made
possible. The American Century Tax-Free and Municipal funds have performed well
and serve as an example of the quality of the tools we aim to provide to
investors to help them meet their financial goals.
If you'd like to learn more about your investments or about personal
finance topics such as Roth IRAs or diversification, we have many free
educational brochures and booklets available by mail. You can also get
educational information on our Web site (www.americancentury.com). We've
recently added several new features to the site, including retirement investing
calculators and online investment tracking. We're committed to making your
relationship with us as easy and productive as possible.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER CHIEF EXECUTIVE OFFICER
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
Municipal Credit Review ................................................. 4
ARIZONA INTERMEDIATE-TERM MUNICIPAL
Performance Information ................................................. 5
Management Q&A .......................................................... 6
Schedule of Investments ................................................. 9
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ........................................................... 11
Statement of Operations ................................................. 12
Statements of Changes
in Net Assets ......................................................... 13
Notes to Financial
Statements ............................................................ 14
Financial Highlights .................................................... 16
Report of Independent
Accountants ........................................................... 17
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ......................................................... 18
Comparative Indices .................................................... 18
Lipper Rankings ........................................................ 18
Credit Rating
Guidelines ........................................................... 18
Investment Team
Leaders .............................................................. 18
Glossary ................................................................ 19
www.americancentury.com 1
Report Highlights
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MUNICIPAL MARKET PERSPECTIVE
* Municipal securities produced moderate gains during the year ended May 31,
1998.
* As interest rates generally fell, the greater interest rate sensitivity of
long-term municipals allowed them to outperform short- and intermediate-term
ones.
* The majority of the market's gains occurred during the fourth quarter of
1997,when interest rates trended sharply lower because of low inflation
expectations.
* The near-record amount of municipal issuance and growing demand for Treasurys
caused the municipal market to underperform the Treasury market.
ARIZONA MUNICIPAL CREDIT REVIEW
* Arizona municipal credit quality remained solid during the year ended May 31,
1998.
* The state's substantial employment growth, rising personal wealth and
burgeoning population were responsible for its ongoing credit strength.
* In early 1998, Arizona's unemployment rate fell to a 20-year low of 4%, below
the national average.
* The state's low business and housing costs and favorable climate were the
main drivers for employment growth.
* Going forward, our outlook for Arizona's credit quality remains optimistic
despite some potential concerns.
* To help ensure that the municipal securities chosen for Arizona
Intermediate-Term Municipal match our strict criteria, we recently expanded
our highly experienced credit team from four members to six.
MANAGEMENT Q&A
* Falling interest rates and low inflation helped Arizona Intermediate-Term
Municipal produce solid returns.
* We believe effective duration management was the main reason behind the
portfolio's performance.
* We kept duration (a measure of the portfolio's sensitivity to changes in
interest rates) slightly long compared with Arizona Intermediate-Term
Municipal's peers during much of the year, which boosted returns as interest
rates generally declined.
* Arizona Intermediate-Term Municipal is currently unaffected by recent
legislation concerning the school debt issue.
* Going forward, we will probably keep duration neutral to slightly long
compared with Arizona Intermediate-Term Municipal's peers.
[left margin]
"FALLING INTEREST RATES AND LOW INFLATION HELPED ARIZONA INTERMEDIATE-TERM
MUNICIPAL PRODUCE SOLID RETURNS."
ARIZONA INTERMEDIATE-TERM MUNICIPAL
(BEAMX)
TOTAL RETURNS: AS OF 5/31/98
6 Months 3.02%*
1 Year 7.19%
NET ASSETS: $40.0 million
30-DAY SEC YIELD: 3.98%
INCEPTION DATE: 4/11/94
* Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on page 19.
2 1-800-345-2021
Market Perspective from Randall W. Merk
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/photo of Randall W. Merk, director of fixed-income investing at American
Century/
Randall W. Merk, director of fixed-income investing at American Century
PERFORMANCE PICTURE
Municipal securities produced moderate gains during the year ended May 31,
1998. Economic turmoil in Asia helped cool inflationary pressures, pushing
municipal bond yields lower and prices higher. Long-term municipal bonds, which
are most sensitive to interest rate changes, outpaced intermediate- and
short-term municipal securities. For example, the Lehman Brothers Long-Term
Municipal Bond Index returned 11.67%, intermediate securities, represented by
the Lehman Brothers 5-Year General Obligation Index, returned 6.95% and the
short-term Merrill Lynch 0- to 3-Year Municipal Index posted a 4.96% return.
INTEREST RATE OVERVIEW
The majority of municipals' gains came in the fourth quarter of 1997, when
inflation expectations remained low and long-term interest rates trended
downward. In 1998, however, countervailing economic forces kept interest rates
and bond prices in a much narrower range. On one hand, the worsening Asian
economic crisis kept a lid on corporate America's ability to raise prices for
its goods and services. That put profit margins under pressure and took some of
the wind out of growing inflationary pressures. On the other hand, the U.S.
economy remained healthy enough to keep the job market growing at a historically
strong pace. Lacking a clear signal as to whether a weaker Asia or rising
domestic wages would ultimately win out, the Federal Reserve (the Fed) left
interest rates unchanged during the year.
INCREASED SUPPLY, FIRM DEMAND
The supply of municipals grew dramatically, thanks in large part to a
record-setting new municipal issue. In May, the Long Island Power Authority
issued $3.5 billion in municipal debt, the single largest municipal deal in
history. Scrambling to take advantage of low interest rates, other issuers
brought to market an enormous amount of new municipal securities. For the first
five months of 1998, new issue volume was up over 53% compared with the previous
year.
The demand for municipals, while remaining firm, didn't keep pace with the
growing appetite for U.S. Treasury bonds. Unlike the Treasury market, the
municipal market is not seen as a safe haven against international market
turmoil. The near-record amount of municipals issued and the growing demand for
Treasury securities caused municipals to underperform Treasurys during the
period.
FLATTENING YIELD CURVE
Reflecting the stable interest rate policy from the Fed, short-term
interest rates remained relatively unchanged. However, yields on long-term
municipal securities fell about 50 basis points (a basis point equals 0.01%).
This resulted in the "flattening" yield curve shown in the accompanying graph.
The yield difference between a one-year note and a 30-year bond fell to just 128
basis points on May 31, 1998.
[right margin]
"SCRAMBLING TO TAKE ADVANTAGE OF LOW INTEREST RATES, OTHER ISSUERS BROUGHT TO
MARKET AN ENORMOUS AMOUNT OF NEW MUNICIPAL SECURITIES."
[line chart]
FLATTENING MUNICIPAL YIELD CURVE
5/31/97 5/31/98
YEARS TO MATURITY
1 3.85% 3.69%
2 4.15% 3.85%
3 4.35% 3.95%
4 4.50% 4.04%
5 4.60% 4.09%
6 4.66% 4.16%
7 4.72% 4.23%
8 4.78% 4.30%
9 4.84% 4.37%
10 4.90% 4.44%
11 4.98% 4.51%
12 5.05% 4.59%
13 5.13% 4.66%
14 5.20% 4.74%
15 5.28% 4.81%
16 5.31% 4.84%
17 5.34% 4.86%
18 5.36% 4.89%
19 5.39% 4.91%
20 5.42% 4.94%
21 5.43% 4.94%
22 5.43% 4.94%
23 5.44% 4.95%
24 5.44% 4.95%
25 5.45% 4.95%
26 5.45% 4.95%
27 5.46% 4.96%
28 5.46% 4.96%
29 5.47% 4.97%
30 5.47% 4.97%
Source: Bloomberg Financial Markets
"THE YIELD DIFFERENCE BETWEEN A ONE-YEAR NOTE AND A 30-YEAR BOND FELL TO JUST
128 BASIS POINTS ON MAY 31, 1998."
www.americancentury.com 3
Municipal Credit Review
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CREDIT SNAPSHOT
Arizona municipal credit quality remained solid during the year ended May
31, 1998. The state's substantial employment growth, rising personal wealth and
burgeoning population were responsible for its continued credit strength.
SOLID EMPLOYMENT GAINS
Arizona's unemployment has declined steadily in recent years. In early
1998, Arizona's unemployment rate fell to a 20-year low of 4%, below the
national average.
The state's low business and housing costs and favorable climate were the
main drivers for employment growth. Led by hiring at companies such as Intel,
Microchip Technology and Motorola, manufacturing jobs are on pace to surge
nearly 7% in 1998, adding to a 5.5% gain for 1997. Drawn by Arizona's attractive
retail environment, several large department store chains increased their
presence last year, while others established initial branches. Business services
employment grew nearly 15% in 1997, continuing an ongoing double-digit trend
that began in 1994. The combination of these factors resulted in 4.5% job growth
for Arizona in 1997--the second-highest rate nationally--and bodes well for the
state's economy going forward.
A labor shortage, which was most evident in computer-related industries,
helped drive the state's 4% per capita wage gain in 1997. If solid wage gains
and high employment growth continue at present rates, analysts believe personal
incomes could rise as much as 9% in Arizona during 1998.
The state's swelling employment came despite a large influx of new
residents. Over 130,000 people moved to the state in 1997. During each of the
preceding seven years, Arizona's population rose around 3%--the second-fastest
rate nationally.
DEVELOPING CONCERNS
While there are many factors aiding the state's economic prosperity, we are
monitoring two developing issues that could have a major impact, possibly
dampening Arizona's future growth. One significant concern is financial turmoil
in Asia. Because roughly half of Arizona's exports are bound for Asia, a
prolonged recession in the Far East could translate into slower economic gains
for the state. That could translate into reduced job growth, especially in the
high-tech industry.
On the legislative front, we are keeping abreast of legal developments
surrounding the Students FIRST Act of 1998, which could impact the way Arizona
schools issue public debt. (Please see page 8 for further discussions.)
LOOKING FORWARD
Despite these potential inhibitors, our outlook for Arizona's credit
quality remains optimistic. The state and its municipalities continue to follow
generally conservative fiscal practices, and we expect the state's strong
economic fundamentals to continue.
To help ensure that the municipal securities chosen for Arizona
Intermediate-Term Municipal match our strict criteria, we recently expanded our
highly experienced credit team from four members to six. We believe the
expansion improves our ability to find undervalued securities for the fund that
can potentially translate into higher returns for our shareholders.
[left margin]
"ARIZONA'S SUBSTANTIAL EMPLOYMENT GROWTH, RISING PERSONAL WEALTH AND BURGEONING
POPULATION WERE RESPONSIBLE FOR ITS CONTINUED CREDIT STRENGTH."
MUNICIPAL CREDIT RESEARCH TEAM
DIRECTOR: STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS:
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
"TO HELP ENSURE THAT THE MUNICIPAL SECURITIES CHOSEN FOR ARIZONA
INTERMEDIATE-TERM MUNICIPAL MATCH OUR STRICT CRITERIA, WE RECENTLY EXPANDED OUR
HIGHLY EXPERIENCED CREDIT TEAM FROM FOUR MEMBERS TO SIX."
4 1-800-345-2021
<TABLE>
<CAPTION>
Arizona Int.-Term--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
INCEPTION 4/11/94
ARIZONA INTERM.- LEHMAN 5-YEAR OTHER STATES INTERM. MUNI. DEBT FUNDS(2)
TERM MUNICIPAL GO INDEX AVERAGE RETURN FUND'S RANKING
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 MONTHS(1) .............. 3.02% 2.80% 2.94% --
1 YEAR ................... 7.19% 6.95% 7.04% 33 OUT OF 77
- ----------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS .................. 5.87% 5.92% 5.56% 15 OUT OF 61
LIFE OF FUND ............. 6.57% 6.17% 5.92%(3) 6 OUT OF 47(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services.
(3) Since 4/30/94, the date nearest the fund's inception for which return data
are available.
See pages 18-19 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain chart]
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made 4/30/94
Value on 5/31/98
Arizona Intermediate- Lehman 5-Year
Term Municipal 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 $12,010 $11,942
Jun-97 $12,122 $12,048
Jul-97 $12,386 $12,266
Aug-97 $12,270 $12,201
Sep-97 $12,407 $12,310
Oct-97 $12,453 $12,386
Nov-97 $12,497 $12,425
Dec-97 $12,669 $12,537
Jan-98 $12,776 $12,647
Feb-98 $12,782 $12,662
Mar-98 $12,758 $12,684
Apr-98 $12,695 $12,623
May-98 $12,874 $12,773
The chart at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The
Lehman 5-Year GO Index is provided for comparison in each chart. Arizona
Intermediate-Term Municipal's returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the returns of
the index do not. 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.
[bar chart]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MAY 31)
Arizona Intermediate- Lehman 5-Year
Term Municipal 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%
5/98 7.19% 6.95%
* From 4/30/94 (the date nearest the fund's inception for which index data are
available).
www.americancentury.com 5
Arizona Int.-Term--Q&A
- -----------------------------------------------------------------------------
An interview with Colleen Denzler and Ken Salinger, portfolio managers on
the Arizona Intermediate-Term Municipal fund's investment team.
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED MAY 31, 1998?
Falling interest rates and low inflation helped Arizona Intermediate-Term
Municipal produce solid returns. The fund's total return was 7.19%, compared
with the 7.04% average return of the 77 "Other States Intermediate Municipal
Debt Funds" tracked by Lipper Analytical Services. Arizona Intermediate-Term
Municipal also outpaced the 6.95% return of its benchmark, the Lehman 5-Year
General Obligation Index. (See the Total Returns table on the previous page for
other fund performance comparisons.)
WHAT LED TO ARIZONA INTERMEDIATE-TERM MUNICIPAL'S OUTPERFORMANCE?
We believe effective duration management was the main reason. Duration
measures a portfolio's sensitivity to changes in interest rates. The longer a
fund's duration, the more the share price appreciates when rates fall, and the
more it declines when rates rise. Conversely, a shorter duration means a bond
portfolio's price fluctuates less when rates change.
HOW DID YOU MANAGE DURATION?
We kept duration slightly long compared with Arizona Intermediate-Term
Municipal's peers during much of the year, which boosted returns as interest
rates generally declined. After starting the fiscal year with a duration around
5.0 years, we extended to about 5.5 years during July and August 1997 to take
advantage of a market rally.
During late October and November 1997, the portfolio's 5.3-year duration
was again better positioned to take advantage of falling interest rates than
some of its peers. However, the market began selling off in January 1998. We
used the opportunity to shorten duration back to 5.0 years while riding out the
countervailing forces of Asian turmoil and solid economic growth domestically
(see page 3). As prospects for lower interest rates generally improved during
March, we again lengthened duration. By the end of May, duration was back up to
around 5.3 years.
IN WHAT OTHER WAYS DID YOU TRY TO ADD VALUE?
Performance was also enhanced by our careful analysis of the municipal
yield curve. A yield curve graphically represents the relationship between the
maturity and yield of bonds (see the graph on page 3). Yields are represented
along the vertical axis and maturity along the horizontal.
Usually, a longer-maturity municipal security will have a higher yield than
a shorter-maturity one of the same credit quality. That's mainly because there
is less interest rate uncertainty in the near term than in the distant future.
When the market fits this scenario, the yield curve looks like a concave line
that slopes up and to the right, with longer-term municipals offering the most
yield.
However, as the graph on page 3 demonstrates, over the last year the yield
curve has flattened as yields on longer-term municipals have fallen, while
shorter-term ones have remained relatively unchanged.
[left margin]
"WE KEPT DURATION SLIGHTLY LONG COMPARED WITH ARIZONA INTERMEDIATE-TERM
MUNICIPAL'S PEERS DURING MUCH OF THE YEAR, WHICH BOOSTED RETURNS AS INTEREST
RATES GENERALLY DECLINED."
YIELDS AS OF MAY 31, 1998
30-DAY SEC YIELD
3.98%
30-DAY TAX-EQUIVALENT YIELDS
31.02% TAX BRACKET 5.77%
33.90% TAX BRACKET 6.02%
34.59% TAX BRACKET 6.08%
39.33% TAX BRACKET 6.56%
PORTFOLIO AT A GLANCE
5/31/98 5/31/97
NUMBER OF SECURITIES 42 37
WEIGHTED AVERAGE
MATURITY 8.3 YRS 7.2 YRS
AVERAGE DURATION 5.3 YRS 5.0 YRS
EXPENSE RATIO 0.54% 0.66%
Investment terms are defined in the Glossary on page 19.
6 1-800-345-2021
Arizona Int.-Term--Q&A
- -----------------------------------------------------------------------------
(Continued)
WITH THOSE BASICS IN MIND, HOW DO YOU USE THE YIELD CURVE TO THE PORTFOLIO'S
ADVANTAGE?
Basically, we use the yield curve to determine which bond maturities are
offering the best risk-adjusted returns. We then look for attractively valued
securities in those ranges that match our strict credit criteria and add them to
the portfolio.
When making these purchases, we modify the portfolio's maturity
structure--the ratio of shorter- to longer-term municipals. During the latter
half of the period, the portfolio's maturity structure was mostly barbelled.
That means the portfolio was heavily invested in securities in the short and
long ranges of its maturity spectrum, while being underweighted in bonds in the
middle.
This structure tends to perform best when the yield curve flattens.
AS THE CHART ON PAGE 8 ILLUSTRATES, YOU MADE SOME CHANGES TO THE CREDIT QUALITY
OF THE FUND. WHY?
To barbell the portfolio's structure, we bought shorter-term municipal
bonds and sold intermediates. Because the shorter-term ones were mostly rated
AAA, while the intermediates were mostly AA, the net effect was to raise the
portfolio's credit quality. We were also adding a small contingent of
higher-yielding longer-maturity securities, so were able to make the switch
without sacrificing yield.
With interest rates falling early this year, municipal issuance rose
because it became cost effective for municipalities to reissue debt at
prevailing lower interest rates. The resulting abundance of new securities
provided many good opportunities to modify the portfolio's structure while
allowing us to add municipals that we believed were undervalued. Our credit team
was instrumental in this endeavor.
WHAT ARE GENERAL OBLIGATION BONDS?
General obligation bonds (GOs) are municipal securities backed by the full
faith and credit of the issuer. That means the issuer has pledged to do
everything within its general taxing power to honor the principal and interest
payments the security represents. The payments made to GO holders generally come
from the taxing power of the issuing municipality. GOs backed by property taxes,
for instance, are regarded by many as the safest type of municipal bonds.
WHY DOES THE PORTFOLIO TYPICALLY HOLD SUCH A LARGE PERCENTAGE OF GOS?
Unlike some other states, the bulk of Arizona municipals are GOs. And while
some GO issuance goes to finance a variety of public projects, the bulk of
issuance goes to finance school districts. This is reflected in the portfolio's
holdings and is a good example of why it pays to have a well-seasoned credit
team. By carefully researching some of the smaller school districts, we are able
to find undervalued securities with the potential to enhance fund returns by
appreciating.
LEGISLATION WAS RECENTLY PASSED THAT WILL AFFECT HOW SCHOOL DISTRICTS RECEIVE
FUNDING. CAN YOU BRIEFLY EXPLAIN MORE ABOUT THIS ISSUE?
The Students FIRST (Fair and Immediate Resources for Students Today) Act of
1998, which received legislative approval on July 9, is aimed at creating
uniform educational standards in Arizona. Unequal funding was seen as the main
culprit behind the educational disparity between school districts and was
therefore a main focus of the Act.
[right margin]
"BY CAREFULLY RESEARCHING SOME OF THE SMALLER SCHOOL DISTRICTS, WE ARE ABLE TO
FIND UNDERVALUED SECURITIES WITH THE POTENTIAL TO ENHANCE FUND RETURNS BY
APPRECIATING."
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
GOs 52%
Prerefunded/ETM 3%
Land-Secured 7%
COPs/Leases 9%
Revenue Bonds 29%
AS OF NOVEMBER 30, 1997
GOs 51%
Prerefunded/ETM 3%
Land-Secured 4%
COPs/Leases 12%
Revenue Bonds 30%
Security types are defined in the Glossary on page 18.
www.americancentury.com 7
Arizona Int.-Term--Q&A
- -----------------------------------------------------------------------------
(Continued)
To provide some background, Arizona's school debt issuance, as with many
other states, has been under increased scrutiny over recent years. According to
a 1994 ruling by Arizona's Supreme Court, the state's school financing methods
violated the constitutional guarantee of "general and uniform" education.
The new law attempts to fix these inequities by changing the way state
funding is given to, and raised by, the various school districts. The
legislation also imposes minimum adequacy standards for all public schools
within the state that must be met within five years.
HOW MIGHT THIS LEGISLATION AFFECT THE PORTFOLIO?
While we can't predict the exact outcome, in the short term we expect the
new law to have little effect. Municipal issuance this year has been relatively
high, and there are currently plenty of outstanding municipals from which to
choose. Also, keep in mind that while the new legislation changes the way school
districts issue debt going forward, it does not directly impact existing
municipal securities.
From a longer-term perspective, there is a good chance that the amount of
municipal securities issued by Arizona school districts will be significantly
reduced. The reduced supply will probably make it more difficult to find
attractive, undervalued school-district municipals for the portfolio.
Going forward, our credit team will continue closely watching developments
surrounding the new legislation, bringing any new concerns to our immediate
attention. We firmly believe that with careful monitoring and proactive
initiative, the portfolio will be well prepared for the resulting changes.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND MUNICIPAL BONDS GOING FORWARD?
Our perspective is generally upbeat. Inflation rose only at a 1.5% annual
rate for the first five months of this year. Asian turmoil should help constrain
inflationary pressures by keeping U.S. economic growth within manageable levels.
With no inflationary pressures on the horizon, we believe interest rates could
trend lower.
If Asian turmoil dampens national economic growth significantly, there's a
possibility that the Federal Reserve would cut short-term rates to stimulate
growth. That would spell good news for the municipal market because a drop in
short-term rates would cause existing securities to appreciate.
WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
We will probably keep duration neutral to slightly long compared with
Arizona Intermediate-Term Municipal's peers. That should enhance returns if
municipal bond yields continue to decline, which we believe they will. We will
continue monitoring the municipal yield curve, looking for opportunities to add
value by modifying the portfolio's structure. In addition, we will be working
closely with our credit team to stay on top of developing legislative issues
such as the one affecting Arizona school districts.
[left margin]
"FROM A LONGER-TERM PERSPECTIVE, THERE IS A GOOD CHANCE THAT THE AMOUNT OF
MUNICIPAL SECURITIES ISSUED BY ARIZONA SCHOOL DISTRICTS WILL BE SIGNIFICANTLY
REDUCED."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/98 11/30/97
AAA 58% 51%
AA 25% 33%
A 9% 8%
BBB 8% 8%
Ratings provided by Standard & Poor's. (See page 18 for more information.)
"WITH NO INFLATIONARY PRESSURES ON THE HORIZON, WE BELIEVE INTEREST RATES COULD
TREND LOWER."
8 1-800-345-2021
Arizona Int.-Term--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
MUNICIPAL SECURITIES
$1,000,000 Arizona Transportation Board
Excise Tax Rev., (Maricopa
County Regional Area), 7.00%,
7/1/99, Prerefunded at 102%
of Par (MBIA)(1) $1,053,800
1,000,000 Arizona Transportation Board
Excise Tax Rev., Series 1995 B,
(Maricopa County Regional
Area), 5.50%, 7/1/99
(AMBAC) 1,018,680
1,000,000 Arizona Transportation Board
Highway Rev., Series 1993 A,
6.00%, 7/1/08 1,127,010
500,000 Arizona Water Infrastructure
Finance Auth. Rev., Series
1998 A, (Water Quality Final
Assessment), 4.30%, 7/1/04
(MBIA)(2) 502,915
900,000 Coconino & Yavapai Counties
Joint Unified School District
Number 9, Series 1994 C,
(Sedona Project of 1992),
5.60%, 7/1/06 (FGIC) 949,239
1,170,000 Coconino County Jail District Rev.,
4.00%, 7/1/01 (AMBAC) 1,169,626
1,000,000 East Valley Institute of Technology
No. 401 GO, 5.00%, 7/1/03
(AMBAC) 1,039,060
545,000 Gilbert County GO, Series 1994 C,
6.00%, 7/1/02 (MBIA) 584,016
2,000,000 Maricopa County Certificates of
Participation, 5.625%, 6/1/00 2,040,380
500,000 Maricopa County GO, 6.25%,
7/1/03 (FGIC) 547,700
1,000,000 Maricopa County Hospital Rev.,
(Sun Health Corp.), 5.75%,
4/1/07 1,059,210
500,000 Maricopa County Industrial
Development Auth. Hospital
Facility Rev., (Samaritan Health
Services), 7.15%, 12/1/04
(MBIA) 579,170
1,000,000 Maricopa County Unified School
District No. 1 GO, (Phoenix
Elementary), 5.50%, 7/1/09
(MBIA) 1,078,650
1,000,000 Maricopa County Unified School
District No. 48 GO, (Scottsdale),
6.60%, 7/1/12 1,195,950
1,000,000 Maricopa County Unified School
District No. 90 GO, (Ruth Fisher
Elementary), 5.375%, 7/1/00 1,026,350
1,000,000 Maricopa County Unified School
District No. 6 GO, Series 1997
B, (Washington Elementary),
4.75%, 7/1/11 (FGIC) 1,001,420
Principal Amount Value
- -----------------------------------------------------------------------------
$ 800,000 Maricopa County Unified School
District No. 40 GO, Series
1995 C, 7.75%, 7/1/06 (FGIC) $ 981,008
1,000,000 Maricopa County Unified School
District No. 41 GO, Series
1988 F, (Gilbert), 6.20%,
7/1/02, Prerefunded at 100%
of Par (FGIC)(1) 1,079,250
1,000,000 Maricopa County Unified School
District No. 97 GO, (Deer
Valley), Series 1996 A, 6.25%,
7/1/06 (MBIA) 1,126,170
1,000,000 Maricopa County Unified School
District No. 201 GO, Series
1992 E, (Phoenix), 7.10%,
7/1/04 1,154,220
300,000 Phoenix Airport Rev., Series
1994 C, 5.50%, 7/1/01 (MBIA) 312,057
1,000,000 Phoenix Civic Improvement Corp.
Rev., (Senior Lien), 5.00%,
7/1/03 1,033,960
1,000,000 Phoenix Civic Improvement Corp.
Wastewater System Lease Rev.,
4.85%, 7/1/07 (MBIA) 1,028,250
550,000 Phoenix GO, 6.00%, 7/1/01 582,296
1,000,000 Phoenix GO, Series 1995 B,
5.00%, 7/1/09 1,042,620
1,100,000 Phoenix Industrial Development
Auth. Single Family Mortgage
Rev., Series 1998 A, 6.60%,
12/1/29 (GNMA/FNMA/
FHLMC) 1,208,801
500,000 Phoenix Street and Highway Rev.,
5.95%, 7/1/00 520,655
1,000,000 Pima County GO, 4.50%, 7/1/13
(MBIA)(2) 963,850
1,000,000 Pima County Sewer Rev., 6.20%,
7/1/00 (FGIC) 1,045,910
1,000,000 Pima County Unified School
District No. 10 GO,
(Amphitheater), 7.00%, 7/1/05
(MBIA) 1,162,100
1,000,000 Pima County Unified School
District No. 12 GO, (Sunnyside),
5.50%, 7/1/09 (MBIA) 1,065,740
1,000,000 Puerto Rico Commonwealth GO,
5.75%, 7/1/11 (MBIA) 1,112,620
1,000,000 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 903,770
500,000 Puerto Rico Commonwealth
Infrastructure Financing Auth.
Special Tax Rev., Series 1998 A,
5.50%, 7/1/08 (AMBAC) 543,975
1,000,000 Salt River Project Agricultural
Improvement and Power District
Rev., Series 1993 B, 6.50%,
1/1/04 1,114,000
480,000 Scottsdale GO, 7.50%, 7/1/02 541,224
1,275,000 Tempe GO, 6.25%, 7/1/05 1,428,778
See Notes to Financial Statements
www.americancentury.com 9
Arizona Int.-Term--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
$ 525,000 Tucson Certificates of
Participation, 5.70%, 7/1/02(3) $ 532,324
200,000 Tucson Street and Highway Rev.,
4.50%, 7/1/98 200,114
1,000,000 Tucson Street and Highway Rev.,
5.70%, 7/1/01(3) 1,049,490
500,000 Yavapai County Unified School
District No. 28 GO, (Camp
Verde), 6.10%, 7/1/04 (FGIC) 551,680
1,000,000 Yuma GO, 5.00%, 7/1/09
(AMBAC) 1,045,460
------------------
TOTAL INVESTMENT SECURITIES--100.0% $39,303,498
==================
(Cost $38,070,934)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
GO = General Obligation
MBIA = MBIA Insurance Corp.
(1) Escrowed to maturity in U.S. Government securities or state and local
government securities.
(2) When-issued security.
(3) Security, or a portion thereof, has been segregated at the custodian bank
for when-issued securities.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
10 1-800-345-2021
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
MAY 31, 1998
ASSETS
Investment securities, at value
(identified cost of $38,070,934)
(Note 3) ............................................... $39,303,498
Cash ...................................................... 432,584
Receivable for investments sold ........................... 1,000,000
Interest receivable ....................................... 845,593
-----------
41,581,675
-----------
LIABILITIES
Payable for investments
purchased ............................................... 1,458,562
Payable for capital shares
redeemed ................................................ 48,183
Dividends payable ......................................... 10,430
Accrued management fees
(Note 2) ................................................ 17,021
Payable for trustees' fees
and expenses ............................................ 143
-----------
1,534,339
-----------
Net Assets ................................................ $40,047,336
===========
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ................................... 3,753,594
===========
Net Asset Value Per Share ................................. $ 10.67
===========
NET ASSETS CONSIST OF:
Capital paid in ........................................... $38,731,162
Accumulated undistributed
net realized gain on
investment transactions ................................. 83,610
Net unrealized appreciation
on investments (Note 3) ................................. 1,232,564
-----------
$40,047,336
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
income not yet paid to shareholders; net gains earned on investment activity but
not yet paid to shareholders or net losses on investment activity (known as
realized gains or losses); and gains or losses on securities still owned by the
fund (known as unrealized appreciation or depreciation). This breakout tells you
the value of net assets that are performance-related, such as investment gains
or losses, and the value of net assets that are not related to performance, such
as shareholder investments and redemptions.
See Notes to Financial Statements
www.americancentury.com 11
Statement of Operations
- -----------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998
INVESTMENT INCOME
Income:
Interest ................................................. $ 1,747,687
-----------
Expenses (Note 2):
Investment advisory fees ................................. 179,507
Printing and postage ..................................... 11,971
Custodian fees ........................................... 5,525
Administrative fees ...................................... 4,889
Registration and filing fees ............................. 3,497
Transfer agency fees ..................................... 3,255
Trustees' fees and expenses .............................. 2,345
Auditing and legal fees .................................. 1,081
Organizational expenses .................................. 168
Other operating expenses ................................. 2,810
-----------
Total expenses ......................................... 215,048
Amount waived ............................................ (21,161)
-----------
Net expenses ........................................... 193,887
-----------
Net investment income .................................... 1,553,800
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ......................... 247,543
Change in net unrealized
appreciation on investments ............................ 622,539
-----------
Net realized and unrealized
gain on investments .................................... 870,082
-----------
Net Increase in Net Assets
Resulting from Operations .............................. $ 2,423,882
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* investment advisory fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
12 1-800-345-2021
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
YEARS ENDED MAY 31, 1998 AND MAY 31, 1997
Increase in Net Assets
1998 1997
OPERATIONS
Net investment income .................... $ 1,553,800 $ 1,207,103
Net realized gain on investments ......... 247,543 12,678
Change in net unrealized
appreciation on investments ............ 622,539 303,847
------------ ------------
Net increase in net assets
resulting from operations .............. 2,423,882 1,523,628
------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ............... (1,553,800) (1,207,103)
From net realized gains on
investment transactions ................ (163,355) --
------------ ------------
Decrease in net assets
from distributions ..................... (1,717,155) (1,207,103)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................ 18,049,886 15,353,294
Proceeds from reinvestment
of distributions ....................... 1,285,629 917,406
Payments for shares redeemed ............. (10,549,469) (11,821,630)
------------ ------------
Net increase in net assets from
capital share transactions ............. 8,786,046 4,449,070
------------ ------------
Net increase in net assets ............... 9,492,773 4,765,595
NET ASSETS
Beginning of year ........................ 30,554,563 25,788,968
------------ ------------
End of year .............................. $ 40,047,336 $ 30,554,563
============ ============
TRANSACTIONS IN
SHARES OF THE FUND
Sold ..................................... 1,695,769 1,472,637
Issued in reinvestment
of distributions ....................... 120,777 88,040
Redeemed ................................. (989,926) (1,134,039)
------------ ------------
Net increase ............................. 826,620 426,638
============ ============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions results in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 13
Notes to Financial Statements
- -----------------------------------------------------------------------------
MAY 31, 1998
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 eight 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 Arizona intermediate-term municipal obligations. 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 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
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 income taxes
Distributions to Shareholders--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized capital
gains are declared and paid annually. For the year ended May 31, 1998, 100%
(unaudited) of the Fund's distributions from net investment income have been
designated as exempt from federal income tax.
The character of distributions made during the year from net investment
income or net realized capital gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect the
differing character of certain income items and net capital gains and losses for
financial statement and tax purposes and may result in reclassification among
certain capital accounts.
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
contracts 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, 1998.
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.
Additional Information--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
14 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The shareholders of the Fund approved a new management agreement with
American Century Investment Management, Inc. (ACIM) on July 30, 1997, effective
August 1, 1997, which replaced the previously existing contracts between the
Fund and Benham Management Corporation and American Century Services Corporation
(ACSC) for advisory, administrative and transfer agency services. Under the
agreement, ACIM provides all services required by the Fund in exchange for a
single, unified management fee. Expenses excluded from this agreement are
brokerage, taxes, portfolio insurance, interest, fees and expenses of those
Trustees who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses. The annual rate at which this fee is assessed is determined monthly in
a two-step process: First, a fee rate schedule is applied to the net assets of
all of the funds in the Fund's investment category which are managed by ACIM
(the "Investment Category Fee"). The overall investment objective of each Fund
determines its Investment Category. The three investment categories are: the
Money Market Fund Category, the Bond Fund Category, and the Equity Fund
Category. The Fund is included in the Bond Fund Category. Second, a separate fee
rate schedule is applied to the net assets of all of the funds managed by ACIM
(the "Complex Fee"). The Investment Category Fee and the Complex Fee are then
added to determine the unified management fee rate. The management fee is paid
monthly by the Fund based on its aggregate average daily net assets during the
previous month multiplied by the monthly management fee rate.
The annualized Investment Category Fee schedule for the Fund is as follows
0.2800% of the first $1 billion
0.2280% of the next $1 billion
0.1980% of the next $3 billion
0.1780% of the next $5 billion
0.1650% of the next $15 billion
0.1630% of the next $25 billion
0.1625% of the average daily net assets over $50 billion
The annualized Complex Fee schedule is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
Management fees of $156,789 were incurred under the new management
agreement and included in Investment Advisory Fees in the Statement of
Operations. Expenses, net of the amount waived, and the annualized ratio of
operating expenses to average net assets, under the previous agreement, for the
two months ended July 31, 1997 were $35,089 and 0.67%, respectively.
Certain officers and trustees of the Trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Trust's investment manager, ACIM, and the
Trust's transfer agent, ACSC.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of municipal debt obligations, excluding short-term
investments, totaled $22,872,224 and $13,874,290, respectively.
As of May 31, 1998, accumulated net unrealized appreciation was $1,232,564,
which consisted of unrealized appreciation of $1,238,048, and unrealized
depreciation of $5,484. The aggregate cost of investments for federal income tax
purposes was the same as the cost for financial reporting purposes.
www.americancentury.com 15
<TABLE>
<CAPTION>
Arizona Int.-Term--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
1998 1997 1996 1995 1994(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ........... $ 10.44 $ 10.31 $ 10.35 $ 10.13 $ 10.00
Income From Investment
Operations
Net Investment Income ......... 0.46 0.45 0.51 0.51 0.07
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions .................. 0.28 0.13 (0.03) 0.22 0.13
Total From Investment
Operations .................... 0.74 0.58 0.48 0.73 0.20
Distributions
From Net Investment Income .... (0.46) (0.45) (0.51) (0.51) (0.07)
From Net Realized Gains
on Investment Transactions .... (0.05) -- (0.01) -- --
Total Distributions ........... (0.51) (0.45) (0.52) (0.51) (0.07)
Net Asset Value, End of Period .. $ 10.67 $ 10.44 $ 10.31 $ 10.35 $ 10.13
Total Return(2) ............... 7.19% 5.77% 4.65% 7.52% 1.99%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......... 0.54% 0.66% 0.14% -- --
Ratio of Operating Expenses to
Average Net Assets
(Before Expense Waiver) ...... 0.60% 0.79% 0.82% 1.01% 2.33%(3)
Ratio of Net Investment Income
to Average Net Assets ......... 4.33% 4.35% 4.85% 5.16% 5.08%(3)
Ratio of Net Investment Income to
Average Net Assets
(Before Expense Waiver) ...... 4.27% 4.22% 4.17% 4.15% 2.75%(3)
Portfolio Turnover Rate ......... 39% 81% 36% 33% 18%
Net Assets, End of Period
(in thousands) ............... $ 40,047 $ 30,555 $ 25,789 $ 19,778 $ 7,187
</TABLE>
(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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This page itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years (or less, if the fund is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming
reinvestment of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced
See Notes to Financial Statements
16 1-800-345-2021
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Board of Trustees of the
American Century Municipal Trust
and Shareholders of American Century - Benham
Arizona Intermediate-Term Municipal Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the American Century - Benham Arizona
Intermediate-Term Municipal Fund (one of the funds constituting the American
Century Municipal Trust, hereafter referred to as the "Fund") at May 31, 1998,
the results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles. The statement of changes in net assets for the year ended
May 31, 1997 and the financial highlights for each of the four years in the
period ended May 31, 1997 were audited by other auditors, whose report, dated
July 7, 1997, expressed an unqualified opinion on those statements. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at May 31,
1998 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 16, 1998
www.americancentury.com 17
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies:
ARIZONA INTERMEDIATE-TERM MUNICIPAL 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 5-10 years.
Depending on your tax status, investment income may be subject to the
federal alternative minimum tax. Capital gains are not exempt from federal
income tax.
COMPARATIVE INDICES
The following index is used in the report to serve as fund performance
comparisons. 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 5-10 years and which are exempt from taxation on a specified city or state
basis.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. Ratings are based on an issuer's financial
strength and ability to pay interest and principal in a timely manner.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
Securities rated AAA, AA, A or BBB are considered "investment grade,"
meaning they're relatively safe from default.
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS:
COLLEEN DENZLER
KEN SALINGER
MUNICIPAL CREDIT RESEARCH DIRECTOR:
STEVEN PERMUT
18 1-800-345-2021
Glossary
- -----------------------------------------------------------------------------
RETURNS
* 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.
* 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 16.
YIELDS
* 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.
* TAX-EQUIVALENT YIELDS show the taxable yields that investors in a combined
federal and Arizona state income tax bracket would have to earn before taxes to
equal the fund's tax-free yield.
INVESTMENT TERMS
* 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%).
* 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
* NUMBER OF SECURITIES--the number of different securities issuances held by a
fund on a given date.
* 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.
* 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.
* 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. (See Note 2 in
the Notes to Financial Statements.)
TYPES OF MUNICIPAL SECURITIES
* 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.
* GO BONDS--general obligation securities backed by the taxing power of the
issuer.
* LAND-SECURED BONDS--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
* 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.
* 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).
www.americancentury.com 19
Notes
- -----------------------------------------------------------------------------
20 1-800-345-2021
(inside back cover)
[american century logo(reg.sm)]
American
Century(reg.tm)
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
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution
to prospective investors unless preceded or accompanied by an effective
prospectus.
(C) 1998 American Century Services Corporation Funds Distributor, Inc.
[recycled logo]
Recycled
[back cover]
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
American Century Investments Bulk Rate
P.O. Box 419200 U.S. Postage Paid
Kansas City, MO 64141-6200 American Century
www.americancentury.com Companies
9807 (C)1998 American Century Services Corporation
SH-BKT-13100 Funds Distributor, Inc.
<PAGE>
/front cover/
May 31, 1998
Annual Report
- -------------
American Century
[graphic of U.S. currency and two individuals walking up stairs]
Benham Group
- ------------
Florida Municipal Money Market
[american century logo(reg.sm)]
American
Century(reg.tm)
/inside front cover/
A Note from the Founder
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in tern, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very
good information, from fund statistics and financials to Q&A's with fund
managers. We hope the new design will make the reports more interesting and
understandable, while helping you keep abreast of your fund's strategy and
performance.
What's New
The reports are designed to be attractive and easy to use whether you're
reading them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
The Bottom Line
The new design actually costs slightly less than the old one. We
reallocated costs and eliminated a cover letter and the envelope that previously
came with your report enclosed. This not only saves money but reduces the number
of mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-
friendly publication.
We hope you enjoy it.
[left margin]
Benham Group
Florida Municipal Money Market
(BEFXX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
Our Message to You
- -----------------------------------------------------------------------------
/photo of James E. Stowers III, seated, with James E. Stowers, Jr. /
James E. Stowers III, seated, with James E. Stowers, Jr.
The year ended May 31, 1998, was a period of relative stability for
short-term interest rates. The Federal Reserve didn't change the federal funds
rate target, a key money market benchmark, when inflation remained low and U.S.
economic growth was tempered by the Asian economic crisis. As a result, supply
and demand factors had more influence on the municipal money market than
interest rate movements.
Florida Municipal Money Market continued to provide more state and federal
tax-exempt income than its peers. We accomplished this by keeping expenses low
and buying short-term municipal securities at favorable prices created by supply
and demand fluctuations. The solid efforts of our municipal investment and
credit research teams were clearly reflected in Florida Municipal Money Market's
performance.
Turning to the corporate front, we've had an eventful year at American
Century. We gained a powerful business partner in January when J.P. Morgan
became a substantial minority shareholder. Another significant event was the
retirement of Jim Benham, founder of the Benham Group, in December.
Overall, we've had a noteworthy record of continuity in the management of
American Century's tax-free and municipal funds. The investment team that
manages Florida Municipal Money Market has expanded its resources and hasn't
experienced any portfolio manager turnover since Benham merged with American
Century. The team's approach still adheres to investment philosophies that Jim
Benham helped develop during his 25 years as a mutual fund manager, but also
benefits from new technology and resources that the merger with American Century
made possible. The fund has performed well, exemplifying the quality of the
tools we aim to provide to investors to help them meet their financial goals.
If you'd like to learn more about your investments or about personal
finance topics such as Roth IRAs or diversification, we have many free
educational brochures and booklets available by mail. You can also get
educational information by giving us a call or visiting our Web site
(www.americancentury.com). We've recently added several new features to the
site, including retirement investing calculators and online investment tracking.
We're committed to making your relationship with us as easy and productive as
possible.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER CHIEF EXECUTIVE OFFICER
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Services Update ........................................................ 3
FLORIDA MUNICIPAL MONEY MARKET
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Schedule of Investments ................................................ 7
FINANCIAL STATEMENTS
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
Report of Independent
Accountants .......................................................... 16
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ....................................................... 17
Lipper Rankings ...................................................... 17
Credit Rating
Information ........................................................ 17
Investment and Credit
Research Teams ..................................................... 17
Glossary ............................................................... 18
www.americancentury.com 1
Report Highlights
- -----------------------------------------------------------------------------
MANAGEMENT Q&A
* Florida Municipal Money Market continued to provide a higher level of
tax-exempt income than its peers. Low expenses, the investment team's value
strategy and the credit research team's efforts boosted the fund's
performance.
* As of February 1998, Florida Municipal Money Market no longer owned
securities backed by Japanese banks. These securities offer higher yields but
we believe the risks are inappropriate for a conservative money fund.
* We monitored seasonal supply and demand factors governing yields for
municipal securities, as well as relative valuation measures, to determine
security selection. We typically choose between variable- rate demand notes
and one-year municipal notes, depending on which type of security offers the
most attractive yield.
* The Florida economy remains very strong. Even if economic conditions
weakened, most Florida tax-free municipal securities would not be susceptible
to changes in the local economy. They are backed by letters of credit from
banks with operations that extend well beyond the state.
* We do not anticipate any major changes in interest rates in the near future,
so we continue to focus on seasonal supply and demand factors in the
marketplace, as well as credit quality.
[left margin]
"AS OF FEBRUARY 1998, FLORIDA MUNICIPAL MONEY MARKET NO LONGER OWNED SECURITIES
BACKED BY JAPANESE BANKS. THESE SECURITIES OFFER HIGHER YIELDS BUT WE BELIEVE
THE RISKS ARE INAPPROPRIATE FOR A CONSERVATIVE MONEY FUND."
FLORIDA MUNICIPAL
MONEY MARKET (BEFXX)
TOTAL RETURNS: AS OF 5/31/98
6 Months 1.62%*
1 Year 3.31%
NET ASSETS: $109.7 million
7-DAY CURRENT YIELD: 3.26%
INCEPTION DATE: 4/11/94
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on page 18.
2 1-800-345-2021
Services Update
- -----------------------------------------------------------------------------
We get many questions from money market investors about our services. Here
are answers to several frequently asked questions.
IS THERE A FEE FOR WRITING CHECKS AGAINST MY MONEY MARKET FUND?
No. You can write as many checks as you want at no charge, as long as each
one is for $100 or more.
BESIDES WRITING A CHECK, HOW ELSE CAN I ACCESS MY MONEY?
There are a couple of easy ways. First, we can send a check directly to you
at your address of record. All you need to do is give us a call or write us a
letter requesting the check, and we'll send it right out to you.
We can also make automatic deposits from your money market fund to your
bank account. Just make sure we have all of your bank information on file, and
then give us a call to request a direct transfer.
IS THERE A LIMIT TO THE NUMBER OF EXCHANGES I CAN MAKE OUT OF MY MONEY MARKET
FUND?
No. Exchanges involve moving money from one American Century fund to
another. Although there is a limit of six exchanges per calendar year out of our
bond and stock funds, there is no limit for money market funds.
Exchanges can be made by:
* calling an Investor Services representative (1-800-345-2021)
* dialing into our Automated Information Line (1-800-345-8765)*
* writing us a letter
* connecting to our Web site
(www.americancentury.com)*
You can also make exchanges through our Automatic Exchange plan or Open
Order service.
HOW DO OPEN ORDERS WORK?
Open Orders enable you to buy or sell shares in a mutual fund automatically
at a price you designate. Here's how it works:
* To Buy--select a fund in which you wish to invest and specify a price at
which you'd like to buy shares. Because the object is to buy low, the price
you specify must be at or below the fund's last closing price. If the
fund's price closes at or below your specified price, we will automatically
move the amount you designated from your money market fund into an account
in the fund you selected.
* To Sell--select a fund in which you own shares and specify a price at which
you'd like to sell them. Because the object is to sell high, the price you
specify must be at or above the fund's last closing price (we can't place
stop-loss orders). If the fund's price closes at or above your specified
price, we'll sell the number of shares you designated and move the proceeds
into your money market account.
Some other notes about Open Orders:
* Open Orders last for a maximum of 90 days and may be canceled or extended
whenever you choose.
* Once you've placed, canceled, or modified your Open Order, we'll send a
letter confirming your decision to your address of record.
IF YOU HAVE ANY QUESTIONS ABOUT OUR SERVICES, CALL US TOLL FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE (WWW.AMERICANCENTURY.COM).
* Requires shareholder authorization.
[right margin]
Accessing your money. . .
WE CAN SEND A CHECK DIRECTLY TO YOU AT YOUR ADDRESS OF RECORD. ALL YOU NEED TO
DO IS GIVE US A CALL OR WRITE US A LETTER REQUESTING THE CHECK. WE CAN ALSO MAKE
AUTOMATIC DEPOSITS FROM YOUR MONEY MARKET FUND TO YOUR BANK ACCOUNT.
www.americancentury.com 3
<TABLE>
<CAPTION>
Florida Muni. Money Mkt.--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
INCEPTION 4/11/94
FLORIDA MUNICIPAL OTHER STATES TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
6 MONTHS(1) ............. 1.62% 1.56% --
1 YEAR .................. 3.31% 3.21% 13 OUT OF 33
- -------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS ................. 3.57% 3.23% 1 OUT OF 27
LIFE OF FUND ............ 3.58% 3.23%(3) 1 OUT OF 17(3)
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
(3) Since 4/30/94, the date nearest the fund's inception for which return data
are available.
</TABLE>
See pages 17-18 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
5/31/98 5/31/97
NUMBER OF SECURITIES 45 50
WEIGHTED AVERAGE
MATURITY 54 DAYS 48 DAYS
EXPENSE RATIO 0.51%(+) 0.12%*
* Until December 31, 1996, the fund's management fees were waived by Benham
Management Corporation. Beginning January 1, 1997, management fees were
phased in at a rate of 0.10% each month until a rate of 0.61% was reached.
+ On August 1, 1997, a new management agreement with American Century
Investment Management, Inc. went into effect. The agreement reduced
management fees to approximately 0.50%.
YIELDS AS OF MAY 31, 1998
7-DAY CURRENT YIELD
3.26%
7-DAY EFFECTIVE YIELD
3.31%
7-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 4.53%
31.0% TAX BRACKET 4.72%
36.0% TAX BRACKET 5.09%
39.6% TAX BRACKET 5.40%
Past performance does not guarantee future results.
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.
4 1-800-345-2021
Florida Muni. Money Mkt.--Q&A
- -----------------------------------------------------------------------------
An interview with Bryan Karcher, a portfolio manager on the Florida
Municipal Money Market fund investment team.
HOW DID FLORIDA MUNICIPAL MONEY MARKET PERFORM DURING THE FISCAL YEAR ENDED MAY
31, 1998?
Florida Municipal Money Market continued to provide a higher level of
tax-exempt income than the average state-specific tax-free money market fund.
The fund's total return was 3.31%, compared with the 3.21% average return of the
33 "Other States Tax-Exempt Money Market Funds" tracked by Lipper Analytical
Services. (See the Total Returns table on the previous page for other fund
performance comparisons.)
A major reason for the high total return was our decision in August 1997 to
cut management expenses from 61 basis points to approximately 50 (0.61% to 0.50%
- ---a basis point equals 0.01%). The lower expense ratio directly benefits
shareholders because we're delivering the same strong performance, but at a
reduced cost. Other things being equal, lower expenses mean higher returns and
yields for our shareholders.
WHAT CHANGES DID YOU MAKE IN FLORIDA MUNICIPAL MONEY MARKET'S PORTFOLIO DURING
THE YEAR?
We reduced our exposure to the troubled Japanese financial system; as of
February 1998, the fund no longer owned securities backed by Japanese banks. The
Japanese banking system has suffered from a lengthy domestic recession and
non-performing real estate loans. Securities backed by Japanese banks offer
higher yields, but we believe the risks are inappropriate for a conservative
money fund. Our strict credit criteria limits us to top-rated securities, even
if that means sacrificing yield.
We also used our value strategy to shift between variable-rate demand notes
(VRDNs--securities that track market interest rates and stabilize their market
values using daily or weekly interest rate adjustments) and other short-term
municipal securities.
PLEASE DESCRIBE YOUR VALUE STRATEGY.
Because the short-term municipal market is greatly affected by seasonal
supply and demand factors, one-year municipal note yields fluctuate
significantly, but somewhat predictably, through the year. For example, in April
investors remove a lot of money from tax-exempt money market funds to pay taxes.
As a result, there is less demand for short-term municipal securities and yields
tend to rise.
In contrast, demand is higher and yields are lower in January when
investors look to reinvest cash they've received from bond interest and
principal payments. In April 1998, for example, yields on one-year notes reached
3.75%, up from about 3.50% in January. We're more likely to buy one-year
securities in April to lock in higher yields.
We also compare one-year municipal note yields to the yields on one-year
Treasury notes. We generally consider municipal notes attractive when their
yield exceeds 70% of the one-year Treasury note yield. In February, one-year
muni yields were 3.55% (about 66% of Treasury yields) but reached 3.75% (70% of
Treasury yields) by the week of April 15.
Our final value indicator is the yield on VRDNs as a percentage of the
federal funds rate target, the overnight inter-bank lending rate set by the
[right margin]
"FLORIDA MUNICIPAL MONEY MARKET CONTINUED TO PROVIDE A HIGHER LEVEL OF
TAX-EXEMPT INCOME THAN THE AVERAGE STATE-SPECIFIC TAX-FREE MONEY MARKET FUND."
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
Commercial Paper 3%
Bonds less than 1 Year 24%
Other 3%
VRDNs 70%
AS OF NOVEMBER 30, 1997
Municipal Notes 4%
Commercial Paper 5%
Bonds less than 1 Year 12%
Other 12%
VRDNs 67%
Security types are defined on page 18.
www.americancentury.com 5
Florida Muni. Money Mkt.--Q&A
- -----------------------------------------------------------------------------
(Continued)
Federal Reserve (the Fed). We examine the historical averages of this
percentage. VRDNs often have attractive yields, but we can use their historical
relationship with the fed funds rate target to anticipate when one-year notes
might have a temporary yield advantage that make them a better buy.
WHAT IS THE FLORIDA INTANGIBLES TAX?
The intangibles tax is $2 per $1,000 in value on any financial assets in an
investment portfolio at the end of a calendar year. Certain investments are
exempt, such as most Florida municipal securities and U.S. Treasurys. We're very
careful not to have any securities in the portfolio that would be subject to the
intangibles tax because we realize the importance to our shareholders of
avoiding it.
HOW DOES FLORIDA'S ECONOMY LOOK?
Bolstered by tourism, increasing trade with Latin America, high technology,
financial services and a booming housing market, the Florida economy remains
very strong. However, most tax-free municipal securities are not susceptible to
changes in the local economy. They are backed by letters of credit from banks
with operations that extend well beyond Florida. Even if the Florida economy
weakened, it's not likely to affect the creditworthiness of the backing banks,
most of which have national and even international operations. In addition,
recent bank mergers in Florida, such as the combination of NationsBank with
Barnett, have strengthened the credit quality of the surviving institutions.
Both NationsBank and Barnett have issued letters of credit that back securities
in Florida Municipal Money Market.
WHAT IS YOUR OUTLOOK FOR INTEREST RATES OVER THE NEXT SIX MONTHS?
The economy continues to be healthy and there's been very little inflation.
Although there was some concern earlier in the year that the Fed would raise
interest rates to slow the economy, the worsening situation in Asia has taken
the pressure off the Fed to act. We do not anticipate any major changes in
interest rates in the near future, so we continue to focus on seasonal supply
and demand factors in the marketplace.
HOW WILL YOU MANAGE FLORIDA MUNICIPAL MONEY MARKET OVER THE NEXT SIX MONTHS?
Credit quality will remain our number one concern, and we will focus on
buying securities in the highest credit ratings. In addition, we will continue
to compare the relative values (yields) between one-year notes and weekly VRDNs,
buying the one-year securities when there is sufficient additional yield.
[left margin]
"CREDIT QUALITY WILL REMAIN OUR NUMBER ONE CONCERN, AND WE WILL FOCUS ON BUYING
SECURITIES IN THE HIGHEST CREDIT RATINGS."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/98 11/30/97
SP1+ 90% 76%
SP1 10% 24%
SP1+ and SP1 are Standard & Poor's highest credit ratings for short-term
municipal securities. See Credit Rating Information on page 17 for more
information.
6 1-800-345-2021
Florida Muni. Money Mkt.--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
$5,000,000 Alachua County Industrial
Development Rev., (Florida Rock
Industries Income Project),
VRDN, 3.90%, 6/4/98 (LOC:
Bank of America N.T. & S.A.) $ 5,000,000
5,000,000 Broward County Housing Finance
Auth. Multifamily Housing Rev.,
Series 1990 A, (Palm Aire
Oxford), VRDN, 4.00%, 6/3/98
(SBBPA: Continental Casualty
Co.) 5,000,000
2,270,000 Broward County Industrial
Development Rev., (Fast Real
Estate Partners), VRDN, 4.00%,
6/3/98 (LOC: Suntrust Bank
South Florida, N.A.) 2,270,000
2,500,000 Broward County Industrial
Development Rev., (HEICO),
VRDN, 4.00%, 6/3/98 (LOC:
Suntrust Bank South Florida,
N.A.) 2,500,000
2,420,000 Broward County Industrial
Development Rev., (MDR
Fitness Project), VRDN, 4.00%,
6/3/98 (LOC: Suntrust Bank,
Miami, N.A.) 2,420,000
2,000,000 Broward County Industrial
Development Rev., (W.R. Bonsal
Co.), VRDN, 4.05%, 6/4/98
(LOC: Nationsbank, N.A.) 2,000,000
3,460,000 Coral Springs Industrial
Development Rev., (Royal
Plastics Group Project), VRDN,
4.00%, 6/3/98 (LOC: Suntrust
Bank South Florida, N.A.) 3,460,000
1,000,000 Dade County Aviation Rev., Series
1996 A, 5.00%, 10/1/98
(MBIA) 1,004,196
3,000,000 Dade County Housing Finance
Auth. Single-Family Rev., Series
1997 C, 4.05%, 10/16/98
(GIC: FGIC Capital Markets) 3,000,000
1,000,000 Dade County Industrial
Development Auth. Rev.,
(Stephen M. Greene), VRDN,
4.05%, 6/3/98 (LOC: Suntrust
Bank, Miami, N.A.) 1,000,000
1,830,000 Escambia County Housing
Finance Auth. Single-Family
Mortgage Rev., VRDN, 4.04%,
6/4/98 (Liquidity: Merrill Lynch
& Co. Inc.) (Acquired 12/3/96,
Cost $1,830,000)(1) 1,830,000
Principal Amount Value
- -----------------------------------------------------------------------------
$7,320,000 Escambia County Housing
Finance Auth. Single-Family
Mortgage Rev., VRDN, 4.07%,
6/4/98 (Liquidity: Merrill Lynch
& Co. Inc.) (Acquired 4/9/98-
5/20/98, Cost $7,320,000)(1) $ 7,320,000
2,125,000 Florida Board of Education
Capital Outlay GO, 6.60%,
6/1/98 2,125,000
500,000 Florida Board of Education Capital
Outlay GO, Series 1995 B,
5.625%, 6/1/98 500,000
2,720,000 Florida Department of
Transportation GO, Series
1997 A, 6.40%, 7/1/98 2,725,714
4,650,000 Florida Housing Finance Agency Rev.,
(Ashley Lakes Project), VRDN,
4.00%, 6/3/98 (LOC:
Barclays Bank PLC) 4,650,000
4,500,000 Florida Housing Finance Agency Rev.,
(Caribbean Key),
VRDN, 3.95%, 6/3/98 (LOC:
KeyBank, N.A.) 4,500,000
6,800,000 Florida Housing Finance Agency
Rev., (Country Club Apartments),
VRDN, 4.25%, 6/1/98 (LOC:
Northern Trust Corp.) 6,800,000
2,500,000 Florida Housing Finance Agency Rev.,
(Heron Park Project), VRDN,
4.00%, 6/3/98 (LOC:
NationsBank N.A.) 2,500,000
2,000,000 Florida Housing Finance Agency Rev.,
(Tiffany Club),
VRDN, 3.95%, 6/3/98 (LOC:
NationsBank N.A.) 2,000,000
4,400,000 Florida Housing Finance Agency
Trust Receipts, Series 12,
VRDN, 4.10%, 6/3/98 (MBIA)
(SBBPA: Bank of New York) 4,400,000
3,000,000 Florida Housing Finance Corp.
Rev., Series 6, (Homeowner
Mortgage), 3.80%, 6/15/99
(GIC: FGIC Capital Markets) 3,000,000
1,800,000 Hillsborough County Aviation
Auth. Rev. Commercial Paper,
3.70%, 8/12/98 (LOC:
National Westminster Bank
PLC) 1,800,000
2,000,000 Indian River County Hospital
Commercial Paper, 3.65%,
8/12/98 (LOC: Kredietbank
N.V.) 2,000,000
900,000 Indian River County Industrial
Development Rev., (Florida
Convales), VRDN, 4.05%,
6/1/98 (LOC: Toronto
Dominion Bank) 900,000
See Notes to Financial Statements
www.americancentury.com 7
Florida Muni. Money Mkt.--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
$2,000,000 Jacksonville Electric Auth. Rev.
Water and Sewer, Series
1997 B, 4.00%, 10/1/98 $ 2,001,029
895,000 Jacksonville Health Facilities Auth.
Hospital Rev., Series 1997 A,
3.75%, 8/15/98 (MBIA) 895,000
1,000,000 Lake County Sales Tax Rev.,
5.125%, 12/1/98 (FGIC) 1,006,243
1,000,000 Marion County Housing Finance Auth.
Multifamily Rev., Series 1985 F,
(Paddock Place), VRDN,
3.95%, 6/4/98 (LOC:
Suntrust Bank, Atlanta, GA.) 1,000,000
810,000 Martin County Industrial
Development Auth. Rev., (R.F.
Labs, Inc.), VRDN, 4.00%,
6/3/98 (LOC: Suntrust Bank
Central Florida, N.A.) 810,000
300,000 Martin County Industrial
Development Auth. Rev., (Tampa
Farm Service, Inc.), VRDN,
4.00%, 6/3/98 (LOC: Suntrust
Bank Central Florida, N.A.) 300,000
1,800,000 Miami-Dade County Industrial
Development Auth. Rev.,
(Dutton Press), VRDN, 4.00%,
6/3/98 (LOC: Suntrust Bank,
Miami, N.A.) 1,800,000
200,000 Ocean Highway and Port Auth.
Rev., (1993 Remarketing),
VRDN, 3.85%, 6/3/98 (LOC:
ABN Amro Bank, N.A.) 200,000
1,700,000 Ocean Highway and Port Auth.
Rev., (1995 Remarketing),
VRDN, 3.85%, 6/3/98 (LOC:
ABN Amro Bank, N.A.) 1,700,000
1,000,000 Orange County Health Facility
Auth. Rev., (Adventist Health
System), VRDN, 3.80%,
6/4/98 (LOC: Rabobank) 1,000,000
1,050,000 Orange County Housing Finance
Auth. Multifamily Housing Rev.,
Series 1989 A, (Sundown
Association II), VRDN, 3.80%,
6/3/98 (LOC: Fleet Bank,
N.A.) 1,050,000
2,000,000 Pasco County School Board
Certificates of Participation,
VRDN, 3.85%, 6/4/98
(AMBAC) (SBBPA:
Landesbank Hessen-Thuringen
Girozentrale) 2,000,000
Principal Amount Value
- -----------------------------------------------------------------------------
$7,500,000 Pinellas County Housing Finance
Auth. Single Family Housing
Rev., 3.70%, 2/1/99 (GIC:
FGIC Capital Markets) $ 7,500,000
2,200,000 Pinellas County Industrial
Development Rev., (Better
Business Forms, Inc.), VRDN,
4.00%, 6/3/98 (LOC: Suntrust
Bank, Tampa Bay) 2,200,000
2,100,000 Pinellas County Industrial
Development Rev., (Hunter
Douglas Project), VRDN, 4.00%,
6/3/98 (LOC: ABN Amro
Bank N.V.) 2,100,000
1,910,000 Putnam County Development
Auth. Pollution Control Rev.,
(Seminole Electric), 3.50%,
9/15/98 (National Rural
Utilities Cooperative Finance
Corp.) 1,910,000
1,000,000 Sarasota County Utility System
Rev., Series 1996 A, 5.00%,
10/1/98 (FGIC) 1,003,814
2,275,000 Tampa Rev., Series 1998 A-3,
(Health Systems-Catholic
Health), 4.50%, 11/15/98
(MBIA) 2,283,819
825,000 Volusia County Housing Finance
Auth. Multifamily Housing Rev.,
Series 1985 H, (Sunpointe
Apartments), VRDN, 3.70%,
6/2/98 (LOC: KeyBank, N.A.) 825,000
1,845,000 Volusia County Industrial
Development Auth. Rev.,
(Daytona Plastix Inc.), VRDN,
4.00%, 6/3/98 (LOC: Suntrust
Bank Central Florida, N.A.) 1,845,000
------------------
TOTAL INVESTMENT SECURITIES--100.0% $108,134,815
==================
See Notes to Financial Statements
8 1-800-345-2021
Florida Muni. Money Mkt.--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
GIC = Guaranteed Investment Contract
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
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, 1998
(1) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may be sold only
to qualified institutional investors. The aggregate value of restricted
securities at May 31, 1998, was $9,150,000, which represented 8.3% of net
assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 9
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
MAY 31, 1998
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes)
(Note 1) ............................................. $108,134,815
Cash .................................................... 1,020,140
Interest receivable ..................................... 686,170
------------
109,841,125
------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................................ 7,226
Payable for capital shares
redeemed .............................................. 81,557
Dividends payable ....................................... 20,798
Accrued management
fees (Note 2) ......................................... 47,080
Payable for trustees'
fees and expenses ..................................... 143
------------
156,804
------------
Net Assets .............................................. $109,684,321
============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ................................. 109,684,321
============
Net Asset Value Per Share ............................... $ 1.00
============
NET ASSETS CONSIST OF:
Capital paid in ......................................... $109,684,321
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders);
income not yet paid to shareholders; and net gains earned on investment activity
but not yet paid to shareholders or net losses on investment activity (known as
realized gains or losses). This breakout tells you the value of net assets that
are performance-related, such as investment gains or losses, and the value of
net assets that are not related to performance, such as shareholder investments
and redemptions.
See Notes to Financial Statements
10 1-800-345-2021
Statement of Operations
- -----------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998
INVESTMENT INCOME
Income:
Interest ............................................... $ 4,350,020
-----------
Expenses (Note 2):
Investment advisory fees ............................... 564,438
Administrative fees .................................... 15,789
Printing and postage ................................... 11,787
Transfer agency fees ................................... 6,746
Auditing and legal fees ................................ 3,836
Trustees' fees and expenses ............................ 3,794
Custodian fees ......................................... 3,178
Organization expenses .................................. 219
Other operating expenses ............................... 2,272
-----------
Total expenses ....................................... 612,059
Amount waived .......................................... (17,730)
-----------
Net expenses ......................................... 594,329
-----------
Net investment income .................................. $ 3,755,691
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* investment advisory fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
See Notes to Financial Statements
www.americancentury.com 11
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
YEARS ENDED MAY 31, 1998 AND MAY 31, 1997
Increase (Decrease) in Net Assets
OPERATIONS 1998 1997
Net investment income .................. $ 3,755,691 $ 4,590,342
------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ............. (3,755,691) (4,590,342)
------------- -------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares sold .............. 282,351,887 211,673,148
Proceeds from reinvestment
of distributions ..................... 3,240,863 4,249,244
Payments for shares redeemed ........... (288,037,630) (203,786,255)
------------- -------------
Net increase (decrease) in
net assets from capital share
transactions ......................... (2,444,880) 12,136,137
------------- -------------
Net increase (decrease)
in net assets ........................ (2,444,880) 12,136,137
NET ASSETS
Beginning of year ...................... 112,129,201 99,993,064
------------- -------------
End of year ............................ $ 109,684,321 $ 112,129,201
============= =============
TRANSACTIONS IN
SHARES OF THE FUND
Sold ................................... 282,351,887 211,673,148
Issued in reinvestment
of distributions ..................... 3,240,863 4,249,244
Redeemed ............................... (288,037,630) (203,786,255)
------------- -------------
Net increase (decrease) ................ (2,444,880) 12,136,137
============= =============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions results in net
assets at the end of the period.
See Notes to Financial Statements
12 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
MAY 31, 1998
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 (the
Fund) is one of the eight Funds issued by the Trust. The Fund is non-diversified
under the 1940 Act. Its 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 by investing
primarily in short-term municipal obligations. The Fund concentrates its
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
Fund are in accordance with accounting policies generally accepted in the
investment company industry.
SECURITY VALUATIONS--Portfolio securities held by the Fund are valued at
amortized cost, which approximates current market value. 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
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 income taxes
DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income
are declared and credited daily and distributed monthly. The 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, 1998, 100% (unaudited) of the Fund's
distributions from net investment income have been designated as exempt from
federal income tax.
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.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
www.americancentury.com 13
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The shareholders of the Fund approved a new management agreement with
American Century Investment Management, Inc. (ACIM) on July 30, 1997, effective
August 1, 1997, which replaced the previously existing contracts between the
Fund and Benham Management Corporation and American Century Services Corporation
(ACSC) for advisory, administrative and transfer agency services. Under the
agreement, ACIM will provide all services required by the Fund in exchange for a
single, unified management fee. Expenses excluded from the agreement are
brokerage, taxes, portfolio insurance, interest, fees and expenses of those
Trustees' who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses. The annual rate at which this fee is assessed is determined monthly in
a two-step process: First, a fee rate schedule is applied to the net assets of
all of the funds in the Fund's investment category which are managed by ACIM
(the "Investment Category Fee"). The overall investment objective of each Fund
determines its Investment Category. The three investment categories are: the
Money Market Fund Category, the Bond Fund Category, and the Equity Fund
Category. The Fund is included in the Money Market Fund Category. Second, a
separate fee rate schedule is applied to the net assets of all of the funds
managed by ACIM (the "Complex Fee"). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee rate. The management
fee is paid monthly by the Fund based on its aggregate average daily net assets
during the previous month multiplied by the monthly management fee rate.
The annualized Investment Category Fee schedule is as follows:
0.2700% of the first $1 billion
0.2270% of the next $1 billion
0.1860% of the next $3 billion
0.1690% of the next $5 billion
0.1580% of the next $15 billion
0.1575% of the next $25 billion
0.1570% of the average daily net assets over $50 billion
The annualized Complex Fee schedule is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
Management Fees of $491,139 were incurred under the new management
agreement and are included in Investment Advisory Fees in the Statement of
Operations. Expenses, net of waiver, and the annualized ratio of operating
expenses to average net assets, under the previous agreement for the two months
ended July 31, 1997 were $99,743 and 0.59%, respectively.
Certain officers and trustees of the Trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Trust's investment manager, ACIM, and the
Trust's transfer agent, ACSC.
14 1-800-345-2021
<TABLE>
<CAPTION>
Florida Muni. Money Mkt.--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
1998 1997 1996 1995 1994(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ........... 0.03 0.03 0.04 0.04 --
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ...... (0.03) (0.03) (0.04) (0.04) --
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(2) ................. 3.31% 3.55% 3.86% 3.71% 0.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........... 0.51% 0.12% 0.01% -- --
Ratio of Operating Expenses to
Average Net Assets
(Before Expense Waiver) ........ 0.53% 0.66% 0.71% 0.88% 1.58%(3)
Ratio of Net Investment Income
to Average Net Assets ........... 3.25% 3.48% 3.75% 3.93% 2.99%(3)
Ratio of Net Investment Income
to Average Net Assets
(Before Expense Waiver) ......... 3.23% 2.94% 3.05% 3.05% 1.41%(3)
Net Assets, End of Period
(in thousands) .................. $ 109,684 $ 112,129 $ 99,993 $ 45,147 $ 5,565
</TABLE>
(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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years (or less, if the fund is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
See Notes to Financial Statements
www.americancentury.com 15
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Board of Trustees of the
American Century Municipal Trust
and Shareholders of American Century- Benham
Florida Municipal Money Market Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the American Century - Benham Florida
Municipal Money Market Fund (one of the funds constituting The American Century
Municipal Trust, hereafter referred to as the "Fund") at May 31, 1998, the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles. The statement of changes in net assets for the year ended
May 31, 1997 and the financial highlights for each of the four years in the
period ended May 31, 1997 were audited by other auditors, whose report, dated
July 7, 1997, expressed an unqualified opinion on those statements. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at May 31,
1998 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 16, 1998
16 1-800-345-2021
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific benchmark index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies
FLORIDA MUNICIPAL MONEY MARKET is a money market fund that seeks interest
income exempt from state and federal income taxes, as well as the Florida
intangibles tax, by investing 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.
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 category for the Florida Municipal Money Market fund is:
OTHER STATES TAX-EXEMPT MONEY MARKET FUNDS--funds that invest in
high-quality municipal obligations with dollar-weighted average maturities of
less than 90 days.
CREDIT RATING INFORMATION
Bond credit quality (the issuer's financial strength and the likelihood of
timely payment of interest and principal) is a key factor in bond investment
analysis. Credit ratings issued by independent rating and research companies
such as Standard & Poor's help quantify credit quality--the stronger the issuer,
the higher the credit rating. In turn, credit quality and ratings greatly
influence bond prices and yields--high ratings mean higher prices and less
current income (yield) as compensation for risk.
But credit ratings are subjective. They reflect the opinions of the rating
agencies that issue them and are not absolute standards of quality. Furthermore,
high credit ratings do not guarantee good investment performance. They do not
reflect the price stability of a municipal security when economic or market
conditions change.
[right margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGER:
BRYAN KARCHER
MUNICIPAL CREDIT RESEARCH TEAM
MANAGER:
STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS:
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
www.americancentury.com 17
Glossary
- -----------------------------------------------------------------------------
RETURNS
* 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.
* 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
* 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.
* 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.
* 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
* 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%).
* 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
* NUMBER OF SECURITIES--the number of different securities held by a fund on a
given date.
* 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.
* 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
* MUNICIPAL COMMERCIAL PAPER (CP)--high-grade short-term securities backed by a
line of credit from a bank.
* MUNICIPAL NOTES--securities with maturities of two years or less.
* VARIABLE-RATE DEMAND NOTES (VRDNS)--securities that track market interest
rates and stabilize their market values using periodic (daily or weekly)
interest rate adjustments.
18 1-800-345-2021
Notes
- -----------------------------------------------------------------------------
www.americancentury.com 19
Notes
- -----------------------------------------------------------------------------
20 1-800-345-2021
/inside back cover/
[american century logo(reg.sm)]
American
Century(reg.tm)
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
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution
to prospective investors unless preceded or accompanied by an effective
prospectus.
(C) 1998 American Century Services Corporation
Funds Distributor, Inc.
[recycled logo]
Recycled
/back cover/
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
American Century Investments Bulk Rate
P.O. Box 419200 U.S. Postage Paid
Kansas City, MO 64141-6200 American Century
www.americancentury.com Companies
9807 (C)1998 American Century Services Corporation
SH-BKT-13104 Funds Distributor, Inc.
<PAGE>
/front cover/
May 31, 1998
Annual Report
- -------------
American Century
[graphic of U.S. currency and two individuals walking up stairs]
Benham Group
- ------------
Florida Intermediate-Term Municipal
[american century logo(reg.sm)]
American
Century(reg.tm)
/inside front cover/
A Note from the Founder
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in tern, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
Why We Changed
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What's New
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New features include:
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The Bottom Line
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We believe we've come up with a more interesting, informative and user-
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We hope you enjoy it.
[left margin]
Benham Group
Florida Intermediate-Term Municipal
(ACBFX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
Our Message to You
- -----------------------------------------------------------------------------
/photo James E. Stowers, Jr. with James E. Stowers III, seated/
James E. Stowers, Jr. with James E. Stowers III, seated
U.S. municipal bonds provided price gains as well as tax-exempt interest
income to investors during the year ended May 31, 1998. Low inflation, economic
turmoil overseas, and healthy economic and credit conditions in the U.S. created
a favorable investment climate for municipal bonds. Florida Intermediate-Term
Municipal's positive return reflected this environment. In addition, Florida
Intermediate-Term Municipal produced a higher return than the average of its
peers, reflecting the solid efforts of our municipal investment and credit
research teams.
Turning to the corporate front, we've had an eventful year at American
Century. We gained a powerful business partner in January when J.P. Morgan
became a substantial minority shareholder. Another significant event was the
retirement of Jim Benham, founder of the Benham Group, in December.
Overall, we've had a noteworthy record of continuity in the management of
American Century's tax-free and municipal funds. The investment team that
manages Florida Intermediate-Term Municipal has expanded its resources and
hasn't experienced any portfolio manager turnover since the fund's inception.
The team's approach still adheres to investment philosophies that Jim Benham
helped develop during his 25 years as a mutual fund manager, but also blends in
new technology and resources that the merger with American Century made
possible. The American Century Tax-Free and Municipal funds have performed well
and serve as an example of the quality of the tools we aim to provide to
investors to help them meet their financial goals.
If you'd like to learn more about your investments or about personal
finance topics such as Roth IRAs or diversification, we have many free
educational brochures and booklets available by mail. You can also get
educational information on our Web site (www.americancentury.com). We've
recently added several new features to the site, including retirement investing
calculators and online investment tracking. We're committed to making your
relationship with us as easy and productive as possible.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER CHIEF EXECUTIVE OFFICER
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
Municipal Credit Review ................................................. 4
FLORIDA INTERMEDIATE-TERM MUNICIPAL
Performance Information ................................................. 5
Management Q&A .......................................................... 6
Schedule of Investments ................................................. 9
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ........................................................... 11
Statement of Operations ................................................. 12
Statements of Changes
in Net Assets ......................................................... 13
Notes to Financial
Statements ............................................................ 14
Financial Highlights .................................................... 16
Report of Independent
Accountants ........................................................... 17
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ........................................................ 18
Comparative Indices ................................................... 18
Lipper Rankings ....................................................... 18
Credit Rating
Guidelines .......................................................... 18
Investment Team
Leaders ............................................................. 18
Glossary ................................................................ 19
www.americancentury.com 1
Report Highlights
- -----------------------------------------------------------------------------
MUNICIPAL MARKET PERSPECTIVE
* Municipal securities produced moderate gains during the year ended May 31,
1998.
* As interest rates generally fell, the greater interest rate sensitivity of
long-term municipals allowed them to outperform short- and intermediate-term
ones.
* The majority of the market's gains occurred during the fourth quarter of
1997,when interest rates trended sharply lower because of low inflation
expectations.
* The near-record amount of municipal issuance and growing demand for Treasurys
caused the municipal market to underperform the Treasury market.
FLORIDA MUNICIPAL CREDIT REVIEW
* Florida municipal credit quality remained extremely sound during the year
ended May 31, 1998.
* The state's low unemployment and continued economic expansion were largely
responsible for its ongoing credit strength.
* Growing tourism, increasing trade with Latin America, and net in- migration
were all factors contributing to Florida's record low unemployment and
economic expansion.
* Going forward, a trend toward fewer new residents and Asian economic turmoil
could negatively impact Florida and its municipalities.
* Despite these potentially negative factors, our outlook for Florida's credit
quality remains optimistic.
* To help ensure that the municipal securities chosen for Florida
Intermediate-Term Municipal match our strict criteria, we recently expanded
our highly experienced credit team from four members to six.
MANAGEMENT Q&A
* Florida Intermediate-Term Municipal strongly outperformed both its peers and
its benchmark for the year ended May 31, 1998. The fund's three-year returns
were even stronger. (See Total Returns on page 5.)
* One reason behind the portfolio's solid performance was our use of swap
trades. In a typical swap, we exchange a security from the portfolio with one
that we believe is undervalued from a broker.
* Another reason for Florida Intermediate-Term Municipal's solid returns was
effective duration management. Duration measures a portfolio's sensitivity to
changes in interest rates.
* We purchased some Puerto Rican municipal bonds for the portfolio, and we
believe these securities should perform well if interest rates continue to
fall.
* We also used temporary inefficiencies in the municipal yield curve as
opportunities to buy undervalued securities.
* Our perspective on interest rates and the municipal market is generally
upbeat going forward.
* We will probably keep Florida Intermediate-Term Municipal's duration neutral
to slightly long compared with its peers for the near term. That should
enhance returns if municipal bond yields continue to decline, which we
believe they will.
[left margin]
"FLORIDA INTERMEDIATE-TERM MUNICIPAL STRONGLY OUTPERFORMED BOTH ITS PEERS AND
ITS BENCHMARK FOR THE YEAR ENDED MAY 31, 1998."
FLORIDA INTERMEDIATE-TERM
MUNICIPAL
(ACBFX)
TOTAL RETURNS: AS OF 5/31/98
6 Months 3.31%*
1 Year 8.20%
NET ASSETS: $29.6 million
30-DAY SEC YIELD: 3.96%
INCEPTION DATE: 4/11/94
* Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on page 19.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- -----------------------------------------------------------------------------
/photo of Randall W. Merk, director of fixed-income investing at American
Century/
Randall W. Merk, director of fixed-income investing at American Century
PERFORMANCE PICTURE
Municipal securities produced moderate gains during the year ended May 31,
1998. Economic turmoil in Asia helped cool inflationary pressures, pushing
municipal bond yields lower and prices higher. Long-term municipal bonds, which
are most sensitive to interest rate changes, outpaced intermediate- and
short-term municipal securities. For example, the Lehman Brothers Long-Term
Municipal Bond Index returned 11.67%, intermediate securities, represented by
the Lehman Brothers 5-Year General Obligation Index, returned 6.95% and the
short-term Merrill Lynch 0- to 3-Year Municipal Index posted a 4.96% return.
INTEREST RATE OVERVIEW
The majority of municipals' gains came in the fourth quarter of 1997, when
inflation expectations remained low and long-term interest rates trended
downward. In 1998, however, countervailing economic forces kept interest rates
and bond prices in a much narrower range. On one hand, the worsening Asian
economic crisis kept a lid on corporate America's ability to raise prices for
its goods and services. That put profit margins under pressure and took some of
the wind out of growing inflationary pressures. On the other hand, the U.S.
economy remained healthy enough to keep the job market growing at a historically
strong pace. Lacking a clear signal as to whether a weaker Asia or rising
domestic wages would ultimately win out, the Federal Reserve (the Fed) left
interest rates unchanged during the year.
INCREASED SUPPLY, FIRM DEMAND
The supply of municipals grew dramatically, thanks in large part to a
record-setting new municipal issue. In May, the Long Island Power Authority
issued $3.5 billion in municipal debt, the single largest municipal deal in
history. Scrambling to take advantage of low interest rates, other issuers
brought to market an enormous amount of new municipal securities. For the first
five months of 1998, new issue volume was up over 53% compared with the previous
year.
The demand for municipals, while remaining firm, didn't keep pace with the
growing appetite for U.S. Treasury bonds. Unlike the Treasury market, the
municipal market is not seen as a safe haven against international market
turmoil. The near-record amount of municipal issuance and the growing demand for
Treasury securities caused municipals to underperform Treasurys during the
period.
FLATTENING YIELD CURVE
Reflecting the stable interest rate policy from the Fed, short-term
interest rates remained relatively unchanged. However, yields on long-term
municipal securities fell about 50 basis points (a basis point equals 0.01%).
This resulted in the "flattening" yield curve shown in the accompanying graph.
The yield difference between a one-year note and a 30-year bond fell to just 128
basis points on May 31, 1998.
[right margin]
"SCRAMBLING TO TAKE ADVANTAGE OF LOW INTEREST RATES, OTHER ISSUERS BROUGHT TO
MARKET AN ENORMOUS AMOUNT OF NEW MUNICIPAL SECURITIES."
[line chart]
FLATTENING MUNICIPAL YIELD CURVE
5/31/97 5/31/98
YEARS TO MATURITY
1 3.85% 3.69%
2 4.15% 3.85%
3 4.35% 3.95%
4 4.50% 4.04%
5 4.60% 4.09%
6 4.66% 4.16%
7 4.72% 4.23%
8 4.78% 4.30%
9 4.84% 4.37%
10 4.90% 4.44%
11 4.98% 4.51%
12 5.05% 4.59%
13 5.13% 4.66%
14 5.20% 4.74%
15 5.28% 4.81%
16 5.31% 4.84%
17 5.34% 4.86%
18 5.36% 4.89%
19 5.39% 4.91%
20 5.42% 4.94%
21 5.43% 4.94%
22 5.43% 4.94%
23 5.44% 4.95%
24 5.44% 4.95%
25 5.45% 4.95%
26 5.45% 4.95%
27 5.46% 4.96%
28 5.46% 4.96%
29 5.47% 4.97%
30 5.47% 4.97%
Source: Bloomberg Financial Markets
"THE YIELD DIFFERENCE BETWEEN A ONE-YEAR NOTE AND A 30-YEAR BOND FELL TO JUST
128 BASIS POINTS ON MAY 31, 1998."
www.americancentury.com 3
Municipal Credit Review
- -----------------------------------------------------------------------------
CREDIT SNAPSHOT
Florida municipal credit quality remained extremely sound during the year
ended May 31, 1998. The state's low unemployment and continued economic
expansion were largely responsible for its ongoing credit strength.
SOLID EMPLOYMENT GAINS
In May 1998, the state's unemployment rate fell to a 25-year low of 4.4%,
roughly in line with record low unemployment nationally.
Driving Florida's unemployment lower and fueling expansion were a number of
influential factors. Growing tourism remained a pillar of strength for the
state's economy. Drawn by Florida's popularity as a vacation destination, a
record 44 million people visited the state during 1997. The burgeoning tourism
created high hotel occupancy, job growth at amusement parks, and construction
and staffing of new hotels.
Florida's increasing trade with Latin America also helped the state's
economy. Located in a geographically advantageous position, the state continued
to benefit from the growing economies of Latin America.
Yet another supporter of the state's economic expansion was net
in-migration, which has resulted in increased housing activity. In 1997, a
record 240,000 existing homes were sold, while more new homes were built than
during any of the preceding three years. New homes were most evident along the
state's southwestern coast.
DEVELOPING ISSUES
However, there are several developing issues that could dampen Florida's
future economic growth. One is a trend toward fewer new residents. Over the
previous several years, the state's population growth slowed to its lowest
levels since the mid-1940s. Partially behind this trend is a decline in the
national retiree population. While retiree population growth reached nearly 2%
per year during the 1980s, growth in the 1990s has been closer to 1.6%.
Forecasts for the turn of the century are for an even lower percentage of new
retirees. This trend could detrimentally impact several areas of Florida's
economy. Economic turmoil in Asia could also have a negative impact on the
state's economic strength by curtailing export business--approximately 25% of
Florida's exports are destined for Asia.
LOOKING FORWARD
Despite these potentially negative factors, our outlook for Florida's
credit quality remains optimistic. The state and its municipalities continue to
follow generally conservative fiscal practices. In addition, Florida benefits
from a moderate climate and housing prices that are favorable compared with
national averages. We will continue to keep a close watch on the issues
discussed and on other economic and legislative trends within the state.
To help ensure that the municipal securities chosen for Florida
Intermediate-Term Municipal match our strict criteria, we recently expanded our
highly experienced credit team from four members to six. We believe the
expansion improves our ability to find undervalued securities for the fund that
can potentially translate into higher returns for our shareholders.
[left margin]
"FLORIDA'S LOW UNEMPLOYMENT AND CONTINUED ECONOMIC EXPANSION WERE LARGELY
RESPONSIBLE FOR ITS ONGOING CREDIT STRENGTH."
MUNICIPAL CREDIT RESEARCH TEAM
DIRECTOR: STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS:
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
"TO HELP ENSURE THAT THE MUNICIPAL SECURITIES CHOSEN FOR FLORIDA
INTERMEDIATE-TERM MUNICIPAL MATCH OUR STRICT CRITERIA, WE RECENTLY EXPANDED OUR
HIGHLY EXPERIENCED CREDIT TEAM FROM FOUR MEMBERS TO SIX."
4 1-800-345-2021
<TABLE>
<CAPTION>
Florida Int.-Term--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
INCEPTION 4/11/94
FLORIDA INTERM.- LEHMAN 5-YEAR FLORIDA INTERM. MUNICIPAL DEBT FUNDS(2)
TERM MUNICIPAL GO INDEX AVERAGE RETURN FUND'S RANKING
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 MONTHS(1) ............. 3.31% 2.80% 3.05% --
1 YEAR .................. 8.20% 6.95% 7.31% 4 OUT OF 19
- ----------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS ................. 6.38% 5.92% 5.55% 2 OUT OF 15
LIFE OF FUND ............ 6.84% 6.17% 5.99%(3) 2 OUT OF 12(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
(3) Since 4/30/94, the date nearest the fund's inception for which return data
are available.
See pages 18-19 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain chart]
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made 4/30/94
Value on 5/31/98
Florida Intermediate- Lehman 5-Year
Term Municipal GO Index
$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 $12,049 $11,942
Jun-97 $12,195 $12,048
Jul-97 $12,448 $12,266
Aug-97 $12,365 $12,201
Sep-97 $12,504 $12,310
Oct-97 $12,562 $12,386
Nov-97 $12,619 $12,425
Dec-97 $12,773 $12,537
Jan-98 $12,892 $12,647
Feb-98 $12,897 $12,662
Mar-98 $12,907 $12,684
Apr-98 $12,842 $12,623
May-98 $13,036 $12,773
The chart at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The
Lehman 5-Year GO Index is provided for comparison in each chart. Florida
Intermediate-Term Municipal's returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the returns of
the index do not. 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.
[bar chart]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MAY 31)
Florida Intermediate- Lehman 5-Year
Term Municipal 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%
5/98 8.20% 6.95%
* From 4/30/94 (the date nearest the fund's inception for which index data are
available).
www.americancentury.com 5
Florida Int.-Term--Q&A
- -----------------------------------------------------------------------------
An interview with Dave MacEwen and Ken Salinger, portfolio managers on the
Florida Intermediate-Term Municipal fund's investment team.
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED MAY 31, 1998?
Florida Intermediate-Term Municipal strongly outperformed both the average
Florida intermediate municipal fund and its benchmark. The fund's total return
was 8.20%, notably higher than the 7.31% average return of the 19 "Florida
Intermediate Municipal Funds" tracked by Lipper Analytical Services. Florida
Intermediate-Term Municipal's return was also significantly higher than the
6.95% return of its benchmark. The fund's three-year performance was even
stronger, allowing it to finish second in its Lipper category. (See the Total
Returns table on the previous page for other fund performance comparisons.)
WHAT LED TO FLORIDA INTERMEDIATE-TERM MUNICIPAL'S OUTPERFORMANCE?
One way we continued to enhance returns was the effective use of swap
trades. In a typical swap, we exchange a security from the portfolio with one
from a broker that we believe is undervalued. These trades allow us to take
advantage of occasional market inefficiencies and provide a means to quickly
adjust the portfolio's structure. Overall, we believe swap trades are an
excellent way for us to add value to the fund.
Another reason for Florida Intermediate-Term Municipal's solid returns was
effective duration management. Duration measures a portfolio's sensitivity to
changes in interest rates. The longer a fund's duration, the more its share
price rises when rates fall, and the more it declines when rates rise.
Conversely, a shorter duration means a bond portfolio's price fluctuates less
when rates change.
HOW DID YOU MANAGE DURATION?
We remained conservative with our adjustments but generally kept duration
slightly long compared with Florida Intermediate-Term Municipal's peers. We
chose this strategy because we believed that interest rates would trend lower,
which they generally did for much of the period.
Recently we lengthened duration further by purchasing some discount bonds
(bonds that are priced below par value, usually because they have below-market
coupons) at the longer end of the portfolio's maturity spectrum. These
municipals were Puerto Rican general obligation bonds (GOs).
WHAT ARE GOS?
GOs are municipal securities backed by the full faith and credit of the
issuer. That means the issuer has pledged to do everything within its general
taxing power to honor the principal and interest payments the security
represents. The payments made to GO holders generally come from the taxing power
of the issuing municipality. GOs backed by property taxes, for instance, are
regarded by many as the safest type of municipal bonds.
[left margin]
"FLORIDA INTERMEDIATE-TERM MUNICIPAL STRONGLY OUTPERFORMED BOTH THE AVERAGE
FLORIDA INTERMEDIATE MUNICIPAL FUND AND ITS BENCHMARK."
YIELDS AS OF MAY 31, 1998
30-DAY SEC YIELD
3.96%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.50%
31.0% TAX BRACKET 5.74%
36.0% TAX BRACKET 6.19%
39.6% TAX BRACKET 6.56%
PORTFOLIO AT A GLANCE
5/31/98 5/31/97
NUMBER OF SECURITIES 45 34
WEIGHTED AVERAGE
MATURITY 8.5 YRS 7.8 YRS
AVERAGE DURATION 5.6 YRS 5.4 YRS
EXPENSE RATIO 0.54% 0.65%
Investment terms are defined in the Glossary on page 19.
6 1-800-345-2021
Florida Int.-Term--Q&A
- -----------------------------------------------------------------------------
(Continued)
WHAT MADE THE PUERTO RICO GOS ATTRACTIVE?
The Puerto Rico municipals we purchased were available at better prices
than available Florida municipals. Puerto Rico municipal securities have the
unique distinction of providing double tax-free income for investors in all 50
states. Because of this distinction, there is a great deal of nation wide demand
for these securities, especially in high-tax states such as New York and
California. These municipals are also exempt from Florida's intangibles tax. The
addition of these securities was also the predominant reason that the percentage
of GOs in the portfolio rose.
Overall, if rates continue to rally as we believe they will, these Puerto
Rico securities should appreciate nicely.
AS THE CHART ON PAGE 8 ILLUSTRATES, YOU MADE SOME CHANGES TO THE PORTFOLIO'S
CREDIT QUALITY. WHY?
Part of the change was the addition of the Puerto Rico securities, which
were rated A. In addition, we purchased some newly issued municipals from
Plantation Health Facilities in January. Generally speaking, Florida issues few
A rated municipals. When we found the Plantation municipals at attractive
prices, we carefully analyzed the facility's credit situation and decided to add
the securities to the portfolio. We believe these municipals provide a good
opportunity to add yield without taking undue risk. Our well-seasoned credit
staff was highly instrumental in the purchase of these securities.
IN WHAT OTHER WAYS DID YOU TRY TO ADD VALUE?
By using the municipal yield curve to the portfolio's advantage. A yield
curve graphically represents the relationship between the maturity and yield of
bonds (see the graph on page 3). Yields are represented along the vertical axis
and maturity along the horizontal.
Usually, a longer-maturity municipal security will have a higher yield than
a shorter-maturity one of the same credit quality. That's mainly because there
is less interest rate uncertainty in the near term than in the distant future.
When the market fits this scenario, the yield curve looks like a concave line
that slopes up and to the right, with longer-term municipals offering the most
yield.
However, as the graph on page 3 demonstrates, over the last year the yield
curve has flattened as yields on longer-term municipals have fallen, while
shorter-term ones have remained relatively constant.
WITH THOSE BASICS IN MIND, HOW DO YOU USE THE YIELD CURVE TO THE PORTFOLIO'S
ADVANTAGE?
Basically, we use the yield curve to determine which bond maturities are
offering the best risk-adjusted returns. We then look for securities in those
ranges that match our strict credit criteria and add them to the portfolio.
When making these purchases, we modify the portfolio's maturity
structure--the ratio of shorter- to longer-term municipals. During the latter
half of the period, the portfolio's maturity
[right margin]
"WE USE THE YIELD CURVE TO DETERMINE WHICH BOND MATURITIES ARE OFFERING THE BEST
RISK-ADJUSTED RETURNS. "
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
Prerefunded/ETM 1%
GOs 14%
Land-Secured 13%
Revenue Bonds 72%
AS OF NOVEMBER 30, 1997
Prerefunded/ETM 1%
GOs 7%
Land-Secured 16%
Revenue Bonds 76%
www.americancentury.com 7
Florida Int.-Term--Q&A
- -----------------------------------------------------------------------------
(Continued)
structure was mostly barbelled. That means the portfolio was heavily invested in
securities in the shorter and longer range of the portfolio's maturity spectrum,
while underweighting securities in the middle.
This structure tends to perform best when the yield curve flattens.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND MUNICIPAL BONDS GOING FORWARD?
Our perspective is generally upbeat. Inflation rose only at a 1.5% annual
rate for the first five months of this year. Asian turmoil should help keep U.S.
inflation within manageable levels--cheaper imports will help to restrain U.S.
manufacturers from raising prices. With no inflationary pressures on the
horizon, we believe interest rates could trend lower.
If Asian turmoil dampens national economic growth significantly, there's
even a possibility that the Federal Reserve would cut short-term rates to
stimulate growth. That would spell good news for the municipal market because a
drop in short-term rates would cause existing securities to appreciate.
WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
We will probably keep Florida Intermediate-Term Municipal's duration
neutral to slightly long compared with its peers for the near term. That should
enhance returns if municipal bond yields continue to decline, which we believe
they will. We will continue monitoring the municipal yield curve, looking for
opportunities to add value by modifying the portfolio's structure. In addition,
we will keep an eye out for attractive swap-trade opportunities.
[left margin]
"WE WILL PROBABLY KEEP FLORIDA INTERMEDIATE-TERM MUNICIPAL'S DURATION NEUTRAL TO
SLIGHTLY LONG COMPARED WITH ITS PEERS FOR THE NEAR TERM. THAT SHOULD ENHANCE
RETURNS IF MUNICIPAL BOND YIELDS CONTINUE TO DECLINE, WHICH WE BELIEVE THEY
WILL."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/98 11/30/97
AAA 71% 81%
AA 20% 19%
A 9% --
Ratings provided by Standard & Poor's. (See page 18 for more information.)
8 1-800-345-2021
Florida Int.-Term--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
MUNICIPAL SECURITIES
$ 850,000 Bay County School District Sales
Tax Rev., 4.25%, 6/1/02 (FSA) $ 856,222
300,000 Boca Raton Water and Sewer
Rev., 6.40%, 10/1/02 308,484
500,000 Broward County Port Facilities
Rev., Series 1998 A, 4.80%,
9/1/12 (MBIA)(1) 500,225
300,000 Broward County School District
GO, 6.75%, 2/15/00 311,841
500,000 Dade County Aviation Rev., Series
1995 E, 5.50%, 10/1/10
(AMBAC) 535,385
1,000,000 Dade County Aviation Rev., Series
1997 A, (Miami International
Airport), 5.50%, 10/1/02 (FSA) 1,049,600
1,000,000 Dade County Housing Finance
Auth. Single Family Mortgage
Rev., Series 1997 C, 4.05%,
10/16/98 (FSA) 1,000,260
1,000,000 Dade County School District GO,
6.00%, 7/15/06 (MBIA) 1,115,520
500,000 Duval County School District GO,
6.25%, 8/1/05 (AMBAC) 540,020
500,000 East County Water Control District
Rev., 5.375%, 11/1/01 (Asset
Guaranty) 520,065
280,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., 6.00%, 4/1/02
(GNMA/FNMA) 291,682
220,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
4.80%, 4/1/06
(GNMA/FNMA) 221,230
350,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
4.85%, 4/1/07
(GNMA/FNMA) 351,351
350,000 Florida Housing Finance Agency
Multi-Family Housing Rev.,
5.35%, 6/1/00 (GTEED) 353,654
450,000 Florida Housing Finance Agency
Rev., (Williamsburg Village
Apartments), 5.60%, 12/1/07
(AMBAC) 480,407
500,000 Florida Housing Finance Agency
Rev., (Windwood), 5.65%,
12/1/07 (AXA Insurance) 524,595
1,445,000 Florida Turnpike Auth. Rev., Series
1998 A, 6.00%, 7/1/02 (FSA) 1,546,771
350,000 Gainesville Utilities System Rev.,
Series 1996 A, 5.75%,
10/1/09 390,975
Principal Amount Value
- -----------------------------------------------------------------------------
$ 400,000 Hillsborough County Port District
Rev., 6.50%, 6/1/04 (FSA) $ 445,916
750,000 Indian Trace Community
Development District Water
Management Special Benefit
Assessment, 5.00%, 5/1/10
(MBIA) 776,805
400,000 Indian Trace Community
Development District Water
Special Benefit Assessment,
Series 1995 A, 5.25%, 5/1/03
(MBIA) 420,668
500,000 Jacksonville Electric Auth. Rev.,
Series 1995 6-C, (St. John's
River Power Project), 6.50%,
10/1/01 534,915
1,250,000 Jacksonville Excise Tax Rev.,
5.20%, 10/1/04 (FGIC)(2) 1,299,375
1,000,000 Lee County Passenger Facility
Charge Rev., 4.375%, 10/1/04
(AMBAC) 1,004,070
865,000 Lee County Passenger Facility
Charge Rev., 4.50%, 10/1/05
(AMBAC) 870,328
1,000,000 Lee County Rev., Series 1997 A,
5.75%, 10/1/11 (MBIA) 1,114,160
1,015,000 Northern Palm Beach County
Improvement District Special
Assessment, (Unit Development
18), 4.90%, 8/1/13 (MBIA) 1,032,367
550,000 Orange County Health Facilities
Auth. Rev., Series 1996 A,
6.00%, 10/1/04 (MBIA) 605,204
1,000,000 Orange County Rev., 5.25%,
10/1/10 1,058,680
1,000,000 Orlando and Orange County
Expressway Auth. Rev., 5.10%,
7/1/04 (FGIC) 1,040,030
450,000 Orlando and Orange County
Expressway Auth. Rev., 6.50%,
7/1/11 (FGIC) 533,596
500,000 Orlando Utility Commission Water
and Electric Rev., 5.70%,
10/1/04 542,775
500,000 Pensacola Airport Rev., Series
1997 B, 5.40%, 10/1/07
(MBIA) 532,795
300,000 Pensacola Airport Rev., Series
1998 A, 6.00%, 10/1/01
(MBIA)(1) 315,999
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of Florida
Inc.), 4.45%, 12/1/04 297,843
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of Florida
Inc.), 4.55%, 12/1/05 297,687
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of Florida
Inc.), 4.70%, 12/1/07 297,078
See Notes to Financial Statements
www.americancentury.com 9
Florida Int.-Term--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
$1,000,000 Polk County Housing Finance
Auth. Multi-Family Housing Rev.,
Series 1997 A, (Winter Oaks
Apartments), 5.25%, 7/1/07
(FNMA) $ 1,042,760
2,000,000 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 1,807,540
200,000 Reedy Creek Improvement District
Utility Rev., Series 1991-1,
6.25%, 10/1/01, Prerefunded
at 101% of Par (MBIA)(3) 215,772
400,000 St. Cloud Utility Rev., 6.40%,
8/1/06 (MBIA) 433,612
175,000 Tampa Palms Community
Development Special
Assessment Rev., 4.90%,
5/1/99 (MBIA) 176,808
1,000,000 Tampa Sports Auth. Rev., 4.50%,
1/1/99 (MBIA) 1,004,760
500,000 Village Center Community
Development District
Recreational Rev., Series
1998 A, 4.20%, 11/1/02
(MBIA) 500,545
500,000 Volusia County School District GO,
6.20%, 8/1/03 (FGIC) 539,070
------------------
TOTAL INVESTMENT SECURITIES--100.0% $29,639,445
==================
(Cost $28,892,654)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
GTEED = CG Life Guaranty Agreement
MBIA = MBIA Insurance Corp.
(1) When-issued security.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for when-issued securities.
(3) Escrowed to maturity in U.S. Government securities or state and local
government securities.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
10 1-800-345-2021
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
MAY, 31 1998
ASSETS
Investment securities, at value
(identified cost of $28,892,654)
(Note 3) ............................................... $29,639,445
Cash ...................................................... 69,088
Investment in affiliated money
market fund (Note 2) .................................... 406,270
Interest receivable ....................................... 377,421
-----------
30,492,224
-----------
LIABILITIES
Disbursements in excess
of demand deposit cash .................................. 17,916
Payable for investments purchased ......................... 799,746
Payable for capital shares
redeemed ................................................ 49,108
Dividends payable ......................................... 7,750
Accrued management fees
(Note 2) ................................................ 12,349
Payable for trustees' fees
and expenses ............................................ 143
-----------
887,012
-----------
Net Assets ................................................ $29,605,212
===========
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ................................... 2,803,892
===========
Net Asset Value Per Share ................................. $ 10.56
===========
NET ASSETS CONSIST OF:
Capital paid in ........................................... $28,726,145
Accumulated undistributed net
realized gain on investments ............................ 132,276
Net unrealized appreciation
on investments (Note 3) ................................. 746,791
-----------
$29,605,212
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's NET assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
NET ASSET VALUE PER SHARE.
NET ASSETS are also broken out by capital (money invested by shareholders); net
income not yet paid to shareholders; net gains earned on investment activity but
not yet paid to shareholders or net losses on investment activity (known as
realized gains or losses); and gains or losses on securities still owned by the
fund (known as unrealized appreciation or depreciation). This breakout tells you
the value of net assets that are performance-related, such as investment gains
or losses, and the value of net assets that are not related to performance, such
as shareholder investments and redemptions.
See Notes to Financial Statements
www.americancentury.com 11
Statement of Operations
- -----------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998
INVESTMENT INCOME
Income:
Interest ................................................. $ 1,174,999
-----------
Expenses (Note 2):
Investment advisory fees ................................. 120,693
Printing and postage ..................................... 5,724
Custodian fees ........................................... 5,715
Administrative fees ...................................... 3,851
Trustees' fees and expenses .............................. 2,144
Transfer agency fees ..................................... 1,484
Auditing and legal fees .................................. 677
Organization expenses .................................... 196
Other operating expenses ................................. 1,947
-----------
Total Expenses ......................................... 142,431
Amount waived ............................................ (10,329)
-----------
Net expenses ........................................... 132,102
-----------
Net investment income .................................... 1,042,897
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ......................... 397,759
Change in net unrealized
appreciation on investments ............................ 439,483
-----------
Net realized and unrealized
gain on investments .................................... 837,242
-----------
Net Increase in Net Assets
Resulting from Operations .............................. $ 1,880,139
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* investment advisory fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
12 1-800-345-2021
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
YEARS ENDED MAY 31, 1998 AND MAY 31, 1997
Increase in Net Assets 1998 1997
OPERATIONS
Net investment income ...................... $ 1,042,897 $ 512,380
Net realized gain on investments ........... 397,759 51,857
Change in net unrealized
appreciation on investments .............. 439,483 177,601
------------ ------------
Net increase in net assets
resulting from operations ................ 1,880,139 741,838
------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ................. (1,042,897) (512,380)
From net realized gains on
investment transactions .................. (316,935) (39,475)
------------ ------------
Decrease in net assets
from distributions ....................... (1,359,832) (551,855)
------------ ------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares sold .................. 28,435,575 14,609,503
Proceeds from reinvestment
of distributions ......................... 976,870 409,403
Payments for shares redeemed ............... (16,840,155) (9,015,107)
------------ ------------
Net increase in net assets
from capital share transactions .......... 12,572,290 6,003,799
------------ ------------
Net increase in net assets ................. 13,092,597 6,193,782
NET ASSETS
Beginning of year .......................... 16,512,615 10,318,833
------------ ------------
End of year ................................ $ 29,605,212 $ 16,512,615
============ ============
TRANSACTIONS IN
SHARES OF THE FUND
Sold ....................................... 2,709,826 1,420,596
Issued in reinvestment
of distributions ......................... 92,680 39,811
Redeemed ................................... (1,596,282) (876,033)
------------ ------------
Net increase ............................... 1,206,224 584,374
============ ============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions results in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 13
Notes to Financial Statements
- -----------------------------------------------------------------------------
MAY 31, 1998
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 Intermediate-Term Municipal Fund (the
Fund) is one of the eight Funds issued by the Trust. The Fund is non-diversified
under the 1940 Act. Its 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 Fund
invests primarily in Florida municipal obligations. The Fund concentrates its
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
Fund are in accordance with accounting policies generally accepted in the
investment company industry.
Security Valuations--Portfolio securities held by the Fund are valued
through 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
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 income taxes.
Distributions to Shareholders--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized capital
gains are declared and paid annually. For the year ended May 31, 1998, 100%
(unaudited) of the Fund's distributions from net investment income have been
designated as exempt from federal income tax.
The character of distributions made during the year from net investment
income or net realized capital gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect the
differing character of certain income items and net capital gains and losses for
financial statement and tax purposes and may result in reclassification among
certain capital accounts.
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
contracts 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, 1998.
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.
Additional Information--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
14 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The shareholders of the Fund approved a new management agreement with
American Century Investment Management, Inc. (ACIM) on July 30, 1997, effective
August 1, 1997, which replaced the previously existing contracts between the
Fund and Benham Management Corporation and American Century Services Corporation
(ACSC) for advisory, administrative and transfer agency services. Under the
agreement, ACIM will provide all services required by the Fund in exchange for a
single, unified management fee. Expenses excluded from the agreement are
brokerage, taxes, portfolio insurance, interest, fees and expenses of those
Trustees who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses. The annual rate at which this fee is assessed is determined monthly in
a two-step process: First, a fee rate schedule is applied to the net assets of
all of the funds in the Fund's investment category which are managed by ACIM
(the "Investment Category Fee"). The overall investment objective of each Fund
determines its Investment Category. The three investment categories are: the
Money Market Fund Category, the Bond Fund Category, and the Equity Fund
Category. The Fund is included in the Bond Fund Category. Second, a separate fee
rate schedule is applied to the net assets of all of the funds managed by ACIM
(the "Complex Fee"). The Investment Category Fee and the Complex Fee are then
added to determine the unified management fee rate. The management fee is paid
monthly by the Fund based on its aggregate average daily net assets during the
previous month multiplied by the monthly management fee rate.
The annualized Investment Category Fee schedule for the Fund is as follows
0.2800% of the first $1 billion
0.2280% of the next $1 billion
0.1980% of the next $3 billion
0.1780% of the next $5 billion
0.1650% of the next $15 billion
0.1630% of the next $25 billion
0.1625% of the average daily net assets over $50 billion
The annualized Complex Fee schedule is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
Management fees of $102,790 were incurred under the new management
agreement and are included in Investment Advisory Fees in the Statements of
Operations. Expenses, net of the amount waived, and the annualized ratio of
operating expenses to average net assets, under the previous agreement for the
two months ended July 31, 1997 were $27,504 and 0.67%, respectively.
Certain officers and trustees of the Trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Trust's investment manager, ACIM, and the
Trust's transfer agent, ACSC.
As of May 31, 1998, the Fund had invested $406,270 in shares of American
Century - Benham Florida Municipal Money Market Fund (Money Market Fund). The
terms of the transaction were identical to those with non-related entities
except that, to avoid duplicative management fees, the Fund did not pay ACIM
management fees with respect to assets invested in the Money Market Fund.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of municipal debt obligations, excluding short-term
investments, totaled $49,544,838 and $36,920,189 respectively.
As of May 31, 1998, accumulated net unrealized appreciation was $746,791,
which consisted of unrealized appreciation of $753,017, and unrealized
depreciation of $6,226. The aggregate cost of investments for federal income tax
purposes was the same as the cost for financial reporting purposes.
www.americancentury.com 15
<TABLE>
<CAPTION>
Florida Int.-Term--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
1998 1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ........... $ 10.34 $ 10.18 $ 10.30 $ 10.11 $ 10.00
Income From Investment
Operations
Net Investment Income ......... 0.45 0.46 0.52 0.52 0.07
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions .................. 0.38 0.20 (0.08) 0.19 0.11
Total From Investment
Operations .................... 0.83 0.66 0.44 0.71 0.18
Distributions
From Net Investment
Income ........................ (0.45) (0.46) (0.52) (0.52) (0.07)
From Net Realized
Capital Gains ................. (0.16) (0.04) (0.04) -- --
Total Distributions ........... (0.61) (0.50) (0.56) (0.52) (0.07)
Net Asset Value, End of Period .. $ 10.56 $ 10.34 $ 10.18 $ 10.30 $ 10.11
Total Return(2) ............... 8.20% 6.63% 4.34% 7.31% 1.79%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......... 0.54% 0.65% 0.13% -- --
Ratio of Operating Expenses
to Average Net Assets
(Before Expense Waiver) ...... 0.58% 0.86% 0.88% 1.09% 1.92%(3)
Ratio of Net Investment Income
to Average Net Assets ......... 4.28% 4.42% 5.05% 5.23% 5.02%(3)
Ratio of Net Investment Income to
Average Net Assets
(Before Expense Waiver) ...... 4.24% 4.21% 4.30% 4.14% 3.10%(3)
Portfolio Turnover Rate ......... 154% 82% 66% 37% 6%
Net Assets, End of Period
(in thousands) ............... $ 29,605 $ 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>
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This page itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years (or less, if the fund is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming
reinvestment of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced
See Notes to Financial Statements
16 1-800-345-2021
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Board of Trustees of the
American Century Municipal Trust
and Shareholders of American Century - Benham
Florida Intermediate-Term Municipal Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the American Century - Benham Florida
Intermediate-Term Municipal Fund (one of the funds constituting the American
Century Municipal Trust, hereafter referred to as the "Fund") at May 31, 1998,
the results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles. The statement of changes in net assets for the year ended
May 31, 1997 and the financial highlights for the four years in the period ended
May 31, 1997 were audited by other auditors, whose report, dated July 7, 1997,
expressed an unqualified opinion on those statements. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 16, 1998
www.americancentury.com 17
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, the fund has its own investment policies:
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.
Depending on your tax status, investment income may be subject to the
federal alternative minimum tax. Capital gains are not exempt from federal
income tax.
Fund shares are intended to be exempt from the Florida intangibles tax.
COMPARATIVE INDICES
The following index 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 returns for each fund in a given
category for the periods indicated. Rankings are not included for periods less
than one year.
The Lipper category for the Florida Intermediate-Term Municipal funds is:
FLORIDA INTERMEDIATE MUNICIPAL DEBT FUNDS --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.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. Ratings are based on an issuer's financial
strength and ability to pay interest and principal in a timely manner.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
Securities rated AAA, AA, A or BBB are considered "investment grade,"
meaning they're relatively safe from default.
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS:
DAVE MACEWEN
KEN SALINGER
MUNICIPAL CREDIT RESEARCH DIRECTOR:
STEVEN PERMUT
18 1-800-345-2021
Glossary
- -----------------------------------------------------------------------------
RETURNS
* 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.
* 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 16.
YIELDS
* 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.
* 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
* 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%).
* 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
* Number of Securities--the number of different securities held by a fund on a
given date.
* 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.
* 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.
* 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
* 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.
* GO BONDS--general obligation securities backed by the taxing power of the
issuer.
* LAND-SECURED BONDS--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
* 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.
* 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).
www.americancentury.com 19
Notes
- -----------------------------------------------------------------------------
20 1-800-345-2021
[inside back cover]
[american century logo(reg.sm)]
American
Century(reg.tm)
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
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution
to prospective investors unless preceded or accompanied by an effective
prospectus.
(C) 1998 American Century Services Corporation
Funds Distributor, Inc.
[recycled logo]
Recycled
[back cover]
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
American Century Investments Bulk Rate
P.O. Box 419200 U.S. Postage Paid
Kansas City, MO 64141-6200 American Century
www.americancentury.com Companies
9807 (C)1998 American Century Services Corporation
SH-BKT-13099 Funds Distributor, Inc.
<PAGE>
/front cover/
May 31, 1998
Annual Report
- -------------
American Century
[graphic of U.S. currency and two individuals walking up stairs]
Benham Group
- ------------
Tax-Free Money Market
[american century logo(reg.sm)]
American
Century(reg.tm)
/inside front cover/
A Note from the Founder
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in tern, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very
good information, from fund statistics and financials to Q&A's with fund
managers. We hope the new design will make the reports more interesting and
understandable, while helping you keep abreast of your fund's strategy and
performance.
What's New
The reports are designed to be attractive and easy to use whether you're
reading them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
The Bottom Line
The new design actually costs slightly less than the old one. We
reallocated costs and eliminated a cover letter and the envelope that previously
came with your report enclosed. This not only saves money but reduces the number
of mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-
friendly publication.
We hope you enjoy it.
[left margin]
Benham Group
Tax-Free Money Market
(BNTXX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
Our Message to You
- -----------------------------------------------------------------------------
/photo of James E. Stowers III, seated, with James E. Stowers, Jr. /
James E. Stowers III, seated, with James E. Stowers, Jr.
The year ended May 31, 1998, was a period of relative stability for
short-term interest rates. The Federal Reserve didn't change the federal funds
rate target, a key money market benchmark, when inflation remained low and U.S.
economic growth was tempered by the Asian economic crisis. As a result, supply
and demand factors had more influence on the municipal money market than
interest rate movements.
Tax-Free Money Market continued to provide more federal tax-exempt income
than its peers. We accomplished this by waiving its expenses and buying
short-term municipal securities at favorable prices during supply and demand
fluctuations. The solid efforts of our municipal investment and credit research
teams were clearly reflected in Tax-Free Money Market's performance.
Turning to the corporate front, we've had an eventful year at American
Century. We gained a powerful business partner in January when J.P. Morgan
became a substantial minority shareholder. Another significant event was the
retirement of Jim Benham, founder of the Benham Group, in December.
Overall, we've had a noteworthy record of continuity in the management of
American Century's tax-free and municipal funds. The investment team that
manages Tax-Free Money Market has expanded its resources and hasn't experienced
any portfolio manager turnover since Benham merged with American Century. The
team's approach still adheres to investment philosophies that Jim Benham helped
develop during his 25 years as a mutual fund manager, but also benefits from new
technology and resources that the merger with American Century made possible.
The fund has performed well, exemplifying the quality of the tools we aim to
provide to investors to help them meet their financial goals.
If you'd like to learn more about your investments or about personal
finance topics such as Roth IRAs or diversification, we have many free
educational brochures and booklets available by mail. You can also get
educational information by giving us a call or visiting our Web site
(www.americancentury.com). We've recently added several new features to the
site, including retirement investing calculators and online investment tracking.
We're committed to making your relationship with us as easy and productive as
possible.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER CHIEF EXECUTIVE OFFICER
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Services Update ........................................................ 3
TAX-FREE MONEY MARKET
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Schedule of Investments ................................................ 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities .......................................................... 13
Statement of Operations ................................................ 14
Statements of Changes
in Net Assets ........................................................ 15
Notes to Financial
Statements ........................................................... 16
Financial Highlights ................................................... 18
Report of Independent
Accountants .......................................................... 19
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ....................................................... 20
Lipper Rankings ...................................................... 20
Credit Rating
Information ........................................................ 20
Investment and Credit
Research Teams ..................................................... 20
Glossary ............................................................... 21
www.americancentury.com 1
Report Highlights
- -----------------------------------------------------------------------------
MANAGEMENT Q&A
* Tax-Free Money Market continued to provide a higher level of federal
tax-exempt income than the average tax-free money market fund. A major reason
was our decision to waive management expenses.
* Beginning in August 1998, we will gradually reinstate management fees. All
other factors being equal, this will cause a decline in yield. However,
Tax-Free Money Market's full expense ratio will still give the fund lower
expenses than approximately 75% of its peers.
* As of December 1997, Tax-Free Money Market no longer owned securities backed
by Japanese banks. These securities offer higher yields but we believe the
risks are inappropriate for a conservative money fund.
* We monitored seasonal supply and demand factors governing yields for
municipal securities, as well as relative valuation measures, to determine
security selection. We typically choose between variable- rate demand notes
and one-year municipal notes, depending on which type of security offers the
most attractive yield.
* We do not anticipate any major changes in interest rates in the near future,
so we continue to focus on seasonal supply and demand factors in the
marketplace, as well as credit quality.
[left margin]
"AS OF DECEMBER 1997, TAX-FREE MONEY MARKET NO LONGER OWNED SECURITIES BACKED BY
JAPANESE BANKS. THESE SECURITIES OFFER HIGHER YIELDS BUT WE BELIEVE THE RISKS
ARE INAPPROPRIATE FOR A CONSERVATIVE MONEY FUND."
TAX-FREE MONEY MARKET
(BNTXX)
TOTAL RETURNS: AS OF 5/31/98
6 Months 1.85%*
1 Year 3.70%
NET ASSETS: $444.3 million
7-DAY CURRENT YIELD: 3.90%
INCEPTION DATE: 7/31/84
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on page 21.
2 1-800-345-2021
Services Update
- -----------------------------------------------------------------------------
We get many questions from money market investors about our services. Here
are answers to several frequently asked questions.
IS THERE A FEE FOR WRITING CHECKS AGAINST MY MONEY MARKET FUND?
No. You can write as many checks as you want at no charge, as long as each
one is for $100 or more.
BESIDES WRITING A CHECK, HOW ELSE CAN I ACCESS MY MONEY?
There are a couple of easy ways. First, we can send a check directly to you
at your address of record. All you need to do is give us a call or write us a
letter requesting the check, and we'll send it right out to you.
We can also make automatic deposits from your money market fund to your
bank account. Just make sure we have all of your bank information on file, and
then give us a call to request a direct transfer.
IS THERE A LIMIT TO THE NUMBER OF EXCHANGES I CAN MAKE OUT OF MY MONEY MARKET
FUND?
No. Exchanges involve moving money from one American Century fund to
another. Although there is a limit of six exchanges per calendar year out of our
bond and stock funds, there is no limit for money market funds.
Exchanges can be made by:
* calling an Investor Services representative (1-800-345-2021)
* dialing into our Automated Information Line (1-800-345-8765)*
* writing us a letter
* connecting to our Web site
(www.americancentury.com)*
You can also make exchanges through our Automatic Exchange plan or Open
Order service.
HOW DO OPEN ORDERS WORK?
Open Orders enable you to buy or sell shares in a mutual fund automatically
at a price you designate. Here's how it works:
* To Buy--select a fund in which you wish to invest and specify a price at
which you'd like to buy shares. Because the object is to buy low, the price
you specify must be at or below the fund's last closing price. If the
fund's price closes at or below your specified price, we will automatically
move the amount you designated from your money market fund into an account
in the fund you selected.
* To Sell--select a fund in which you own shares and specify a price at which
you'd like to sell them. Because the object is to sell high, the price you
specify must be at or above the fund's last closing price (we can't place
stop-loss orders). If the fund's price closes at or above your specified
price, we'll sell the number of shares you designated and move the proceeds
into your money market account.
Some other notes about Open Orders:
* Open Orders last for a maximum of 90 days and may be canceled or extended
whenever you choose.
* Once you've placed, canceled, or modified your Open Order, we'll send a
letter confirming your decision to your address of record.
IF YOU HAVE ANY QUESTIONS ABOUT OUR SERVICES, CALL US TOLL FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE (WWW.AMERICANCENTURY.COM).
* Requires shareholder authorization.
[right margin]
Accessing your money. . .
WE CAN SEND A CHECK DIRECTLY TO YOU AT YOUR ADDRESS OF RECORD. ALL YOU NEED TO
DO IS GIVE US A CALL OR WRITE US A LETTER REQUESTING THE CHECK. WE CAN ALSO MAKE
AUTOMATIC DEPOSITS FROM YOUR MONEY MARKET FUND TO YOUR BANK ACCOUNT.
www.americancentury.com 3
Tax-Free Money Market--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
INCEPTION 7/31/84
TAX-FREE TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
- -----------------------------------------------------------------------------
6 MONTHS(1) .............. 1.85% 1.51% --
1 YEAR ................... 3.70% 3.09% 1 OUT OF 133
- -----------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS .................. 3.29% 3.08% 13 OUT OF 123
5 YEARS .................. 2.94% 2.81% 18 OUT OF 101
10 YEARS ................. 3.69% 3.60% 15 OUT OF 66
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
See pages 20-21 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
5/31/98 5/31/97
NUMBER OF SECURITIES 103 48
WEIGHTED AVERAGE
MATURITY 55 DAYS 53 DAYS
EXPENSE RATIO 0.04%* 0.67%
* American Century Investment Management, Inc. has voluntarily waived its
management fee from August 1, 1997, through July 31, 1998. In absence of
the waiver, the fund's expense ratio would have been 0.52%.
YIELDS AS OF MAY 31, 1998
7-DAY CURRENT YIELD
3.90%
7-DAY EFFECTIVE YIELD
3.98%
7-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.42%
31.0% TAX BRACKET 5.65%
36.0% TAX BRACKET 6.09%
39.6% TAX BRACKET 6.46%
Yields would have been lower if management fees had not been waived.
Past performance does not guarantee future results.
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.
4 1-800-345-2021
Tax-Free Money Market--Q&A
- -----------------------------------------------------------------------------
An interview with Bryan Karcher, a portfolio manager on the Tax-Free Money
Market fund investment team.
HOW DID TAX-FREE MONEY MARKET PERFORM DURING THE FISCAL YEAR ENDED MAY 31, 1998?
Tax-Free Money Market continued to provide a higher level of federal
tax-exempt income than the average tax-free money market fund. According to
IBC's Money Fund Report, the fund's 7-day current yield of 3.90% as of May 31,
1998, was the highest among 133 "Stock Broker and General Purpose Tax-Free Money
Funds."
In addition, the fund's total return was 3.70%, compared with the 3.09%
average return of the 133 "Tax-Exempt Money Market Funds" tracked by Lipper
Analytical Services. (See the Total Returns table on the previous page for other
fund performance comparisons.)
A major reason for the high yield and total return was our decision to
waive management expenses as part of a promotional program. However, beginning
in August 1998, we will gradually reinstate management expenses at a rate of 10
basis points (0.10%--a basis point equals 0.01%) per month. All other factors
being equal, this expense increase will cause a decline in the fund's yield and
return. By December 1998, the fund will reach its full expense ratio of 50 basis
points, which should still give Tax-Free Money Market lower expenses than
approximately 75% of tax-free money market funds.
WHAT CHANGES DID YOU MAKE IN TAX-FREE MONEY MARKET'S PORTFOLIO DURING THE YEAR?
We reduced our exposure to the troubled Japanese financial system; as of
December 1997, the fund no longer owned securities backed by Japanese banks. The
Japanese banking system has suffered from a lengthy domestic recession and
non-performing real estate loans. Securities backed by Japanese banks offer
higher yields, but we believe the risks are inappropriate for a conservative
money fund. Our strict credit criteria limits us to top-rated securities, even
if that means sacrificing yield.
We also used our value strategy to shift between variable-rate demand notes
(VRDNs--securities that track market interest rates and stabilize their market
values using daily or weekly interest rate adjustments) and other short-term
municipal securities.
PLEASE DESCRIBE YOUR VALUE STRATEGY.
Because the short-term municipal market is greatly affected by seasonal
supply and demand factors, one-year municipal note yields fluctuate
significantly, but somewhat predictably, through the year. For example, in April
investors remove a lot of money from tax-exempt money market funds to pay taxes.
As a result, there is less demand for short-term municipal securities and yields
tend to rise. In contrast, demand is higher and yields are lower in January when
investors look to reinvest cash they've received from bond interest and
principal payments. In April 1998, for example, yields on one-year notes reached
3.75%, up from about 3.50% in January. We're more likely to buy one-year
securities in April to lock in higher yields.
[right margin]
"TAX-FREE MONEY MARKET CONTINUED TO PROVIDE A HIGHER LEVEL OF FEDERAL TAX-EXEMPT
INCOME THAN THE AVERAGE TAX-FREE MONEY MARKET FUND."
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
Commercial Paper 1%
Municipal Notes 2%
Bonds less than 1 Year 12%
Other 3%
VRDNs 82%
AS OF NOVEMBER 30, 1997
Commercial Paper 2%
Municipal Notes 6%
Bonds less than 1 Year 9%
Other 5%
VRDNs 78%
Security types are defined on page 21.
www.americancentury.com 5
Tax-Free Money Market--Q&A
- -----------------------------------------------------------------------------
(Continued)
We also compare one-year municipal note yields to the yields on one-year
Treasury notes. We generally consider municipal notes attractive when their
yield exceeds 70% of the one-year Treasury note yield. In February, one-year
muni yields were 3.55% (about 66% of Treasury yields) but reached 3.75% (70% of
Treasury yields) by the week of April 15.
Our final value indicator is the yield on VRDNs as a percentage of the
federal funds rate target, the overnight inter-bank lending rate set by the
Federal Reserve (the Fed). We examine the historical averages of this
percentage. VRDNs often have attractive yields, but we can use their historical
relationship with the fed funds rate target to anticipate when one-year notes
might have a temporary yield advantage that make them a better buy.
DOES LOCATION PLAY A ROLE IN YOUR SECURITY SELECTION PROCESS?
We can purchase securities issued in any state, but we tend to avoid
"specialty" states such as New York and California. Because California and New
York have high state income taxes, there are many state-specific tax-free money
market funds in existence for tax-sensitive residents in those states. With so
many California and New York money market funds vying for specialty
state-specific paper, those securities typically offer lower, less attractive
yields.
Rather than look at geographical location or security type, we tend to
focus on the banks backing the securities. If you have two VRDNs, one an
industrial development note, the other a housing note, and if they're both
backed by the same bank, then their yields should be similar, based primarily on
the credit quality of the bank.
WHAT IS YOUR OUTLOOK FOR INTEREST RATES OVER THE NEXT SIX MONTHS?
The economy continues to be healthy and there's been very little inflation.
Although there was some concern earlier in the year that the Fed would
raise interest rates to slow the economy, the worsening situation in Asia has
taken the pressure off the Fed to act. We do not anticipate any major changes in
interest rates in the near future, so we continue to focus on seasonal supply
and demand factors in the marketplace.
HOW WILL YOU MANAGE TAX-FREE MONEY MARKET OVER THE NEXT SIX MONTHS?
Credit quality will remain our number one concern, and we will concentrate
our securities in the highest credit ratings. In addition, we will continue to
compare the relative values (yields) between one-year notes and weekly VRDNs,
buying the one-year securities when there is sufficient additional yield.
[left margin]
"CREDIT QUALITY WILL REMAIN OUR NUMBER ONE CONCERN, AND WE WILL CONCENTRATE OUR
SECURITIES IN THE HIGHEST CREDIT RATINGS."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/98 11/30/97
SP1+ 86% 75%
SP1 11% 25%
SP2 3% --
SP1+ and SP1 are Standard & Poor's highest credit ratings for short-term
municipal securities. See Credit Rating Information on page 20 for more
information.
6 1-800-345-2021
Tax-Free Money Market--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
ALASKA-0.3%
$ 1,345,000 Anchorage GO, Series 1997 A,
4.50%, 12/1/98 (FGIC) $1,348,917
----------------
ARIZONA-0.6%
2,700,000 Pinal County Industrial
Development Auth. Pollution
Control Rev., VRDN, 4.00%
6/1/98 (LOC: National
Westminster PLC) 2,700,000
----------------
ARKANSAS-0.7%
3,000,000 Pine Bluff Industrial Development
Rev., (Camden Wire Co., Inc.),
VRDN, 3.95%, 6/4/98 (LOC:
Texas Commerce Bank, N. A.) 3,000,000
----------------
CALIFORNIA-1.7%
5,500,000 California Higher Education Loan
Auth. Student Loan Rev., Series
1995 E-5, 3.80%, 6/1/99
(LOC: Student Loan Marketing) 5,500,000
2,000,000 South Coast Local Education
Agencies Tax and Revenue
Anticipation Notes, Series
1997 A, 4.50%, 6/30/98
(MBIA) 2,000,892
----------------
7,500,892
----------------
COLORADO-7.5%
8,100,000 Adams County Industrial
Development Rev., (Clear Creek
Business), VRDN, 3.85%,
6/4/98 (LOC: Citibank N.A.) 8,100,000
6,500,000 Colorado Health Facilities Auth.
Rev., Series 1994 A, (Kaiser
Permanente), VRDN, 4.00%,
6/3/98 (Guaranteed: Kaiser
Permanente) 6,500,000
9,300,000 Colorado Health Facilities Auth.
Rev., Series 1995 A, (Kaiser
Permanente), VRDN, 4.00%,
6/3/98 (Guaranteed: Kaiser
Permanente) 9,300,000
3,500,000 Denver Multifamily Housing Rev.,
Series 1989 A, (Cottonwood
Creek Project), VRDN, 4.10%,
6/2/98 (LOC: General Electric
Capital Corp.) 3,500,000
6,500,000 Douglas County Multifamily Rev.,
(Autumn Chase), VRDN, 3.85%,
6/4/98 (LOC: Citibank, N.A.) 6,500,000
----------------
33,900,000
----------------
Principal Amount Value
- -----------------------------------------------------------------------------
DISTRICT OF COLUMBIA-1.9%
$ 8,400,000 District of Columbia Rev.,
(American University Issue),
VRDN, 3.95%, 6/3/98, (LOC:
National Westminster Bank PLC) $8,400,000
----------------
FLORIDA-21.3%
10,000,000 Brevard County Housing Finance
Auth. Multifamily Housing Rev.,
(Palm Place Project), VRDN,
4.00%, 6/3/98 (LOC: ING
(U.S.) Capital Corporation) 10,000,000
1,000,000 Broward County Housing Finance
Auth. Multifamily Housing Rev.,
(Margate Project), VRDN,
3.95%, 6/3/98 (LOC: Chase
Manhattan Bank) 1,000,000
3,460,000 Broward County Housing Finance
Auth. Multifamily Housing Rev.,
Series 1990 A, (Palmaire-
Oxford), VRDN, 4.00%, 6/3/98
(SBBPA: Continental Casualty
Co.) 3,460,000
1,655,000 Dade County Housing Auth. Single
Family Mortgage Rev., Series
1997 C, 4.05%, 10/16/98
(GIC: FGIC Capital Markets) 1,655,000
3,000,000 Escambia County Housing Fin.
Auth. Single Family Mortgage
Rev., VRDN, 4.07%, 6/4/98
(Liquidity: Merrill Lynch & Co.,
Inc.) (Acquired 5/19/98, Cost
$3,000,000)(1) 3,000,000
3,600,000 Eustis Multipurpose Rev., Series
1997 A, VRDN, 3.90%,
6/3/98 (LOC: Suntrust Bank
Central Florida, N.A.) 3,600,000
5,000,000 Florida Housing Finance Agency
Multifamily Housing Rev.,
(Parrot's Landing Project),
VRDN, 3.90%, 6/3/98 (FNMA
Collateral Agreement) 5,000,000
3,000,000 Florida Housing Finance Agency
Multifamily Housing
Rev., (Carlton Arms Project),
VRDN, 3.95%, 6/3/98 (LOC:
Kredietbank N.V.) 3,000,000
5,190,000 Florida Housing Finance Agency
Multifamily Housing Rev., Series
1989 E, VRDN, 4.00%,
6/3/98 (LOC: Comerica Bank) 5,190,000
7,965,000 Florida Housing Finance Agency
Multifamily Housing Rev., Series
1990 B, (Belville-Oxford),
VRDN, 4.00%, 6/3/98
(SBBPA: Continental Casualty
Co.) 7,965,000
See Notes to Financial Statements
www.americancentury.com 7
Tax-Free Money Market--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
$ 7,000,000 Florida Housing Finance Corp.
Rev., Series 6, (Homeowner
Mortgage), 3.80%, 6/15/99
(GIC: FGIC Capital Markets) $7,000,000
5,000,000 Highlands County Health Facilities
Auth. Rev., Series 1997 A,
(Adventist Health System),
VRDN, 3.85%, 6/4/98 (LOC:
Suntrust Bank Central Florida,
N.A.) 5,000,000
1,000,000 Jacksonville Electric Auth. Rev.,
VRDN, 3.95%, 6/3/98
(SBBPA: Societe Generale) 1,000,000
2,995,000 Jacksonville Electric Auth. Rev.,
VRDN, 4.02%, 6/4/98
(Liquidity: Merrill Lynch & Co.,
Inc.) (Acquired 4/24/98,
Cost $2,995,000)(1) 2,995,000
4,650,000 Lee County Industrial Development
Auth. Health Care Facilities Rev.,
(Hope Hospice), VRDN, 3.95%,
6/4/98 (LOC: Nationsbank,
N.A.) 4,650,000
500,000 Marion County Housing Finance
Auth. Multifamily Rev., Series
1985 D, (Summer Trace
Apartments), VRDN, 3.95%,
6/4/98 (LOC: Suntrust Bank,
Atlanta, GA) 500,000
4,950,000 Orange County Housing Finance
Auth. Multifamily Rev., (Post
Lake Apartments), VRDN,
3.85%, 6/3/98 (FNMA
Collateral Agreement) 4,950,000
7,200,000 Orange County Housing Finance
Auth. Multifamily Rev., Series
1992 A, (Smokewood/Sun),
VRDN, 3.85%, 6/4/98 (LOC:
Citibank, N.A.) 7,200,000
3,600,000 Palm Beach County Educational
Facilities Auth. Rev., (Atlantic
College), VRDN, 3.95%,
6/4/98 (LOC: Nationsbank,
N.A.) 3,600,000
4,300,000 Pinnellas County Housing Finance
Auth. Multifamily Rev., Series
1995 A, (Foxbridge Apartments),
VRDN, 3.90%, 6/3/98 (FNMA
Collateral Agreement) 4,300,000
2,000,000 Port St. Lucie Utility Rev., VRDN,
4.02%, 6/4/98 (MBIA)
(Liquidity: Merrill Lynch & Co.,
Inc.) (Acquired 5/21/98, Cost
$2,000,000)(1) 2,000,000
4,430,000 Seminole County School Board
Certificates of Participation,
VRDN, 4.02%, 6/4/98
(AMBAC) (SBBPA: Merrill
Lynch & Co., Inc.) (Acquired
4/9/98, Cost $4,430,000)(1) 4,430,000
Principal Amount Value
- -----------------------------------------------------------------------------
$ 4,690,000 Tallahassee-Leon County Civic
Center Auth. Capital
Improvement Rev., Series
1998 A, VRDN, 3.90%,
6/3/98 (LOC: Suntrust Bank
Central Florida) $4,690,000
---------------
96,185,000
---------------
GEORGIA-2.3%
1,800,000 Cobb County Multifamily Housing
Rev., (Terrell Mill), VRDN, 3.95%,
6/3/98 (LOC: General Electric
Capital Corp.) (Acquired 5/1/96,
Cost $1,800,000)(1) 1,800,000
3,500,000 Fulton County Development Auth.
Rev., (Holy Innocents School),
VRDN, 3.90%, 6/3/98 (LOC:
Suntrust Bank, Atlanta, GA) 3,500,000
5,300,000 Thomasville Hospital Auth. Rev.,
VRDN, 3.90%, 6/3/98 (LOC:
Suntrust Bank, Atlanta, GA) 5,300,000
---------------
10,600,000
---------------
HAWAII-1.0%
2,000,000 Hawaii Department of Budget
and Finance Special
Purpose Mortgage Rev.,
Series 1995 A, (Kaiser
Permanente), VRDN, 4.00%,
6/3/98 (Guaranteed:
Kaiser Permanente) 2,000,000
2,600,000 Hawaii Housing Finance and
Development Corporation Rev.,
(Affordable Rental Housing),
VRDN, 3.95%, 6/3/98 (LOC:
Banque Nationale De Paris S.A.) 2,600,000
---------------
4,600,000
---------------
ILLINOIS-10.4%
1,625,000 Bartlett Multifamily Housing Rev.,
Series 1995 A, (Bartlett Square
Apartments), VRDN, 3.85%,
6/4/98 (LOC: LaSalle National
Bank) 1,625,000
6,000,000 Chicago Single Family Mortgage
Rev., Series 1998 B, 3.70%,
4/1/99 (GIC: Westdeutsche
Landesbank Girozentrale) 6,000,000
5,900,000 Galesburg Rev., (Knox College
Project), VRDN, 3.85%, 6/4/98
(LOC: LaSalle National Bank) 5,900,000
2,140,000 Hoffman Estates Tax Increment
Rev. Tax Allocation, (Economic
Development Project), 4.50%,
11/15/98 (AMBAC) 2,145,233
3,750,000 Illinois Development Financing
Auth. Rev., Series 1998 A,
(Provena Health), 4.50%,
5/15/99 (MBIA) 3,769,750
See Notes to Financial Statements
8 1-800-345-2021
Tax-Free Money Market--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
$ 2,000,000 Illinois Health Facility Auth. Rev.,
Series 1996 B, (Franciscan
Eldercare), VRDN, 3.85%,
6/3/98 (LOC: ABN Amro Bank
N.V.) $2,000,000
720,000 Illinois Health Facility Auth. Rev.,
(Sherman Health Systems),
3.90%, 8/1/98 (AMBAC) 720,000
10,000,000 Illinois Health Facility Auth. Rev.,
Series 1998 A, (Swedish
Covenant), VRDN, 3.95%,
6/3/98 (AMBAC) (SBBPA:
First National Bank of Chicago) 10,000,000
5,335,000 Illinois Industrial Development Rev.,
(Continental/Midland Project),
VRDN, 3.95%, 6/4/98 (LOC:
LaSalle National Bank) 5,335,000
2,000,000 McCook Village Rev., Series
1996 B, (St. Andrew Society),
VRDN, 3.85%, 6/4/98 (LOC:
Northern Trust Company) 2,000,000
3,000,000 Schaumburg Multifamily Housing
Rev., (Windsong Apartments),
VRDN, 3.80%, 6/4/98 (LOC:
LaSalle National Bank) 3,000,000
4,375,000 Springfield Airport Auth. Rev.,
(Allied Signal Project), VRDN,
4.10%, 6/3/98 (Guaranteed:
Allied Signal, Inc.) 4,375,000
--------------
46,869,983
--------------
INDIANA-1.2%
1,155,000 Central High School Building
Corp. Industrial Rev. Certificates
of Participation, 4.25%, 8/1/98
(AMBAC) 1,155,564
1,000,000 Gary Industrial Development Rev.,
(Tinplate Partners International,
Inc.), VRDN, 3.95%, 6/4/98
(LOC: LaSalle National Bank) 1,000,000
1,000,000 Huntington Economic
Development Rev., (Allied Signal
Inc. Project), VRDN, 3.95%,
6/3/98 (Guaranteed: Allied
Signal Inc.) 1,000,000
940,000 Indiana Health Facilities Financing
Auth. Hospital Rev., Series
1997 A, (Sisters of St. Francis
Health), 5.00%, 11/1/98
(MBIA) 944,209
455,000 Noblesville High School Building
Corp. Industrial Rev. Certificates
of Participation, 3.90%, 7/6/98
(AMBAC) 455,000
960,000 Vincennes University Rev., Series
1997 E, 3.95%, 12/1/98
(AMBAC) 960,000
--------------
5,514,773
--------------
Principal Amount Value
- -----------------------------------------------------------------------------
IOWA-0.7%
$ 3,300,000 Iowa School Cash Anticipation
Program Warrants, Series
1998 B, 4.25%, 1/28/99
(FSA) $3,314,729
--------------
KANSAS-0.4%
1,620,000 Wichita Water & Sewer Utility Rev.,
6.50%, 10/1/98 (FGIC) 1,633,763
--------------
KENTUCKY-4.8%
2,200,000 Kenton County Airport Board Rev.,
VRDN, 4.07%, 6/4/98 (MBIA)
(Liquidity: Merrill Lynch & Co.,
Inc.) (Acquired 2/5/98, Cost
$2,200,000)(1) 2,200,000
17,000,000 Kentucky Turnpike Auth. Resource
Recovery Road Certificates of
Participation, VRDN, 4.00%,
6/3/98 (FSA) (SBBPA:
Commerzbank A.G.) 17,000,000
2,400,000 Mayfield Multi-City Lease Rev.,
VRDN, 4.00%, 6/3/98 (LOC:
PNC Bank) 2,400,000
--------------
21,600,000
--------------
LOUISIANA-0.4%
2,000,000 Calcasieu Parish Sales Tax Rev.,
(District No. 4-A Sales and Use
Tax), VRDN, 3.70%, 6/4/98
(LOC: National Westminster
Bank PLC) 2,000,000
--------------
MARYLAND-0.7%
3,000,000 Maryland Health and Higher
Educational Facilities Rev.,
Series 1998 A, (Charlestown
Community), VRDN, 3.75%,
6/3/98 (LOC: First Union
National Bank, Charlotte, NC) 3,000,000
--------------
MASSACHUSETTS-0.6%
2,700,000 Lynn Water and Sewer
Commission General Rev.,
VRDN, 4.02%, 6/4/98 (FSA)
(Liquidity: Merrill Lynch & Co.,
Inc.) (Acquired 12/4/97, Cost
$2,700,000)(1) 2,700,000
--------------
MISSOURI-2.4%
800,000 Clay County Public Building Auth.
Leasehold Rev. Certificates of
Participation, Series 1998 A,
4.05%, 5/15/99 (FSA) 800,000
515,000 Clay County Public Building Auth.
Leasehold Rev. Certificates of
Participation, Series 1998 B,
(Jail Expansion and Renovation),
4.05%, 5/15/99 (FSA) 515,000
See Notes to Financial Statements
www.americancentury.com 9
Tax-Free Money Market--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
$ 2,500,000 Fenton Industrial Development
Auth. Rev., (Clayton Corp.
Project), VRDN, 4.10%, 6/4/98
(LOC: Commerce Bank, N.A.) $2,500,000
2,260,000 Missouri Development Finance
Board Industrial Development
Rev., (J & J Enterprises), VRDN,
4.25%, 6/3/98 (LOC:
Commerce Bank, N.A.) 2,260,000
5,000,000 Missouri Housing Development
Commission Mortgage Rev.,
Series 1998 C, (Single Family),
3.90%, 4/1/99 (GIC: FGIC
Capital Markets) 5,000,000
---------------
11,075,000
---------------
NEW HAMPSHIRE-0.9%
4,000,000 New Hampshire Business Finance
Auth. Resource Recovery Rev.,
Series 1997 A, VRDN, 3.90%,
6/3/98 (LOC: Wachovia Bank,
N.A.) 4,000,000
---------------
NEW JERSEY-0.2%
1,015,000 Atlantic County Utilities Auth.
Sewer Rev., 3.70%, 1/15/99
(AMBAC) 1,015,000
---------------
NEW MEXICO-3.7%
7,440,600 New Mexico Finance Auth. Rev.,
Series 1997 A, VRDN, 3.85%,
6/3/98 (LOC: Canadian
Imperial Bank of Commerce) 7,440,600
2,000,000 New Mexico Mortgage Financing
Auth. Rev., Issue 2, 3.90%,
10/15/98 (GIC: FGIC Capital
Markets) 2,000,000
7,300,000 Santa Fe Gross Receipts Tax Rev.,
Series 1997 B, VRDN, 3.85%,
6/3/98 (LOC: Canadian
Imperial Bank of Commerce) 7,300,000
---------------
16,740,600
---------------
NEW YORK-2.8%
1,000,000 Long Island Power Auth.
Commercial Paper, 3.70%,
9/1/98 (LOC: Westdeutsche
Landesbank Girozentrale and
Bayerische Landesbank
Girozentrale) 1,000,000
7,500,000 Long Island Power Auth. Electric
System Rev., Series 2, VRDN,
4.00%, 6/3/98 (LOC:
Westdeutsche Landesbank
Girozentrale and Bayerische
Landesbank Girozentrale) 7,500,000
Principal Amount Value
- -----------------------------------------------------------------------------
$ 4,000,000 New York GO, Series 1992 B,
VRDN, 4.10%, 6/1/98 (FGIC)
(SBBPA: General Electric
Capital Corp.) $4,000,000
---------------
12,500,000
---------------
NORTH DAKOTA-0.4%
1,655,000 Hebron Industrial Development
Rev., (Dacco Inc.), VRDN, 4.10%,
6/4/98 (LOC: U.S. Bank, N.A.) 1,655,000
---------------
OHIO-2.8%
700,000 Cleveland Waterworks Rev., Series
1996 H, 4.45%, 1/1/99 (MBIA) 701,994
2,000,000 Ohio Air Commercial Paper, Series
1988 B, 3.75%, 7/28/98
(FGIC) 2,000,000
10,000,000 Ohio Housing Finance Agency
Mortgage Rev., Series 1998 A-3,
3.80%, 3/1/99 (GIC:
Trinity Funding Corp.) 10,000,000
---------------
12,701,994
---------------
OREGON-3.2%
10,400,000 Klamath Falls Electric Rev., Series
1986 E, (Salt Caves
Hydroelectric), 3.80%, 5/1/99(2) 10,400,000
4,000,000 Oregon Health, Housing,
Educational and Cultural
Facilities Auth. Rev., (Quatama
Crossing), VRDN, 3.85%,
6/4/98 (LOC: U.S. Bank, N.A.) 4,000,000
---------------
14,400,000
---------------
PENNSYLVANIA-4.9%
6,000,000 Dauphin County General Auth.
Rev., Series 1997 A,
VRDN, 3.90%, 6/3/98 (FSA) (SBBPA:
Credit Suisse First Boston) 6,000,000
7,495,000 Delaware Valley Regional Finance
Auth. Local Government Rev.,
VRDN, 4.02%, 6/4/98
(AMBAC) (SBBPA: Merrill
Lynch & Co., Inc.) (Acquired
2/6/98, Cost $7,495,000)(1) 7,495,000
3,240,000 Pennsylvania State University Rev.,
3.75%, 1/14/99 (LOC:
Rabobank Nederland) 3,240,000
5,305,000 Washington County Auth. Lease
Rev., (Higher Education Pooled
Equipment Lease), 3.95%,
6/3/98 (LOC: First Union
National Bank, Charlotte, NC) 5,305,000
---------------
22,040,000
---------------
See Notes to Financial Statements
10 1-800-345-2021
Tax-Free Money Market--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
SOUTH CAROLINA-7.0%
$16,425,000 Berkeley County Pollution Control
Rev., VRDN, 3.85%, 6/4/98
(LOC: Royal Bank of Canada) $16,425,000
15,000,000 Piedmont Municipal Power Agency
Electric Rev., Series 1997 B,
VRDN, 3.90%, 6/3/98 (MBIA) (SBBPA:
Credit Suisse First Boston) 15,000,000
---------------
31,425,000
---------------
TENNESSEE-3.4%
2,000,000 Chattanooga Industrial
Development Rev., (Market
Street Limited Project), VRDN,
3.90%, 6/3/98 (LOC: Credit
Suisse First Boston, Inc.) 2,000,000
5,000,000 Dickson County Industrial
Development Board Rev.,
(Renaissance Learning Center),
VRDN, 3.90%, 6/3/98 (LOC:
Suntrust Bank, Nashville, N.A.) 5,000,000
4,600,000 Memphis-Shelby County Industrial
Development Board Exempt
Facilities Rev., (Ponderosa
Fibers of America), VRDN,
4.00%, 6/4/98 (LOC:
Nationsbank N.A.) 4,600,000
4,000,000 Tullahoma Industrial Development
Board Rev., (Rock Tenn
Converting Co.) VRDN, 4.00%,
6/3/98 (LOC: Suntrust Bank,
Atlanta, GA) 4,000,000
---------------
15,600,000
---------------
TEXAS-3.4%
1,320,000 El Paso County GO, 5.00%,
2/15/99 (FGIC) 1,330,020
4,495,000 Midland County Hospital District
Rev., VRDN, 4.02%, 6/4/98
(AMBAC) (Liquidity: Merrill
Lynch & Co., Inc.) (Acquired
11/20/97, Cost $4,495,000)(1) 4,495,000
4,585,000 Nueces River Auth. Water Supply
Rev., VRDN, 4.02%, 6/4/98
(FSA) (Liquidity: Merrill Lynch &
Co., Inc.) (Acquired 12/4/97,
Cost $4,585,000)(1) 4,585,000
5,000,000 Texas Tax and Rev. Anticipation
Notes, 4.75%, 8/31/98 5,014,898
---------------
15,424,918
---------------
Principal Amount Value
- -----------------------------------------------------------------------------
WASHINGTON-1.9%
$ 1,800,000 Pierce County Economic Development
Corporate Rev., (K & M Holdings
II Project), VRDN,
4.25%, 6/3/98 (LOC:
Wells Fargo Bank, N. A.) $1,800,000
6,600,000 Washington State Housing
Finance Commission Multifamily
Mortgage Rev., (Mill Plain
Crossing Project), VRDN, 3.95%,
6/2/98 (LOC: Harris Trust &
Savings Bank) 6,600,000
---------------
8,400,000
---------------
WISCONSIN-6.5%
15,500,000 Ladysmith Solid Waste Disposal
Facility Rev., (Cityforest Corp.),
VRDN, 4.10%, 6/3/98 (LOC:
Union Bank of California, N.A.) 15,500,000
1,700,000 Pleasant Prairie Industrial
Development Rev., (Muskie
Enterprises), VRDN, 4.05%,
6/4/98 (LOC: Bank of
Montreal) 1,700,000
12,000,000 Wisconsin Health and Educational
Facilities Auth. Rev., (Wheaton
Franciscan Services), VRDN,
3.90%, 6/4/98 (LOC: Toronto-
Dominion Bank) 12,000,000
---------------
29,200,000
---------------
TOTAL INVESTMENT SECURITIES-100.0% $451,045,569
---------------
See Notes to Financial Statements
www.americancentury.com 11
Tax-Free Money Market--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GIC = Guaranteed Investment Contract
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
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, 1998.
(1) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may be sold only
to qualified institutional investors. The aggregate value of restricted
securities at May 31, 1998, was $35,700,000, which represented 8.0% of net
assets.
(2) Escrowed to maturity in U.S. government securities.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the amortized cost of each investment
* the percentage of investments in each state
See Notes to Financial Statements
12 1-800-345-2021
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
MAY 31, 1998
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes)
(Note 1) .............................................. $451,045,569
Cash ..................................................... 665,864
Interest receivable ...................................... 2,582,630
------------
454,294,063
------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................................. 2,741,638
Payable for investments purchased ........................ 6,837,169
Payable for capital shares redeemed ...................... 344,645
Dividends payable ........................................ 93,740
------------
10,017,192
------------
Net Assets ............................................... $444,276,871
============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................................. 444,257,220
============
Net Asset Value Per Share ................................ $ 1.00
============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $444,257,22
Accumulated undistributed net
realized gain on investments ........................... 19,651
------------
$444,276,871
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
investment income not yet paid to shareholders; and net gains earned on
investment activity but not yet paid to shareholders or net losses on investment
activity (known as realized gains or losses). This breakout tells you the value
of net assets that are performance-related, such as investment gains or losses,
and the value of net assets that are not related to performance, such as
shareholder investments and redemptions.
See Notes to Financial Statements
www.americancentury.com 13
Statement of Operations
- -----------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998
INVESTMENT INCOME
Income:
Interest ................................................ $ 9,029,894
-----------
Expenses (Note 2):
Investment advisory fees ................................ 1,201,502
Administrative fees ..................................... 13,717
Printing and postage .................................... 11,827
Registration and filing fees ............................ 11,103
Transfer agency fees .................................... 9,971
Custodian fees .......................................... 5,934
Auditing and legal fees ................................. 3,057
Trustees' fees and expenses ............................. 3,454
Other operating expenses ................................ 2,094
-----------
Total expenses ........................................ 1,262,659
Amount waived ........................................... (1,164,123)
-----------
Net expenses .......................................... 98,536
-----------
Net investment income ................................... 8,931,358
-----------
NET REALIZED GAIN
ON INVESTMENTS
Net realized gain on investments ........................ 19,651
-----------
Net Increase in Net Assets
Resulting from Operations ............................. $ 8,951,009
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* investment advisory fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
See Notes to Financial Statements
14 1-800-345-2021
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
YEARS ENDED MAY 31, 1998 AND MAY 31, 1997
Increase (Decrease) in Net Assets
1998 1997
OPERATIONS
Net investment income ................ $ 8,931,358 $ 2,620,733
Net realized gain on
investments ........................ 19,651 --
--------- ---------
Net increase in net assets
resulting from operations .......... 8,951,009 2,620,733
--------- ---------
DISTRIBUTIONS
TO SHAREHOLDERS
From net investment income ........... (8,931,358) (2,620,733)
--------- ---------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares sold ............ 786,813,923 79,662,054
Proceeds from reinvestment
of distributions ................... 8,415,885 2,479,220
Payments for shares redeemed ......... (436,702,980) (87,528,514)
------------ -----------
Net increase (decrease) in
net assets from capital
share transactions ................. 358,526,828 (5,387,240)
------------ -----------
Net increase (decrease)
in net assets ...................... 358,546,479 (5,387,240)
NET ASSETS
Beginning of year .................... 85,730,392 91,117,632
------------ -----------
End of year .......................... $ 444,276,871 $ 85,730,392
============= =============
TRANSACTIONS IN
SHARES OF THE FUND
Sold ................................. 786,813,923 79,662,054
Issued in reinvestment
of distributions ................... 8,415,885 2,479,220
Redeemed ............................. (436,702,980) (87,528,514)
------------ -----------
Net increase (decrease) .............. 358,526,828 (5,387,240)
------------ -----------
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 15
Notes to Financial Statements
- -----------------------------------------------------------------------------
MAY 31, 1998
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 (the Fund), is one
of the eight funds issued by the Trust. The Fund is diversified under the 1940
Act. Its 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 by investing primarily in short-term
municipal obligations. The Fund may concentrate its 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 Fund, are in accordance with
accounting policies generally accepted in the investment company industry.
Security Valuations--Portfolio securities are valued at amortized cost,
which approximates current market value. 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
Income Tax Status--It is the policy of the Fund 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 income taxes.
Distributions to Shareholders--Distributions from net investment income are
declared and credited daily and distributed monthly. The 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, 1998, 100% (unaudited) of the Fund's
distributions from net investment income have been designated as exempt from
federal income tax.
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.
Additional Information--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
16 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The shareholders of the Fund approved a new management agreement with
American Century Investment Management, Inc. (ACIM) on July 30, 1997, effective
August 1, 1997, which replaced the previously existing contracts between the
Fund and Benham Management Corporation and American Century Services Corporation
(ACSC) for advisory, administrative and transfer agency services. Under the
agreement, ACIM will provide all services required by the Fund in exchange for a
single, unified management fee. Expenses excluded from the agreement are
brokerage, taxes, portfolio insurance, interest, fees and expenses of those
Trustees who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses. The annual rate at which this fee is assessed is determined monthly in
a two-step process: First, a fee rate schedule is applied to the net assets of
all of the funds in the Fund's investment category which are managed by ACIM
(the "Investment Category Fee"). The overall investment objective of each Fund
determines its Investment Category. The three investment categories are: the
Money Market Fund Category, the Bond Fund Category, and the Equity Fund
Category. The Fund is included in the Money Market Fund Category. Second, a
separate fee rate schedule is applied to the net assets of all of the funds
managed by ACIM (the "Complex Fee"). The Investment Category Fee and the Complex
Fee are then added to determine the unified management fee rate. The management
fee is paid monthly by the Fund based on its aggregate average daily net assets
during the previous month multiplied by the monthly management fee rate.
The annualized Investment Category Fee schedule for the Fund is as follows
0.2700% of the first $1 billion
0.2270% of the next $1 billion
0.1860% of the next $3 billion
0.1690% of the next $5 billion
0.1580% of the next $15 billion
0.1575% of the next $25 billion
0.1570% of the average daily net assets over $50 billion
The annualized Complex Fee schedule is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
ACIM has agreed to waive all expenses through July 31, 1998. Management
fees of $1,138,684 were incurred under the new management agreement and are
included in Investment Advisory Fees and Amount Waived in the Statement of
Operations. Total operating expenses under the previous agreement, for the two
months ended July 31, 1997 were $98,536, net of the amount waived by Benham
Management Corporation of $25,439. The annualized ratio of operating expenses to
average net assets, net of the amount waived, for the same period was 0.67%.
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, ACIM, and
the Trust's transfer agent, ACSC.
www.americancentury.com 17
<TABLE>
<CAPTION>
Tax-Free Money Market--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
1998 1997 1996 1995 1994
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 ........... 0.04 0.03 0.03 0.03 0.02
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ...... (0.04) (0.03) (0.03) (0.03) (0.02)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(1) ................. 3.70% 2.98% 3.19% 2.95% 1.92%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........... 0.04%(2) 0.67% 0.65% 0.66% 0.67%
Ratio of Net Investment Income
to Average Net Assets ........... 3.68%(2) 2.93% 3.12% 2.88% 1.89%
Net Assets, End of Year
(in thousands) ................. $ 444,277 $ 85,730 $ 91,118 $ 92,034 $ 109,818
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) ACIM has voluntarily waived its management fee from August 1, 1997 through
July 31, 1998. In absence of the waiver, the annualized ratio of operating
expenses to average net assets and annualized ratio of net investment
income to average net assets would have been 0.52% and 3.20%, respectively.
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
See Notes to Financial Statements
18 1-800-345-2021
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Board of Trustees of the
American Century Municipal Trust
and Shareholders of American Century- Benham
Tax Free Money Market Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the American Century - Benham Tax Free Money
Market Fund (one of the funds constituting The American Century Municipal Trust,
hereafter referred to as the "Fund") at May 31, 1998, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
The statement of changes in net assets for the year ended May 31, 1997 and the
financial highlights for each of the four years in the period ended May 31, 1997
were audited by other auditors, whose report, dated July 7, 1997, expressed an
unqualified opinion on those statements. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 16, 1998
www.americancentury.com 19
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific benchmark index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies:
Tax-Free Money Market is a money market fund that 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.
Investment income may be subject to certain state and local taxes, and
depending on your tax status, may be subject to the federal alternative minimum
tax. Capital gains are not exempt from federal income tax.
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 category for the fund is:
Tax-Exempt Money Market Funds --funds that intend to maintain a constant
net asset value and invest in high-quality municipal obligations with
dollar-weighted average maturities of less than 90 days.
CREDIT RATING INFORMATION
Bond credit quality (the issuer's financial strength and the likelihood of
timely payment of interest and principal) is a key factor in bond investment
analysis. Credit ratings issued by independent rating and research companies
such as Standard & Poor's help quantify credit quality--the stronger the issuer,
the higher the credit rating. In turn, credit quality and ratings greatly
influence bond prices and yields--high ratings mean higher prices and less
current income (yield) as compensation for risk.
But credit ratings are subjective. They reflect the opinions of the rating
agencies that issue them and are not absolute standards of quality. Furthermore,
high credit ratings do not guarantee good investment performance. They do not
reflect the price stability of a municipal security when economic or market
conditions change.
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGER:
BRYAN KARCHER
MUNICIPAL CREDIT RESEARCH TEAM
MANAGER:
STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS:
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
20 1-800-345-2021
Glossary
- -----------------------------------------------------------------------------
RETURNS
* 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.
* 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 18.
YIELDS
* 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.
* 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.
* 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
* 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%).
* 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
* Number of Securities--the number of different securities held by a fund on a
given date.
* 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.
* 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
* Municipal Commercial Paper (CP)--high-grade short-term securities backed by a
line of credit from a bank.
* Municipal Notes--securities with maturities of two years or less.
* Variable-Rate Demand Notes (VRDNs)--securities that track market interest
rates and stabilize their market values using periodic (daily or weekly)
interest rate adjustments.
www.americancentury.com 21
Notes
- -----------------------------------------------------------------------------
22 1-800-345-2021
Notes
- -----------------------------------------------------------------------------
www.americancentury.com 23
Notes
- -----------------------------------------------------------------------------
24 1-800-345-2021
/inside back cover/
[american century logo(reg.sm)]
American
Century(reg.tm)
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
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution
to prospective investors unless preceded or accompanied by an effective
prospectus.
(C) 1998 American Century Services Corporation
Funds Distributor, Inc.
[recycled logo]
Recycled
/back cover/
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
American Century Investments Bulk Rate
P.O. Box 419200 U.S. Postage Paid
Kansas City, MO 64141-6200 American Century
www.americancentury.com Companies
9807 (C)1998 American Century Services Corporation
SH-BKT-13103 Funds Distributor, Inc.
<PAGE>
/front cover/
May 31, 1998
Annual Report
- -------------
American Century
[graphic of U.S. currency and two individuals walking up stairs]
Benham Group
- ------------
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
[american century logo(reg.sm)]
American
Century(reg.tm)
/inside front cover/
A Note from the Founder
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in tern, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very
good information, from fund statistics and financials to Q&A's with fund
managers. We hope the new design will make the reports more interesting and
understandable, while helping you keep abreast of your fund's strategy and
performance.
What's New
The reports are designed to be attractive and easy to use whether you're
reading them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
The Bottom Line
The new design actually costs slightly less than the old one. We
reallocated costs and eliminated a cover letter and the envelope that previously
came with your report enclosed. This not only saves money but reduces the number
of mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-
friendly publication.
We hope you enjoy it.
[left margin]
Benham Group
Limited-Term Tax-Free
(TWTSX)
Benham Group
Intermediate-Term
Tax-Free
(BNTIX)
Benham Group
Long-Term Tax-Free
(BTFLX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
Our Message to You
- -----------------------------------------------------------------------------
/photo James E. Stowers, Jr. with James E. Stowers III, seated/
photo James E. Stowers, Jr. with James E. Stowers III, seated
U.S. municipal bonds provided price gains as well as tax-exempt interest
income to investors during the year ended May 31, 1998. Low inflation, economic
turmoil overseas, and healthy economic and credit conditions in the U.S. created
a favorable investment climate for the municipal market. The positive returns of
the Tax-Free funds reflected this environment. In addition, the Tax-Free funds
produced higher returns and more federal tax-exempt income than the average of
their peers, reflecting the solid efforts of our municipal investment and credit
research teams.
The Tax-Free funds changed their fiscal year end to May 31 after the merger
last year with the Tax-Exempt funds. As a result, you've received back-to-back
annual reports reflecting the funds' old and new fiscal year ends. We regret any
confusion this may have caused. From now on, all of your annual reports will be
dated May 31.
Turning to the corporate front, we've had an eventful year at American
Century. We gained a powerful business partner in January, when J.P. Morgan, one
of the oldest, largest and most respected financial service institutions in the
U.S., became a substantial minority shareholder. Another significant event was
the retirement of Jim Benham, founder of the Benham Group, in December.
Overall, we've had a noteworthy record of continuity in the management of
American Century's tax-free and municipal funds. The investment team that
manages the Tax-Free funds has expanded its resources and hasn't experienced any
portfolio manager turnover since Benham merged with American Century. The team's
approach still adheres to investment philosophies that Jim Benham helped develop
during his 25 years as a mutual fund manager, but also blends in new technology
and resources that the merger with American Century made possible.
The Tax-Free funds have performed well and serve as an example of the
quality of the tools we aim to provide to investors to help them meet their
financial goals. We're committed to making your relationship with us as easy and
productive as possible.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER CHIEF EXECUTIVE OFFICER
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
Municipal Credit Review ................................................ 4
LIMITED-TERM TAX-FREE
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Schedule of Investments ................................................ 9
INTERMEDIATE-TERM TAX-FREE
Performance Information ................................................ 11
Management Q&A ......................................................... 12
Schedule of Investments ................................................ 15
LONG-TERM TAX-FREE
Performance Information ................................................ 19
Management Q&A ......................................................... 20
Schedule of Investments ................................................ 23
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities .......................................................... 27
Statements of Operations ............................................... 28
Statements of Changes
in Net Assets ........................................................ 29
Notes to Financial
Statements ........................................................... 31
Financial Highlights ................................................... 34
Report of Independent
Accountants .......................................................... 37
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ....................................................... 38
Comparative Indices .................................................. 38
Lipper Rankings ...................................................... 38
Investment Team
Leaders ............................................................ 38
Glossary ............................................................... 39
www.americancentury.com 1
Report Highlights
- -----------------------------------------------------------------------------
MARKET PERSPECTIVE
* Low inflation and economic turmoil in Asia helped push interest rates lower,
which caused municipal bond prices to increase.
* Most of the rate declines and price gains occurred in the fourth quarter of
1997. Rates and prices were more stable through the first five months of
1998.
* The supply of municipal securities grew dramatically, thanks to low interest
rates and a record-setting new municipal issue from the Long Island Power
Authority.
MUNICIPAL CREDIT REVIEW
* Municipal credit quality remained generally positive, thanks largely to the
healthy national economy.
* Municipal credit rating upgrades continued to outpace downgrades, with nearly
five upgrades for every downgrade.
* However, Alaska and Hawaii experienced credit downturns, and we're carefully
monitoring the effect of the Asian economic crisis on the western U.S.
* We added a sixth analyst to our municipal credit research team.
LIMITED-TERM TAX-FREE
* Limited-Term Tax-Free performed very well, producing higher returns and more
federal tax-exempt income than the average short/intermediate municipal fund,
according to Lipper Analytical Services.
* Performance was helped by our BBB bond holdings, which benefited from
improved credit quality and narrower yield spreads between bonds rated AAA
and BBB.
* We continued to boost returns by buying discount bonds (which have coupons
below the market rate) and selling them when they approached par as interest
rates declined.
INTERMEDIATE-TERM TAX-FREE
* Intermediate-Term Tax-Free performed well, producing higher returns and more
federal tax-exempt income than the average intermediate municipal fund,
according to Lipper Analytical Services.
* The keys to our outperformance were the portfolio's coupon and maturity
structures, as well as our below-average expenses.
* We have a generally positive outlook for the market and expect to maintain
the same coupon and maturity structures going forward.
LONG-TERM TAX-FREE
* Long-Term Tax-Free performed well, producing higher returns and more federal
tax-exempt income than the average general municipal debt fund, according to
Lipper Analytical Services.
* As bond yields declined, we swapped out of higher-coupon premium bonds into
lower-coupon discount bonds.
* The discount bond holdings provided "call protection" --they were less likely
to be refinanced by issuers as interest rates fell. The discount bonds also
increased the fund's duration--its sensitivity to interest rate changes.
* The yield difference between long-term municipal securities rated BBB and AAA
shrank to historic lows. We reduced our BBB holdings because we didn't think
we were being adequately compensated for holding the lower-rated bonds.
[left margin]
LIMITED-TERM TAX-FREE
(TWTSX)
TOTAL RETURNS: AS OF 5/31/98
6 Months 2.53%*
1 Year 5.79%
NET ASSETS: $38.4 million
30-DAY SEC YIELD: 3.67%
INCEPTION DATE: 3/1/93
INTERMEDIATE-TERM TAX-FREE
(BNTIX)
TOTAL RETURNS: AS OF 5/31/98
6 Months 3.11%*
1 Year 7.60%
NET ASSETS: $137.9 million
30-DAY SEC YIELD: 4.00%
INCEPTION DATE: 3/2/87
LONG-TERM TAX-FREE
(BTFLX)
TOTAL RETURNS: AS OF 5/31/98
6 Months 3.55%*
1 Year 9.58%
NET ASSETS: $116.6 million
30-DAY SEC YIELD: 4.33%
INCEPTION DATE: 3/2/87
* Not annualized.
See Total Returns on pages 5, 11 and 19.
Investment terms are defined in the Glossary on page 39.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- -----------------------------------------------------------------------------
/photo of Randall W. Merk, director of fixed-income investing at American
Century/
Randall W. Merk, director of fixed-income investing at American Century
PERFORMANCE PICTURE
Municipal securities produced moderate gains during the year ended May 31,
1998. Economic turmoil in Asia helped cool inflationary pressures, pushing
municipal bond yields lower and prices higher. Long-term municipal bonds, which
are most sensitive to interest rate changes, outpaced intermediate- and
short-term municipal securities. For example, the Lehman Brothers Long-Term
Municipal Bond Index returned 11.67%. Intermediate securities, represented by
the Lehman Brothers 5-Year General Obligation Index, returned 6.95%. The
short-term Merrill Lynch 0- to 3-Year Municipal Index posted a 4.96% return.
INTEREST RATE OVERVIEW
The majority of municipals' gains came in the fourth quarter of 1997, when
long-term interest rates trended downward. Rates came down because of the
worsening Asian economic crisis, which curtailed U.S. business overseas and put
a lid on corporate America's ability to raise prices for its goods and services.
That eased growing inflationary pressures, sparking the bond market rally. In
1998, however, interest rates and bond prices traded in a much narrower range.
That's because the U.S. economy remained healthy enough to keep the job market
growing at a historically strong pace. Lacking a clear signal as to whether a
weaker Asia or rising domestic wages would ultimately win out, the Federal
Reserve (the Fed) left interest rates unchanged.
INCREASED SUPPLY
The supply of municipals grew dramatically, thanks in large part to a
record-setting new municipal issue. In May, the Long Island Power Authority
issued $3.5 billion in municipal debt, the single largest municipal deal in
history. Scrambling to take advantage of low interest rates, other issuers
brought to market an enormous number of new municipal securities. For the first
five months of 1998, new issue volume was up over 53% compared with the previous
year.
The demand for municipals didn't keep pace with the growing appetite for
U.S. Treasury bonds, which are seen as a safe haven against international market
turmoil. The near-record amount of municipal issuance and the growing demand for
Treasury securities caused municipals to underperform Treasurys. As a result,
municipal bonds were very attractively valued relative to Treasurys.
FLATTENING YIELD CURVE
Reflecting the Fed's stable interest rate policy, short-term interest rates
remained relatively unchanged. However, yields on long-term municipal securities
fell about 50 basis points (a basis point equals 0.01%). This resulted in the
"flattening" yield curve shown in the accompanying graph. The yield difference
between a one-year note and a 30-year bond fell to just 128 basis points on May
31, 1998.
[right margin]
"ECONOMIC TURMOIL IN ASIA HELPED COOL INFLATIONARY PRESSURES, PUSHING MUNICIPAL
BOND YIELDS LOWER AND PRICES HIGHER."
[line chart]
FLATTENING MUNICIPAL YIELD CURVE
YEARS TO MATURITY 5/31/97 5/31/98
1 3.85% 3.69%
2 4.15% 3.85%
3 4.35% 3.95%
4 4.50% 4.04%
5 4.60% 4.09%
6 4.66% 4.16%
7 4.72% 4.23%
8 4.78% 4.30%
9 4.84% 4.37%
10 4.90% 4.44%
11 4.98% 4.51%
12 5.05% 4.59%
13 5.13% 4.66%
14 5.20% 4.74%
15 5.28% 4.81%
16 5.31% 4.84%
17 5.34% 4.86%
18 5.36% 4.89%
19 5.39% 4.91%
20 5.42% 4.94%
21 5.43% 4.94%
22 5.43% 4.94%
23 5.44% 4.95%
24 5.44% 4.95%
25 5.45% 4.95%
26 5.45% 4.95%
27 5.46% 4.96%
28 5.46% 4.96%
29 5.47% 4.97%
30 5.47% 4.97%
Source: Bloomberg Financial Markets
"THE YIELD DIFFERENCE BETWEEN A ONE-YEAR NOTE AND A 30-YEAR BOND FELL TO JUST
128 BASIS POINTS ON MAY 31, 1998."
www.americancentury.com 3
Municipal Credit Review
- -----------------------------------------------------------------------------
POSITIVE CREDIT TRENDS
Municipal credit trends, benefiting primarily from the healthy national
economy, remained generally positive during the year ended May 31, 1998. During
the first three months of 1998, the U.S. economy grew at an impressive 5.4%
annual rate after increasing 3.7% in 1997. The unemployment rate declined
throughout the period to a 28-year low of 4.3% in May.
Municipal credit rating upgrades continued to outpace downgrades. Overall,
there were nearly five upgrades for every downgrade for the year ended in May.
The generally positive overall municipal credit environment is reflected in the
accompanying map, which shows state credit ratings, where available.
REGIONAL PERFORMANCE
The vast majority of the country continued to see stable to improving
credit quality thanks to increased revenues and property values. Nevada, Arizona
and Utah remain three of the fastest growing states, leading the trend toward
improved credit quality in the western and Rocky Mountain states. The Southeast
also saw many states receive credit rating upgrades in the last year.
However, a few states are experiencing credit downturns. Alaska has a
negative credit outlook because of the recent decline in oil prices, which hit a
nine-year low in May. Hawaii's credit quality declined recently due to a
decrease in tourism and its strong ties to Asia. Though the Asian economic
crisis has so far had only a limited effect on other western states, we are
carefully monitoring its impact on the high technology sector, tourism,
agriculture and other export-oriented businesses in these states. In addition,
we're concerned that full employment and rapidly rising wages and benefits costs
could trigger inflation in select areas of the country.
SECTOR ANALYSIS
Tax-backed bonds have benefited most from positive credit trends in recent
years because their quality is closely tied to the health of the economy.
Bonds backed by the revenue from a specific municipal project or entity
have also generally fared well. However, municipal electric utilities continue
to struggle after the recent deregulation of the industry--many public utilities
have been exposed to competition for the first time, and their bonds have come
under pressure as a result.
We also continue to carefully monitor the health care sector. The trend
toward managed care has brought small, single-site health care providers under
intense pressure to cut costs and improve efficiency.
EXPANDING CREDIT TEAM
Careful credit analysis and security selection are vital to our investment
approach for the Benham Municipal and Tax-Free funds. To strengthen that
approach going forward, we continued to add to our team of municipal credit
analysts--the sixth member of our team joined us in July. We believe a larger
and more diverse credit team gives us a better opportunity to add value for our
shareholders because each team member brings unique experience and
industry-specific knowledge.
[left margin]
[map of U.S.]
NATIONAL CREDIT QUALITY AS OF MAY 31, 1998
STATE S&P RATING
Alabama AA
Alaska AA
Arizona AA
Arkansas AA
California A+
Colorado AA
Connecticut AA-
Delaware AA+
District Of Columbia BB
Florida AA+
Georgia AAA
Hawaii A+
Idaho AA
Illinois AA
Indiana AA
Iowa AA
Kansas AA
Kentucky AA
Louisiana A-
Maine AA+
Maryland AAA
Massachusetts AA-
Michigan AA+
Minnesota AAA
Mississippi AA
Missouri AAA
Montana AA-
Nebraska NR
Nevada AA
New Hampshire AA+
New Jersey AA+
New Mexico AA+
New York A
North Carolina AAA
North Dakota AA-
Ohio AA+
Oklahoma AA
Oregon AA
Pennsylvania AA-
Rhode Island AA-
South Carolina AAA
South Dakota AA
Tennessee AA+
Texas AA
Utah AAA
Vermont AA-
Virginia AAA
Washington AA+
West Virginia AA-
Wisconsin AA
Wyoming NR
Source: Standard & Poor's
CREDIT RATING DEFINITIONS
* AAA, AA AND A ARE STANDARD & POOR'S HIGHEST LONG-TERM CREDIT RATINGS.
BONDS IN THESE RATING CATEGORIES ARE CONSIDERED "INVESTMENT GRADE,"
MEANING THEY'RE RELATIVELY SAFE FROM DEFAULT.
* AAA--EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* AA--VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* A--STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
4 1-800-345-2021
<TABLE>
Limited-Term Tax-Free--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
INCEPTION 3/1/93
LIMITED-TERM MERRILL LYNCH 0- TO SHORT/INTERMEDIATE MUNI DEBT FUNDS(2)
TAX-FREE 3-YEAR MUNI INDEX AVERAGE RETURN FUND'S RANKING
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 MONTHS(1) ............ 2.53% 2.29% 2.24% --
1 YEAR ................. 5.79% 4.96% 5.26% 7 OUT OF 31
- -----------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS ................ 4.87% 4.55% 4.54% 9 OUT OF 26
5 YEARS ................ 4.57% 4.40% 4.43% 6 OUT OF 13
LIFE OF FUND ........... 4.50% 4.24% 4.46%(3) 7 OUT OF 12(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
(3) Since 3/31/93, the date nearest the fund's inception for which return data
are available.
See pages 38-39 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain chart]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 5/31/98
Limited-Term Merrill Lynch 0- to
Tax-Free 3-Year Muni Index
03/01/93 $10,000 $10,000
Mar-93 $10,014 $9,993
Jun-93 $10,132 $10,112
Sep-93 $10,227 $10,151
Dec-93 $10,336 $10,324
Mar-94 $10,322 $10,320
Jun-94 $10,426 $10,397
Sep-94 $10,524 $10,500
Dec-94 $10,592 $10,459
Mar-95 $10,791 $10,695
Jun-95 $10,965 $10,905
Sep-95 $11,111 $11,065
Dec-95 $11,307 $11,214
Mar-96 $11,365 $11,326
Jun-96 $11,436 $11,404
Sep-96 $11,565 $11,537
Dec-96 $11,723 $11,675
Mar-97 $11,769 $11,730
Jun-97 $12,008 $11,908
Sep-97 $12,205 $12,075
Oct-97 $12,247 $12,125
Nov-97 $12,288 $12,154
Dec-97 $12,379 $12,224
Jan-98 $12,458 $12,286
Feb-98 $12,484 $12,326
Mar-98 $12,502 $12,358
Apr-98 $12,470 $12,367
May-98 $12,599 $12,433
The chart at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The
Merrill Lynch 0- to 3-Year Municipal Index is provided for comparison in each
chart. Limited-Term Tax-Free's returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the returns of
the index do not. 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.
[bar chart]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MAY 31)
Limited-Term Merrill Lynch 0- to
Tax-Free 3-Year Muni Index
5/93* 0.76% 0.23%
5/94 3.26% 4.02%
5/95 5.00% 4.31%
5/96 4.32% 4.62%
5/97 4.49% 4.08%
5/98 5.79% 4.96%
* From 3/1/93, the fund's inception date.
www.americancentury.com 5
Limited-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
An interview with Joel Silva, a portfolio manager on the Limited-Term
Tax-Free fund investment team.
HOW DID THE FUND PERFORM OVER THE FISCAL YEAR ENDED MAY 31, 1998?
Limited-Term Tax-Free performed very well. The portfolio returned 5.79%,
compared with the 4.96% return of the Merrill Lynch 0- to 3-Year Municipal Index
and the 5.26% average return of the 31 "Short/Intermediate Municipal Debt Funds"
tracked by Lipper Analytical Services. Based on these comparisons, Limited-Term
Tax-Free ranked in the top quarter of its Lipper peer group for the period. (See
the Total Returns table on the previous page for additional performance
comparisons.)
HOW DID THE FUND'S YIELD COMPARE?
Limited-Term Tax-Free produced slightly more federal tax-free income than
the average short/intermediate municipal fund. As of May 31, Limited-Term
Tax-Free had a 30-day SEC yield of 3.67%, while the fund's peers averaged 3.60%.
The fund's nominal yield translates into a tax-equivalent yield of more than 6%
for an investor in the highest federal tax bracket. (See the Yields table at
left for additional tax-equivalent yields.) However, a portion of the fund's
income will be taxable for shareholders who file under the federal alternative
minimum tax (AMT), and investors should keep in mind that the portfolio's yield
will fluctuate as rates and its holdings change.
CAN YOU EXPLAIN HOW LIMITED-TERM TAX-FREE MANAGED TO PRODUCE BETTER-THAN-AVERAGE
YIELDS AND RETURNS?
Limited-Term Tax-Free's strong performance was the result of our
value-oriented approach to managing the portfolio's credit quality, coupon and
maturity structures. Another reason for the outperformance was our below-average
management fee. Other things being equal, lower fees mean higher yields and
returns for our shareholders.
LET'S START WITH CREDIT QUALITY. HOW DID MANAGING THE FUND'S CREDIT PROFILE HELP
RETURNS?
Overall, we maintained Limited-Term Tax-Free's generally high credit
quality, with half its assets in AAA bonds (see the Portfolio Composition by
Credit Rating table on page 7). We also saw an increase in A holdings and a
slight decrease in BBBs. That was partly a result of credit rating upgrades to
some of our BBB bonds. Nevertheless, we continued to hold about 20% of assets in
higher-yielding BBB securities, which we think still represent good values in
the limited-term portion of the municipal market.
Holding on to BBB bonds we bought some time ago in a higher interest rate
environment helped returns for several reasons. So far in 1998, interest rates
have fluctuated in a relatively narrow range (see the Market Perspective on page
4). In this type of environment, a bond's regular interest payments make up a
larger part of total return than price appreciation. In addition, the shorter
the maturity, the more a municipal bond fund's returns are determined by its
yield. Holding BBB bonds was also good because credit quality improved and
credit spreads (the difference in yield between bonds rated BBB and AAA)
continued to narrow.
[left margin]
"LIMITED-TERM TAX-FREE'S STRONG PERFORMANCE WAS THE RESULT OF OUR
VALUE-ORIENTED APPROACH TO MANAGING THE PORTFOLIO'S CREDIT QUALITY, COUPON AND
MATURITY STRUCTURES."
YIELDS AS OF MAY 31, 1998
30-DAY SEC YIELD
3.67%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.10%
31.0% TAX BRACKET 5.32%
36.0% TAX BRACKET 5.73%
39.6% TAX BRACKET 6.08%
PORTFOLIO AT A GLANCE
5/31/98 10/31/97(1)
NUMBER OF SECURITIES 36 29
WEIGHTED AVERAGE
MATURITY 3.6 YRS 3.7 YRS
AVERAGE DURATION 2.9 YRS 3.0 YRS
EXPENSE RATIO 0.52%(2) 0.59%
(1) Date of last annual report.
(2) Annualized.
Investment terms are defined in the Glossary on page 39.
6 1-800-345-2021
Limited-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
(Continued)
CAN YOU EXPLAIN HOW BETTER CREDIT QUALITY AND NARROWER CREDIT SPREADS HELPED
INCREASE THE VALUE OF THOSE BBB SECURITIES?
Simply put, BBB bonds pay higher yields to compensate for their additional
credit risk. But when credit quality improves, the risk of holding a BBB bond
decreases. Our BBBs became more valuable because now we're getting a BBB yield,
but with less than BBB risk.
You can see how spreads and yields affect returns by looking at the Credit
Spreads graphic at right. It has two yield curves--one for AAA and one for BBB
bonds. The yield curves illustrate a normal risk/return relationship--you get
more return (yield) for taking on more risk (a longer maturity). You also get
more yield for taking on more credit risk--as you can see, BBB bonds pay higher
yields than AAAs.
But notice that the spread between BBB and AAA municipal bonds is wider
between five and 10 years than for bonds with maturities less than five years.
Let's say we hold a six-year BBB municipal bond. At current market rates, it
would yield 35 basis points (0.35%--a basis point equals 0.01%) more than a
six-year AAA bond. As our hypothetical BBB bond nears maturity, it "rolls down
the yield curve" to five years, where the spread between AAA and BBB bonds is
currently only 30 basis points, or 0.30%. Now our original BBB bond is worth
more than a bond of comparable remaining maturity and credit quality because of
its higher coupon payment.
IS THE BENEFIT OF HOLDING BONDS OVER TIME AS THEY "ROLL DOWN THE YIELD CURVE"
TOWARD MATURITY LIMITED TO CREDIT QUALITY?
No. Other things being equal, any longer-term higher-yielding bond will
rise in value as it rolls down a "normal" upward-sloping yield curve. And the
steeper the curve, the greater the increase in value because the bond in
question starts at a higher yield relative to shorter-maturity bonds. It's those
two factors in combination (the maturity roll and the spread-tightening roll)
that made our BBB holdings such good investments.
YOU ALSO MENTIONED THAT MANAGING LIMITED-TERM TAX-FREE'S COUPON STRUCTURE
HELPED RETURNS. CAN YOU EXPLAIN THIS?
The limited-term portion of the municipal market is heavily influenced by
retail investors--individuals and other, less-sophisticated municipal market
players--who tend to buy higher-quality, shorter-term par value bonds. As we've
discussed in past reports, the presence of retail buyers in the market allows us
to swap in and out of premium, discount and par bonds to enhance returns.
Premium bonds trade at prices above face value because their coupons are higher
than prevailing market interest rates. Discount bonds trade below face value
because their coupons are lower than prevailing interest rates, while par bonds
have coupons near market rates and trade at face value. So, for example, this
means we can buy discount bonds in a rallying market and sell them to retail
investors as the bonds approach par. We make these trades whenever possible to
increase Limited-Term Tax-Free's returns.
[right margin]
"OVERALL, WE MAINTAINED LIMITED-TERM TAX-FREE'S GENERALLY HIGH CREDIT QUALITY,
WITH HALF ITS ASSETS IN AAA BONDS."
[line chart]
CREDIT SPREADS: AAA VS. BBB YIELD CURVES
Yields as 5/29/98
Years AAA BBB
1 3.700% 4.000%
2 3.850% 4.150%
3 3.950% 4.250%
4 4.050% 4.350%
5 4.100% 4.450%
6 4.175% 4.525%
7 4.250% 4.600%
8 4.300% 4.667%
9 4.350% 4.733%
10 4.400% 4.800%
11 4.480% 4.870%
12 4.560% 4.940%
13 4.640% 5.010%
14 4.720% 5.080%
15 4.800% 5.150%
16 4.840% 5.180%
17 4.880% 5.210%
18 4.920% 5.240%
19 4.960% 5.270%
20 5.000% 5.300%
21 5.006% 5.306%
22 5.012% 5.312%
23 5.018% 5.318%
24 5.024% 5.324%
25 5.030% 5.330%
26 5.034% 5.334%
27 5.038% 5.338%
28 5.042% 5.342%
29 5.046% 5.346%
30 5.050% 5.350%
Source: Municipal Market Data
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/98 11/30/97
AAA 51% 51%
AA 17% 21%
A 12% 6%
BBB 20% 22%
Ratings provided by Standard & Poor's. (See page 4 for more information.)
www.americancentury.com 7
Limited-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
(Continued)
WHAT ABOUT THE FUND'S MATURITY STRUCTURE?
We structured the maturities of the bonds in the portfolio to take
advantage of the slope of the yield curve. To do that, we generally maintained a
"barbell" structure, overweighting bonds with maturities of one and seven years
and underweighting bonds between these maturities. The longer-term,
higher-yielding securities generated price gains as they rolled down the yield
curve, while the shorter-term bonds helped keep duration in check.
CAN YOU DEFINE DURATION IN GENERAL AND EXPLAIN HOW YOU MANAGED THE FUND'S
DURATION SPECIFICALLY?
Duration measures a portfolio's sensitivity to changes in interest rates.
The longer a fund's duration, the more its share price rises when rates fall,
and the more it declines when rates rise. Rather than make big bets on duration,
we look to outperform our peers through careful credit analysis and security
selection. As a result, we tend to make only very modest adjustments to duration
over time, keeping it within a relatively narrow band around three years. The
last year is a good example--duration was little changed at 2.9 years by the end
of May.
EARLIER YOU INDICATED THAT A PORTION OF THE FUND'S ASSETS WERE IN BONDS WHOSE
INTEREST PAYMENTS ARE SUBJECT TO AMT. WHAT'S THE ATTRACTION?
We have the flexibility to hold up to 20% of assets in AMT paper. We think
AMT bonds are attractive because their yields are higher than non-AMT bonds.
Buying AMT paper allowed us to pick up 20-25 basis points in yield without
taking on any additional credit risk. In effect, we've been able to get BBB-like
yields with AAA credit quality on many AMT securities.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We have a generally positive outlook. Many analysts expect economic growth
to slow in the second quarter as a result of a big buildup in business
inventories, the General Motors strike and slower business with Asia. However, a
robust consumer sector, which accounts for about two-thirds of economic growth,
suggests it's unlikely the economy will slow dramatically in the near future.
Nevertheless, inflation remains low, having risen at a 1.5% annual rate so far
in 1998. That probably means interest rates can trend a little lower, though
they'll probably continue to fluctuate in a relatively narrow range until we see
evidence that the economy is slowing.
WHAT ARE YOUR PLANS FOR LIMITED-TERM TAX-FREE OVER THE NEXT SIX MONTHS?
We expect to continue to apply many of the same portfolio coupon, maturity
and credit structures we've discussed in this report. That means we're likely to
maintain a maturity barbell as long as the yield curve remains relatively steep
for short-term bonds. Similarly, we'll also continue to keep about 20% of assets
in BBB bonds as long as we feel we're getting paid to take on that additional
credit risk. We'll also continue to take a conservative approach to managing
duration, keeping it around three years.
[left margin]
TOP FIVE STATES (AS OF 5/31/98)
% OF FUND INVESTMENTS
NEW YORK 18.5%
MISSOURI 11.9%
CALIFORNIA 11.3%
OHIO 10.6%
ARIZONA 5.9%
TOP FIVE STATES (AS OF 11/30/97)
% OF FUND INVESTMENTS
NEW YORK 17.3%
MISSOURI 10.2%
OHIO 10.0%
FLORIDA 7.7%
MICHIGAN 6.6%
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
Revenue 42%
Prerefunded/ETM 3%
GO 22%
Land-Secured 6%
COPs/Leases 27%
AS OF NOVEMBER 30, 1997
Revenue 41%
Prerefunded/ETM 3%
GO 25%
Land-Secured 3%
COPs/Leases 28%
Security types are defined on page 39.
8 1-800-345-2021
Limited-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount (In Thousands) Value
- ---------------------------------------------------------------------------- -
MUNICIPAL SECURITIES
ALASKA--2.5%
$1,000 Alaska Industrial Development &
Export Auth. Rev., Series
1998 A, 4.50%, 4/1/01
(MBIA) $ 1,007
--------------
ARIZONA--5.9%
1,500 Arizona Transportation Board
Excise Tax Rev., (Maricopa
County), 5.60%, 7/1/02
(AMBAC) 1,585
750 Maricopa County Certificates of
Participation, 5.625%, 6/1/00 765
--------------
2,350
--------------
CALIFORNIA--11.3%
660 California Educational Facilities
Auth. Rev., Series 1998 A,
(Pooled College & University
Projects), 4.70%, 7/1/02 663
1,225 Garden Grove Agency Community
Development Tax Allocation,
(Garden Grove Community
Project), 5.20%, 10/1/01 1,262
1,500 Long Beach Harbor Rev., Series
1998 A, 5.00%, 5/15/03
(FGIC) 1,555
1,000 Morgan Hill Redevelopment
Agency Tax Allocation, (Ojo De
Agua Community Development
Project), 5.50%, 3/1/99 1,011
--------------
4,491
--------------
COLORADO--5.3%
1,000 Denver City & County Airport Rev.,
Series 1996 B, 5.25%,
11/15/02 (MBIA) 1,040
1,000 Highlands Ranch Metropolitan
District #2 GO, 6.00%,
6/15/02 (FSA) 1,070
--------------
2,110
--------------
FLORIDA--4.8%
210 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.70%,
10/1/05 (GNMA/FNMA) 211
1,550 Jacksonville Electric Auth. Rev.,
(St. John's River), 6.00%,
10/1/04 1,709
--------------
1,920
--------------
HAWAII--2.6%
1,000 Hawaii GO, Series 1997 CP,
5.00%, 10/2/00 (FGIC) 1,023
--------------
Principal Amount (In Thousands) Value
- ---------------------------------------------------------------------------- -
INDIANA--2.6%
$1,000 Central High School Building
Corp. Rev., 5.25%, 2/1/04
(AMBAC) $ 1,047
--------------
MICHIGAN--3.5%
385 Detroit GO, Series 1995 B,
5.10%, 4/1/99 389
1,000 Michigan Building Auth. Rev.,
Series 1997 I, 5.00%,
10/1/00 (AMBAC) 1,025
--------------
1,414
--------------
MISSISSIPPI--2.5%
1,000 Mississippi Lease Rev. Certificates
of Participation, Series 1997 A,
4.60%, 4/15/99 (AMBAC) 1,003
--------------
MISSOURI--11.9%
1,000 Kansas City Port Auth. Facilities
Rev., Series 1995 A, (Riverfront
Park Project), 5.75%,
10/1/98(1) 1,006
1,000 Little Blue Valley Sewer District
System Rev., Series 1998 A,
4.15%, 10/1/00 (AMBAC)(2) 1,005
1,675 North Kansas City School District
GO, 5.00%, 3/1/00 1,706
1,000 Springfield State Highway
Improvement Corp. Rev., 5.05%,
8/1/03 (AMBAC) 1,039
--------------
4,756
--------------
MONTANA--2.5%
1,000 Forsyth Pollution Control Rev.,
Series 1998 B, 4.75%, 5/1/03 1,002
--------------
NEW JERSEY--5.9%
500 New Jersey Educational Facilities
Auth. Rev., Series 1998 B, (St.
Peters College), 4.60%, 7/1/01 505
1,750 West Windsor Plainsboro GO,
5.25%, 12/1/02 (FGIC) 1,835
--------------
2,340
--------------
NEW YORK--18.5%
1,000 New York City GO, 6.25%,
8/1/03 1,084
2,145 New York City Municipal
Assistance Corp. Rev., Series
1997 I, 5.25%, 7/1/02 2,237
500 New York Dormitory Auth. Rev.,
Series 1998 I, (New York
Downtown Hospital), 4.80%,
2/15/06 503
500 New York GO, Series 1997 D,
5.25%, 8/1/03 521
See Notes to Financial Statements
www.americancentury.com 9
Limited-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount (In Thousands) Value
- ---------------------------------------------------------------------------- -
$2,000 New York State Certificates of
Participation, 4.40%, 8/1/98 $ 2,002
1,000 New York State Serial Bonds GO,
6.70%, 11/15/99 1,040
--------------
7,387
--------------
OHIO--10.6%
2,070 Ohio Building Auth. Rev., Series
1997 A, (Highway Safety
Building), 5.00%, 10/1/03
(AMBAC) 2,153
500 Ohio Public Facilities Commission
Rev., Series 1998 A, 4.50%,
12/1/04 508
1,500 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
5.00%, 6/1/04 (MBIA) 1,562
--------------
4,223
--------------
SOUTH CAROLINA--2.3%
855 Piedmont Municipal Power Agency
Rev., Series 1991 A, 6.00%,
1/1/02 (FGIC) 906
--------------
Principal Amount (In Thousands) Value
- ---------------------------------------------------------------------------- -
TEXAS--4.5%
$1,000 Colorado River Municipal Water
District Rev., Series 1991 A,
8.50%, 1/1/01, Prerefunded at
100% of Par (AMBAC)(3) $ 1,109
685 Denison Hospital Auth. Rev.,
(Texoma Medical Center),
5.00%, 8/15/00 697
--------------
1,806
--------------
TOTAL MUNICIPAL SECURITIES--97.2% 38,785
--------------
(Cost $38,126)
SHORT-TERM MUNICIPAL SECURITIES
IOWA--2.8%
1,100 Iowa Finance Auth. Solid Waste
Disposal Rev., (Cedar River
Paper Co.), VRDN, 4.00%,
6/1/98 (LOC: Swiss Bank) 1,100
--------------
(Cost $1,100)
TOTAL INVESTMENT SECURITIES--100.0% $39,885
==============
(Cost $39,226)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
LOC = Letter of Credit
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
MBIA = MBIA Insurance Corp.
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, 1998.
(1) Security, or portion thereof, has been segregated at the custodian bank for
a when-issued security.
(2) When-issued security.
(3) Escrowed to maturity in U.S government securities.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each state
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
10 1-800-345-2021
<TABLE>
Interm.-Term Tax-Free--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
INCEPTION 3/2/87
INTERMEDIATE-TERM LEHMAN 5-YEAR INTERMEDIATE MUNICIPAL DEBT FUNDS(2)
TAX-FREE GO INDEX AVERAGE RETURN FUND'S RANKING
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 MONTHS(1) ............ 3.11% 2.80% 3.03% --
1 YEAR ................. 7.60% 6.95% 7.35% 56 OUT OF 143
- -------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS ................ 6.00% 5.92% 5.87% 49 OUT OF 118
5 YEARS ................ 5.54% 5.54% 5.58% 34 OUT OF 66
10 YEARS ............... 6.45% 6.84% 6.98% 21 OUT OF 24
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
See pages 38-39 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain chart]
GROWTH OF $10,000 OVER 10 YEARS
Value on 5/31/98
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
May-88 $10,000 $10,000
Jun-88 $10,060 $10,073
Sep-88 $10,175 $10,187
Dec-88 $10,291 $10,250
Mar-89 $10,280 $10,221
Jun-89 $10,603 $10,701
Sep-89 $10,706 $10,820
Dec-89 $10,976 $11,144
Mar-90 $11,020 $11,198
Jun-90 $11,195 $11,448
Sep-90 $11,316 $11,569
Dec-90 $11,665 $11,953
Mar-91 $11,911 $12,211
Jun-91 $12,093 $12,425
Sep-91 $12,461 $12,866
Dec-91 $12,838 $13,297
Mar-92 $12,908 $13,287
Jun-92 $13,268 $13,719
Sep-92 $13,515 $14,060
Dec-92 $13,759 $14,283
Mar-93 $14,100 $14,646
Jun-93 $14,433 $14,992
Sep-93 $14,801 $15,316
Dec-93 $15,006 $15,504
Mar-94 $14,474 $15,016
Jun-94 $14,643 $15,217
Sep-94 $14,759 $15,341
Dec-94 $14,697 $15,291
Mar-95 $15,310 $15,911
Jun-95 $15,660 $16,317
Sep-95 $16,029 $16,763
Dec-95 $16,450 $17,069
Mar-96 $16,369 $17,124
Jun-96 $16,417 $17,198
Sep-96 $16,710 $17,478
Dec-96 $17,098 $17,859
Mar-97 $17,061 $17,831
Jun-97 $17,534 $18,275
Sep-97 $17,965 $18,675
Dec-97 $18,370 $19,019
Mar-98 $18,509 $19,241
May-98 $18,686 $19,376
The chart at left shows the growth of a $10,000 investment in the fund over 10
years, while the chart below shows the fund's year-by-year performance. The
Lehman 5-Year GO Index is provided for comparison in each chart.
Intermediate-Term Tax-Free's returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the returns of
the index do not. 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.
[bar chart]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDING MAY 31)
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
5/89 5.03% 5.85%
5/90 5.83% 7.38%
5/91 9.15% 9.33%
5/92 8.25% 8.84%
5/93 8.67% 9.39%
5/94 2.72% 3.10%
5/95 7.04% 6.89%
5/96 4.12% 4.74%
5/97 6.29% 6.08%
5/98 7.60% 6.95%
www.americancentury.com 11
Interm.-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
An interview with Joel Silva, a portfolio manager on the Intermediate-Term
Tax-Free fund investment team.
HOW DID THE FUND PERFORM OVER THE FISCAL YEAR ENDED MAY 31, 1998?
Intermediate-Term Tax-Free performed well. The portfolio returned 7.60%,
compared with the 7.35% average return of the 143 "Intermediate Municipal Debt
Funds" tracked by Lipper Analytical Services. (See the Total Returns table on
the previous page for additional performance comparisons.)
The fund also produced more federal tax-free income than the average
intermediate municipal fund. Intermediate-Term Tax-Free had a 30-day SEC yield
of 4.00% on May 31, compared with the 3.79% average yield of its peers. What's
more, the fund's nominal yield translates into a tax-equivalent yield of more
than 5.5% for an investor in the 28% federal tax bracket, and more than 6.6% in
the highest bracket. (See the Yields table at left for additional tax-equivalent
yields.) However, a portion of income will be taxable for shareholders who file
under the federal alternative minimum tax (AMT), and investors should keep in
mind that the portfolio's yield will fluctuate as rates and its holdings change
WHY DID INTERMEDIATE-TERM TAX-FREE PERFORM SO WELL?
The key was its structure. Different coupon and maturity structures perform
better in different interest rate environments. We manipulated these structures
as rates changed to achieve the duration, or degree of interest rate
sensitivity, we wanted. That's important because the longer a municipal bond
fund's maturity, the more duration and structure determine a municipal bond
fund's returns. The other reason for Intermediate-Term Tax-Free's strong
relative performance was our below-average management fee. Other things being
equal, lower fees mean higher yields and returns for our shareholders.
CAN YOU TALK MORE ABOUT DURATION AND ITS IMPORTANCE?
Duration measures a bond portfolio's sensitivity to changes in interest
rates. The longer a fund's duration, the more its share price rises when rates
fall, and the more it declines when rates rise. Conversely, a shorter duration
means a bond portfolio's price fluctuates less when rates change. So, ideally,
you want to lengthen duration when interest rates are falling and shorten
duration when rates are rising.
But it can be difficult to predict the short-term direction of interest
rates. As a result, we tend to manage duration conservatively, typically keeping
it in a relatively narrow band around five years. For example, we kept
Intermediate-Term Tax-Free's duration at 5.4 years, where it's been for some
time now. That duration was a little longer than the average intermediate
municipal fund, and helped returns as rates declined overall in the last year.
HOW DID YOU STRUCTURE THE PORTFOLIO'S MATURITIES?
We generally maintained a "barbell" maturity structure, overweighting bonds
with short- and long-term maturities and underweighting bonds with
intermediate-term maturities. That structure works well when rates are declining
because the portfolio's long-term bonds help capture the price gains from
falling rates, while the shorter-term securities provide income and help keep
duration in check. As a result, Intermediate-Term Tax-Free performed
[left margin]
"INTERMEDIATE-TERM TAX-FREE PERFORMED WELL, PRODUCING HIGHER RETURNS AND MORE
FEDERAL TAX-EXEMPT INCOME THAN THE AVERAGE INTERMEDIATE MUNICIPAL FUND,
ACCORDING TO LIPPER."
YIELDS AS OF MAY 31, 1998
30-DAY SEC YIELD
4.00%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.56%
31.0% TAX BRACKET 5.80%
36.0% TAX BRACKET 6.25%
39.6% TAX BRACKET 6.62%
PORTFOLIO AT A GLANCE
5/31/98 5/31/97
NUMBER OF SECURITIES 101 51
WEIGHTED AVERAGE
MATURITY 7.9 YRS 7.4 YRS
AVERAGE DURATION 5.4 YRS 5.4 YRS
EXPENSE RATIO 0.51% 0.70%
Investment terms are defined in the Glossary on page 39.
12 1-800-345-2021
Interm.-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
(Continued)
very well in late 1997, when interest rates fell sharply. However, that strategy
was less effective in early 1998, when interest rates traded in a relatively
narrow range. But for the most part, we've kept that barbell structure in place
because we think there's room for rates to go even lower.
WHAT ABOUT THE FUND'S COUPON STRUCTURE?
Coupon structure is another important tool we use to help manage duration.
For the long end of our maturity barbell we bought deep discount bonds, while we
held higher-yielding premium bonds on the short end. Premium bonds trade at
prices above face value because their coupons are higher than the prevailing
market interest rate. Those bonds helped boost Intermediate-Term Tax-Free's
yield.
In contrast, discount bonds trade below face value because their coupons
are lower than the prevailing interest rate. Discount bond prices rise faster
than prices of premium or even par bonds when rates decline, enhancing returns.
Another reason why holding deep discount bonds benefits the fund when rates
decline is that they're unlikely to be called away from us during a market
rally.
WHAT IS "CALLING" A BOND, AND HOW DOES IT AFFECT THE FUND?
Calling a bond is like refinancing your mortgage--when interest rates
decline, you save by paying off the old loan with money borrowed at the new,
lower rate. Municipal bond issuers exercise their call option when rates decline
to help save on borrowing costs. And in the same way that refinancing shortens
the life of your mortgage, calling a bond shortens its duration.
Premium bonds are most likely to be called because of their higher interest
coupons. But when rates decline sharply, even a discount bond can trade to par,
then to premium, and ultimately "trade to call." We avoided having our bonds
called away from us by buying deep discount bonds. Those bonds aren't likely to
be called in a market rally and have a lot of room to appreciate if rates
continue to decline.
YOU MENTIONED EARLIER THAT A PORTION OF ASSETS WERE IN BONDS WHOSE INTEREST
PAYMENTS ARE SUBJECT TO AMT. WHAT'S THE ATTRACTION?
We have the flexibility to hold up to 20% of assets in AMT paper. We think
AMT securities are attractive because their yields are higher than non-AMT
bonds. Buying AMT paper allowed us to pick up 20-25 basis points in yield
without taking on any additional credit risk. In effect, we've been able to get
BBB-like yields with AAA credit quality on many AMT securities.
NEW YORK TOPS THE LIST OF PORTFOLIO HOLDINGS BY STATE. WHY?
New York tends to issue a lot of securities--the record-setting Long Island
Power Authority municipal bond deal that came to market in May is a good case in
point. Heavy supply means New York bonds are often available at attractive
yields and prices. We also like the credit outlook for New York state and New
York City in particular. For example, we bought some BBB New York securities
that yielded up to 100 basis points (1.00%--a basis point equals 0.01%) over AAA
insured bonds. But as a result of credit rating upgrades, the prices on those
bonds rose substantially. Of course, not all portfolio holdings are this
successful.
[right margin]
"INTERMEDIATE-TERM TAX-FREE PERFORMED VERY WELL IN LATE 1997, WHEN INTEREST
RATES FELL SHARPLY."
TOP FIVE STATES (AS OF 5/31/98)
% OF FUND INVESTMENTS
NEW YORK 16.9%
TEXAS 13.7%
WASHINGTON 12.5%
MASSACHUSETTS 9.5%
PENNSYLVANIA 5.0%
TOP FIVE STATES (AS OF 11/30/97)
% OF FUND INVESTMENTS
TEXAS 14.1%
NEW YORK 13.8%
WASHINGTON 13.7%
MASSACHUSETTS 7.1%
PENNSYLVANIA 6.6%
www.americancentury.com 13
Interm.-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
(Continued)
BOND INSURERS ARE INSURING MORE AND MORE MUNICIPAL BONDS. HOW'S THAT AFFECTED
THE MARKET?
It's had the effect of improving the overall credit quality of the
municipal market by reducing the supply of new higher-yielding, lower-rated
paper and increasing the available supply of AAA bonds. Bond insurers competing
for business are now routinely insuring new bond issues that would otherwise
carry BBB or even BB credit ratings. As a result, there's huge demand for
existing BBB bonds, pushing up prices and lowering yields. That goes a long way
toward explaining why we hold so few BBB bonds--we just don't think there are
many attractively priced, lower-rated bonds out there in the maturities we're
looking at.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We have a generally positive outlook. Many analysts expect economic growth
to slow in the second quarter as a result of a big buildup in business
inventories, the General Motors strike and slower business with Asia. However, a
robust consumer sector, which accounts for about two-thirds of economic growth,
suggests it's unlikely the economy will slow dramatically in the near future.
Nevertheless, inflation remains low, having risen at a 1.5% annual rate so far
in 1998. That probably means interest rates can trend a little lower, though
they'll probably continue to fluctuate in a relatively narrow range until we see
evidence that the economy is slowing.
WHAT ARE YOUR PLANS FOR INTERMEDIATE-TERM TAX-FREE OVER THE NEXT SIX MONTHS?
We expect to maintain the same portfolio coupon and maturity structures
we've discussed in this report. That means we're likely to continue to hold
longer-term deep discount bonds, while using the short end of our barbell to
hold higher-yielding bonds. We'll also continue to take a conservative approach
to managing the fund's duration, keeping it around 5.5 years.
[left margin]
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/98 11/30/97
AAA 71% 74%
AA 13% 13%
A 10% 8%
BBB 6% 5%
Ratings provided by Standard & Poor's. (See page 4 for more information.)
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
Revenue 60%
Prerefunded/ETM 7%
GO 16%
COPs/Leases 17%
AS OF NOVEMBER 30, 1997
Revenue 61%
Prerefunded/ETM 6%
GO 16%
COPs/Leases 17%
Security types are defined on page 39.
14 1-800-345-2021
Interm.-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
MUNICIPAL SECURITIES
ALASKA--0.4%
$ 500 Anchorage Hospital Rev., (Sisters
of Providence), 6.50%, 10/1/99 $ 517
--------------
ARIZONA--0.5%
750 Maricopa County Certificates of
Participation, 5.625%, 6/1/00 765
--------------
ARKANSAS--1.0%
1,310 West Memphis Public Utility
System Rev., Series 1996 A,
5.25%, 12/1/00 (MBIA) 1,352
--------------
CALIFORNIA--3.3%
2,105 California Housing Finance
Agency Rev., 5.60%, 8/1/09
(MBIA) 2,231
1,100 California Public Works Board
Lease Rev., Series 1994 A,
(Various University of California
Projects), 6.15%, 11/1/09 1,212
1,100 Sacramento Regional
Transportation Certificates of
Participation, Series 1992 A,
6.20%, 3/1/00 1,142
--------------
4,585
--------------
COLORADO--0.8%
1,000 Denver Sales Tax Rev., Series
1991 A, (Major League
Baseball Stadium District),
6.10%, 10/1/01 (FGIC) 1,065
--------------
DISTRICT OF COLUMBIA--1.8%
1,000 District of Columbia Hospital Rev.,
Series 1993 A, (Medlantic
Health Care Group), 5.25%,
8/15/02 (MBIA) 1,041
1,275 Metropolitan Washington D.C.
Airports Auth. Rev., Series
1992 A, 6.30%, 10/1/03 (MBIA) 1,398
--------------
2,439
--------------
FLORIDA--4.5%
700 Broward County School District
GO, 6.75%, 2/15/00 728
245 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.85%,
10/1/07 (GNMA/FNMA) 246
360 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.90%,
4/1/08 (GNMA/FNMA) 360
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$1,000 Escambia County Utilities Auth.
Sanitation System Rev., 4.50%,
1/1/18 (FSA) $ 931
1,775 Lakeland Electric and Water Rev.
Refunding, Series 1996 B,
6.00%, 10/1/09 (FGIC) 2,017
1,900 Manatee County School Board
Certificates of Participation,
4.75%, 7/1/11 (MBIA) 1,906
--------------
6,188
--------------
GEORGIA--4.5%
1,000 Atlanta Airport Facilities Rev.,
7.00%, 1/1/01 1,068
1,000 Atlanta Water and Sewer Rev.,
(Second Lien), 6.00%, 1/1/05
(FGIC) 1,097
2,495 Fulton County Water and Sewer
Rev. Refunding, 6.25%, 1/1/09
(FGIC) 2,865
1,000 Metropolitan Atlanta Rapid Transit
Auth. Sales Tax Rev., Series
1991 M, 6.05%, 7/1/01 1,057
--------------
6,087
--------------
HAWAII--0.8%
1,000 Hawaii GO, Series 1990 A,
7.00%, 6/1/00 (FGIC)(1) 1,058
--------------
ILLINOIS--1.8%
2,250 Illinois GO, 6.00%, 10/1/01 2,386
30 Metropolitan Pier and Exposition
Auth. Rev., (McCormick Place
Project), 5.20%, 6/15/99(1) 30
--------------
2,416
--------------
INDIANA--0.7%
1,000 Central High School Building Rev.,
4.625%, 2/1/05 (AMBAC) 1,012
--------------
MASSACHUSETTS--9.5%
2,605 Massachusetts Bay Transportation
Auth. Rev., Series 1992 C,
5.40%, 3/1/00 2,669
1,000 Massachusetts Educational
Financing Auth. Education Loan
Rev., Series 1998 A, (Issue G),
4.55%, 12/1/06 (MBIA) 989
1,000 Massachusetts GO, Series
1997 A, 5.00%, 8/1/04
(FGIC) 1,044
1,500 Massachusetts GO, Series
1997 A, (Consolidated Loan),
5.00%, 3/1/06 (AMBAC) 1,566
1,000 Massachusetts Health and
Educational Facilities Auth. Rev.,
Series 1998 A, (Caregroup
Issue), 4.75%, 7/1/12 (MBIA) 978
See Notes to Financial Statements
www.americancentury.com 15
Interm.-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$1,000 Massachusetts Health and
Educational Facilities Auth. Rev.,
Series 1998 A, (Southcoast
Health Systems), 4.625%,
7/1/12 (MBIA) $ 968
3,000 Massachusetts Water Resource
Auth. Rev., Series 1998 A,
4.75%, 8/1/27 (FSA) 2,807
1,000 Massachusetts Water Resource
Auth. Rev., Series 1998 B,
4.50%, 8/1/22 (FSA) 908
1,000 Worcester GO, 5.50%, 8/1/04
(MBIA) 1,069
--------------
12,998
--------------
MICHIGAN--1.2%
1,500 Detroit Water Supply System Rev.,
Series 1995 A, 5.30%, 7/1/09
(MBIA) 1,598
--------------
MISSOURI--0.8%
1,000 Missouri Board of Public Buildings
State Office Buildings Special
Obligation Rev., 6.30%,
12/1/05 1,071
--------------
NEVADA--0.8%
1,000 Clark County Airport Rev., Series
1998 A, 5.50%, 7/1/07
(MBIA) 1,072
--------------
NEW JERSEY--4.0%
1,030 Atlantic City Board of Education
GO, 6.00%, 12/1/02,
Prerefunded at 102% of Par
(AMBAC)(1) 1,128
1,410 New Jersey Educational Facility
Auth. Rev., Series 1994 A, (New
Jersey Institute of Technology),
5.90%, 7/1/08 (MBIA) 1,544
1,000 New Jersey Health Care Facilities
Financing Auth. Rev., (Atlantic
City Medical Center), 6.15%,
7/1/99 1,024
1,800 New Jersey Health Care Facilities
Financing Auth. Rev., (Rahway
Hospital Obligation Group),
5.00%, 7/1/05(2) 1,814
--------------
5,510
--------------
NEW YORK--16.9%
1,950 City University of New York
Certificates of Participation,
(John Jay College), 5.00%,
8/15/09 (AMBAC) 2,016
2,500 Nassau County GO, Series
1996 T, 5.20%, 9/1/05 (FGIC) 2,634
1,000 New York City Transitional Finance
Auth. Rev., Series 1998 B,
4.75%, 11/15/15 965
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$ 635 New York Dormitory Auth. Rev.,
Series 1998 I, (New York
Downtown Hospital), 4.80%,
2/15/06 $ 639
1,675 New York GO, Series 1997 D,
5.25%, 8/1/03 1,744
1,500 New York Local Government
Assistance Corp. Rev., Series
1997 B, 5.25%, 4/1/04
(MBIA) 1,581
1,000 New York State Dormitory Auth.
Rev., (City University System),
6.00%, 7/1/03 1,070
1,500 New York State Dormitory Auth.
Rev., Series 1995 A, (State
University Educational Facilities),
6.50%, 5/15/04 1,667
1,000 New York State Dormitory Auth.
Rev., Series 1995 A, (State
University Educational Facilities),
6.50%, 5/15/06 1,132
1,000 New York State Dormitory Auth.
Rev., Series 1996 E, (Mental
Health Service Facility), 6.00%,
8/15/04 (AMBAC) 1,093
1,000 New York State Dormitory Auth.
Rev., Series 1997 A, (Mental
Health Service Facility), 5.30%,
2/15/04 1,044
1,000 New York State GO, Series
1997 D, 5.25%, 8/1/06 (FGIC) 1,056
925 New York State Medical Care
Facilities Finance Agency Rev.,
(Hospital and Nursing Home),
5.95%, 8/15/09 (FHA) 972
1,000 New York State Thruway Auth.
Service Contract Rev., 5.30%,
4/1/04 1,043
1,000 New York State Thruway Auth.
Service Contract Rev., 5.50%,
4/1/04 1,053
1,160 New York State Thruway Auth.
Service Contract Rev., 5.50%,
4/1/06 1,223
1,000 New York State Urban
Development Corp. Rev., Series
1996 A, 6.25%, 4/1/05
(MBIA) 1,112
1,000 Niagara Falls Bridge Commission
Toll Rev., Series
1993 B, 5.25%, 10/1/15 (FGIC) 1,048
--------------
23,092
--------------
NORTH CAROLINA--1.6%
2,000 North Carolina Eastern Municipal
Power Agency System Rev.,
Series 1993 B, 6.00%,
1/1/06 (FSA) 2,196
--------------
See Notes to Financial Statements
16 1-800-345-2021
Interm.-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
OHIO--3.6%
$1,200 Ohio Higher Educational Facility
Commission Rev., (University of
Dayton), 5.55%, 12/1/07
(FGIC) $ 1,295
3,320 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
6.00%, 12/1/05 (MBIA) 3,683
--------------
4,978
--------------
OKLAHOMA--2.1%
2,500 Oklahoma Industrial Auth. Health
System Rev. Refunding, Series
1995 C, 7.00%, 8/15/04
(AMBAC) 2,859
--------------
OREGON--1.5%
1,805 Lane County School District No.
19 GO, (Springfield), 6.375%,
10/15/04, Prerefunded at
101% of Par (MBIA)(1) 2,038
--------------
PENNSYLVANIA--5.0%
1,500 Pennsylvania Turnpike Commission
Rev., Series 1991 L, 6.25%,
6/1/01 (AMBAC) 1,592
2,000 Philadelphia Gas Works Rev., 14th
Series, 5.70%, 7/1/00 (FSA) 2,067
1,000 Philadelphia Parking Auth. Rev.,
5.50%, 9/1/04 (AMBAC) 1,063
2,000 Philadelphia Water and
Wastewater Rev., 5.15%,
6/15/04 (FGIC) 2,091
--------------
6,813
--------------
TEXAS--13.7%
1,000 Austin Utility System Rev., 5.125%,
11/15/16 (FSA) 1,002
1,745 Brazos Higher Education Auth.
Rev., Series A-1, 5.50%,
12/1/98 1,759
1,875 Brownsville Utility System Rev.,
6.00%, 9/1/08 (AMBAC) 2,101
1,000 Dallas-Fort Worth Regional Airport
Rev., Series 1994 A, 5.90%,
11/1/08 (MBIA) 1,083
1,000 Denison Hospital Auth. Rev.,
(Texoma Medical Center),
5.90%, 8/15/07 (ACA) 1,093
1,500 Harris County Health Facilities
Development Corp. Hospital
Rev., (Memorial Hospital System
Project), 6.80%, 6/1/01(1) 1,616
500 North Texas Higher Education
Student Loan Rev., 6.875%,
4/1/02 (AMBAC) 530
1,440 Plano GO, 4.75%, 9/1/18 1,373
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$1,000 Tarrant County Health Facility
Development Corporation
Health System Rev., (Harris
Methodist Health System),
5.00%, 9/1/07 (AMBAC)(1) $ 1,049
1,000 Texas GO, Series 1995 A, 6.50%,
10/1/03 1,112
1,000 Texas Municipal Power Agency
Rev., 5.25%, 9/1/09 (MBIA) 1,065
2,000 Texas Municipal Power Agency
Rev., 5.75%, 9/1/02 (MBIA) 2,126
1,500 Texas Public Finance Auth.
Building Rev., (Technical
College), 6.25%, 8/1/09
(MBIA) 1,732
1,000 Texas Turnpike Auth. Rev., Series
1990 A, 7.00%, 1/1/99,
Prerefunded at 102% of Par
(AMBAC)(1) 1,039
--------------
18,680
--------------
UTAH--2.5%
1,000 Salt Lake County Municipal
Building Auth. Lease Rev.,
Series 1994 A, 6.00%,
10/1/07 (MBIA) 1,096
1,175 Utah Housing Finance Agency
Single Family Mortgage Rev.,
5.65%, 7/1/06 1,237
1,000 Utah Municipal Finance Co-op
Local Government Rev.,
(University of Utah/University
Hospital Project), 6.60%,
5/15/00(1) 1,050
--------------
3,383
--------------
WASHINGTON--12.5%
1,000 Pierce County School District
No. 3 GO, Series 1992 B,
5.80%, 12/1/99 1,028
1,000 Pierce County School District
No. 320 GO, 5.75%, 12/1/02 1,060
2,435 Port Seattle Rev., Series 1997 B,
5.10%, 10/1/03 (FGIC) 2,526
1,385 Port Tacoma Rev., 4.70%,
12/1/04 (AMBAC) 1,409
2,000 Snohomish County Public Utility
District Rev., 5.625%, 1/1/05
(FGIC) 2,138
1,000 Snohomish County School District
No. 15 GO, 6.125%, 12/1/03 1,063
1,000 Spokane County School District
No. 356 GO, 6.00%, 12/1/06
(FGIC) 1,114
1,730 Tacoma Electric System Rev.,
6.00%, 1/1/07 (AMBAC)(3) 1,922
1,000 Tacoma Electric System Rev.,
6.10%, 1/1/07 (FGIC) 1,100
See Notes to Financial Statements
www.americancentury.com 17
Interm.-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$1,000 Washington Public Power Supply
System Rev., Series 1990 B,
(Nuclear Project No. 1), 7.10%,
7/1/01 (FGIC) $ 1,077
1,000 Washington Public Power Supply
System Rev., Series 1993 A,
(Nuclear Project No. 1), 5.50%,
7/1/04 1,056
1,000 Washington Public Power Supply
System Rev., Series 1990 C,
(Nuclear Project No. 2), 7.30%,
7/1/00 1,063
500 Washington Public Power Supply
System Rev., Series 1990 C,
(Nuclear Project No. 2), 7.00%,
7/1/01 (FGIC) 541
--------------
17,097
--------------
WEST VIRGINIA--0.8%
1,090 West Virginia GO, Series 1996 D,
5.00%, 11/1/10 (FGIC) 1,125
--------------
WISCONSIN--3.2%
250 Wisconsin Health and Educational
Facilities Auth. Rev., (Carroll
College Inc.), 4.95%, 10/1/08 250
$2,590 Wisconsin Health and Educational
Facility Rev., (Aurora Medical
Group), 6.00%, 11/15/10
(FSA) $ 2,948
1,060 Wisconsin Health and Educational
Facility Rev., Series 1991 B,
(Wausau Hospital), 6.30%,
8/15/00 (AMBAC) 1,111
--------------
4,309
--------------
TOTAL MUNICIPAL SECURITIES--99.8% 136,303
--------------
(Cost $130,511)
TEMPORARY CASH INVESTMENTS--0.2%
233 Units of Participation in Chase
Vista Tax-Free Money Market
Fund (Institutional Shares) 233
--------------
(Cost $233)
TOTAL INVESTMENT SECURITIES--100.0% $136,536
==============
(Cost $130,744)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access Financial Guaranty Corp.
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
MBIA = MBIA Insurance Corp.
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
(2) When-issued security.
(3) Security, or portion thereof, has been segregated at the custodian bank for
a when-issued security.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each state
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
18 1-800-345-2021
<TABLE>
Long-Term Tax-Free--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
INCEPTION 3/2/87
LONG-TERM LEHMAN LONG-TERM GENERAL MUNICIPAL DEBT FUNDS(2)
TAX-FREE MUNICIPAL BOND INDEX AVERAGE RETURN FUND'S RANKING
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 MONTHS(1) ............. 3.55% 4.46% 3.52% --
1 YEAR .................. 9.58% 11.67% 9.21% 72 OUT OF 237
- ------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS ................. 7.38% 8.65% 6.78% 37 OUT OF 193
5 YEARS ................. 6.55% 7.52% 6.03% 25 OUT OF 122
10 YEARS ................ 8.07% 9.59% 8.08% 37 OUT OF 71
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
See pages 38-39 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain chart]
GROWTH OF $10,000 OVER 10 YEARS
Value on 5/31/98
Long-Term Lehman Long-Term
Tax-Free Municipal Bond Index
May-88 $10,000 $10,000
Jun-88 $10,156 $10,195
Sep-88 $10,436 $10,537
Dec-88 $10,733 $10,847
Mar-89 $10,778 $10,956
Jun-89 $11,421 $11,714
Sep-89 $11,323 $11,713
Dec-89 $11,757 $12,210
Mar-90 $11,670 $12,235
Jun-90 $11,969 $12,549
Sep-90 $11,863 $12,447
Dec-90 $12,481 $13,090
Mar-91 $12,672 $13,391
Jun-91 $12,886 $13,733
Sep-91 $13,419 $14,351
Dec-91 $13,979 $14,864
Mar-92 $13,992 $14,916
Jun-92 $14,522 $15,574
Sep-92 $14,885 $15,999
Dec-92 $15,043 $16,385
Mar-93 $15,581 $17,099
Jun-93 $16,071 $17,805
Sep-93 $16,644 $18,517
Dec-93 $16,870 $18,800
Mar-94 $15,949 $17,292
Jun-94 $16,056 $17,415
Sep-94 $16,156 $17,487
Dec-94 $15,928 $17,088
Mar-95 $16,992 $18,790
Jun-95 $17,348 $19,221
Sep-95 $17,831 $19,745
Dec-95 $18,874 $21,068
Mar-96 $18,355 $20,518
Jun-96 $18,430 $20,761
Sep-96 $18,973 $21,405
Dec-96 $19,456 $21,999
Mar-97 $19,318 $21,810
Jun-97 $20,038 $22,783
Sep-97 $20,685 $23,632
Dec-97 $21,322 $24,488
Mar-98 $21,464 $24,772
May-98 $21,722 $24,983
The chart at left shows the growth of a $10,000 investment in the fund over 10
years, while the chart below shows the fund's year-by-year performance. The
Lehman Long-Term Municipal Bond Index is provided for comparison in each chart.
Long-Term Tax-Free's returns include operating expenses (such as transaction
costs and management fees) that reduce returns, while the returns of the index
do not. 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.
[bar chart]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDING MAY 31)
Long-Term Lehman Long-Term
Tax-Free Municipal Bond Index
5/89 12.75% 15.39%
5/90 5.05% 7.14%
5/91 9.51% 10.71%
5/92 10.27% 11.04%
5/93 10.60% 14.39%
5/94 2.28% 0.89%
5/95 8.44% 11.07%
5/96 4.10% 4.41%
5/97 8.54% 10.01%
5/98 9.58% 11.67%
www.americancentury.com 19
Long-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
An interview with Dave MacEwen, a portfolio manager on the Long-Term
Tax-Free fund investment team.
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED MAY 31, 1998?
Long-Term Tax-Free performed well, posting a 9.58% return, compared with
the 9.21% average return of the 237 "General Municipal Debt Funds" tracked by
Lipper Analytical Services. Over the last five years, the fund's returns
consistently placed it in the top third of its peer group. (See the Total
Returns table on the previous page for other fund performance comparisons).
Long-Term Tax-Free also produced more current income than the average
general municipal fund. The fund's 30-day SEC yield as of May 31 was 4.33%,
compared with the 4.04% average SEC yield of the funds in its peer group.
WHAT HELPED LONG-TERM TAX-FREE OUTPACE ITS COMPETITORS?
The way we managed the fund's coupon structure in response to falling
interest rates was one of the primary reasons for the fund's outperformance. As
bond yields declined, we continually swapped into lower-coupon discount bonds
and out of higher-coupon premium bonds. (Discount bonds trade below face value
because their interest rates are lower than the prevailing market interest rate;
premium bonds trade at prices above face value because their coupons are higher
than the prevailing market interest rate).
Our increasing focus on discount bonds was based on our view that interest
rates would fall, and that discount bonds would outperform premium bonds because
the discount bonds would be less likely to be called (refinanced by the issuer
before maturity).
First we traded out of some bonds with coupons of 5.50% and replaced them
with coupons of 5.25%. As rates declined further, we then replaced many of our
5.25% bonds with 5.00% bonds and, ultimately, with 4.75% bonds. As a result of
these trades, the fund's average coupon dropped to 5.58% at the end of the
period, from 6.05% six months earlier.
While the fund's increased stake in discount bonds served us well in 1997,
when interest rates fell substantially, it muted our relative performance during
1998, when interest rates remained more steady. However, we maintained our stake
in discount bonds because they offered more potential upside than premium bonds
if interest rates were to fall even more, and no more downside should rates
rise. What's more, our discount bond holdings provided "call protection." Our
strategy was rewarded again in May when rates resumed their decline.
WHAT IS "CALL PROTECTION" AND WHY IS IT IMPORTANT?
When interest rates fall, municipal issuers often refinance or "call away"
their older, higher-rate debt, much like homeowners do when they refinance
mortgages. If a bond is called, it potentially leaves bondholders to reinvest
the proceeds, most often at lower interest rates. We try to mitigate the effects
of inopportune calls by investing in discount bonds and non-callable bonds.
Issuers don't have much incentive to refinance discount bonds because those
bonds usually carry interest rates that are lower than prevailing interest
rates. Non-callable bonds can't be redeemed by their issuers before their stated
maturities.
[left margin]
"OVER THE LAST FIVE YEARS, THE FUND'S RETURNS CONSISTENTLY PLACED IT IN THE TOP
THIRD OF ITS PEER GROUP."
YIELDS AS OF MAY 31, 1998
30-DAY SEC YIELD
4.33%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 6.01%
31.0% TAX BRACKET 6.28%
36.0% TAX BRACKET 6.77%
39.6% TAX BRACKET 7.17%
PORTFOLIO AT A GLANCE
5/31/98 5/31/97
NUMBER OF SECURITIES 71 42
WEIGHTED AVERAGE
MATURITY 18.2 YRS 17.4 YRS
AVERAGE DURATION 9.0 YRS 7.8 YRS
EXPENSE RATIO 0.51% 0.67%
Investment terms are defined in the Glossary on page 39.
20 1-800-345-2021
Long-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
(Continued)
HOW DID YOU MANAGE LONG-TERM TAX-FREE'S INTEREST RATE SENSITIVITY?
As we added more discount bonds, we also increased the fund's sensitivity
to changes in interest rates as measured by duration. (The longer a fund's
duration, the more its share price tends to rise or fall when rates change.) At
the end of the period, the fund's duration was 9.2 years, up from 8.5 years six
months ago and 7.8 years at the beginning of the period.
That said, we tend to make only modest adjustments to duration, generally
keeping it within a year of our neutral duration of around 8.2 years. (The
fund's neutral duration basically matches the duration of Long-Term Tax Free's
benchmark, a group of funds with similar investment objectives.)
YOU MADE SOME CHANGES IN THE WAY LONG-TERM TAX-FREE'S INVESTMENTS WERE ALLOCATED
AMONG VARIOUS STATES DURING THE YEAR. WHY?
The changes were a function of where we found value. For example, the
fund's stake in California bonds could have been even higher than shown after
they had posted strong gains, but we reduced it because California bonds
offered, in our view, only limited potential relative to other areas of the
market.
One place we found value was in Massachusetts, which afforded us the
opportunity to buy attractively priced discount bonds. Our stake in
Massachusetts bonds grew to as much as 20% of investments during the period,
although we've since sold many of them to lock in gains. Finally, the
portfolio's stake in New York increased due primarily to our addition of bonds
issued by the Long Island Power Authority, which we bought at attractive prices.
LONG-TERM TAX-FREE'S CREDIT QUALITY GRADUALLY IMPROVED DURING THE YEAR. WHAT
ACCOUNTS FOR THE GROWING STAKE IN HIGHER-RATED BONDS?
We didn't think we were being adequately compensated--in the form of enough
incremental yield --for holding a large amount of lower-rated bonds. An increase
in the amount of municipal debt being issued with bond insurance dramatically
reduced the credit spread, which measures the difference in yield between bonds
of various credit quality. About 60% of all municipal debt now comes to market
insured with the highest AAA rating.
As a result, there is a shrinking amount of lower-rated BBB debt. But
yield-hungry investors have kept demand for higher-yielding BBB securities quite
strong. In light of shrinking supply and high demand, the yield spread between
AAA and BBB securities at the long end of the municipal market shrunk to
historical lows during the period.
Going back a couple of years, BBB bonds offered yields approximately 100
basis points (1.00%--a basis point equals 0.01%) or more above AAA bonds. Six
months ago, BBB bonds offered only 20 or 30 basis points more yield than AAA
bonds. By the end of May, that spread had diminished to just 15 basis points.
[right margin]
TOP FIVE STATES (AS OF 5/31/98)
% OF FUND INVESTMENTS
CALIFORNIA 14.0%
ILLINOIS 12.2%
NEW YORK 9.7%
MASSACHUSETTS 7.9%
FLORIDA 7.8%
TOP FIVE STATES (AS OF 11/30/97)
% OF FUND INVESTMENTS
ILLINOIS 15.1%
CALIFORNIA 13.1%
WASHINGTON 8.7%
TEXAS 7.6%
NEW YORK 6.8%
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/98 11/30/97
AAA 54% 46%
AA 32% 41%
A 13% 8%
BBB 1% 5%
Ratings provided by Standard & Poor's.
(See page 4 for more information.)
www.americancentury.com 21
Long-Term Tax-Free--Q&A
- -----------------------------------------------------------------------------
(Continued)
WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
We're optimistic. Inflation appears to remain in check, rising at an
annualized rate of just 1.5% for the first five months of this year. Asian
economic turmoil seems to be taking a bigger bite out of U.S. economic growth
than was originally expected. Given the lack of any overwhelming inflationary
pressures, we believe interest rates can trend lower. In addition, more dramatic
slowing of the economy could prompt the Federal Reserve to cut interest rates,
although it will be reluctant to do so until there is more evidence that the
slowing is sustained and the employment market has cooled.
As for the municipal market, we think that supply and demand could come
into better balance over the second half of 1998 and help boost municipal
prices. Much of the supply we saw in the first five months of this year came as
a result of the giant, record-setting Long Island Power deal, and issuers
flooding the market with new debt in advance of that deal. Looking ahead, we
believe that municipal supply will taper off to a more normal level for the
remainder of the year. If demand remains firm or rises, the municipal market
would likely benefit from lower supply.
GIVEN YOUR OUTLOOK, WHAT ARE YOUR PLANS FOR LONG-TERM TAX-FREE OVER THE NEXT SIX
MONTHS?
As long as we believe that interest rates have the potential to decline,
we'll keep the fund slightly longer than its neutral duration of around 8.2
years. In addition, we'll maintain our stake in discount bonds, which should
outperform premium bonds in a declining rate environment. As for the fund's
credit quality, we expect to remain focused on the upper tiers of the municipal
market until we think that lower-quality bonds offer adequate compensation for
their higher credit risk.
[left margin]
"WE THINK THAT SUPPLY AND DEMAND COULD COME INTO BETTER BALANCE OVER THE SECOND
HALF OF 1998 AND HELP BOOST MUNICIPAL PRICES."
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
Revenue 60%
COPs/Leases 4%
GO 12%
Land-Secured 7%
Prerefunded/ETM 17%
AS OF NOVEMBER 30, 1997
Revenue 60%
COPs/Leases 6%
GO 10%
Land-Secured 10%
Prerefunded/ETM 14%
Security types are defined on page 39.
22 1-800-345-2021
Long-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
MUNICIPAL SECURITIES
ALASKA(1)
$ 10 Alaska Housing Finance Corp Rev.,
Series 1987 B, 8.75%,
12/1/16 (LOC: Swiss Bank) $ 10
--------------
CALIFORNIA--14.0%
1,000 California Public Works Lease Rev.,
Series 1994 A, (University
Project), 6.20%, 10/1/08 1,107
1,500 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 1,673
1,500 Metropolitan Water District Rev.,
Series 1993 A, (Southern
California Waterworks), 5.75%,
7/1/21 1,664
1,850 Northern California Power Agency
Rev., Series 1992 A,
(Hydroelectric Project #1),
6.25%, 7/1/12 (MBIA) 2,012
6,500 Sacramento Municipal Utility
District Electric Rev., Series
1993 G, 4.75%, 9/1/21
(MBIA) 6,166
3,000 San Bernardino County
Certificates of Participation,
(Medical Center Financing
Project), 4.75%, 8/1/28 2,757
1,000 San Jose Redevelopment Agency
Tax Allocation, Series 1993 D,
(Merged Area Redevelopment
Project), 5.75%, 8/1/24 1,038
--------------
16,417
--------------
COLORADO--0.3%
300 Colorado Housing Finance Auth.
Rev., Series 1987 C, (Single
Family Residential), 8.70%,
9/1/07 307
--------------
CONNECTICUT--2.8%
1,880 Connecticut Development Auth.
Rev., Series 1994 A, 6.375%,
10/15/24 2,110
1,000 Connecticut GO, Series 1993 E,
6.00%, 3/15/12 1,134
--------------
3,244
--------------
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
DISTRICT OF COLUMBIA--3.7%
$1,000 District of Columbia Metropolitan
Area Transportation Auth. Rev.,
6.00%, 7/1/10 (FGIC) $ 1,132
3,000 District of Columbia Water and
Sewer Auth. Public Utility Rev.,
5.50%, 10/1/23 (FSA) 3,196
--------------
4,328
--------------
FLORIDA--7.8%
820 Broward County Resource
Recovery Facility Rev., (South
Project), 7.95%, 12/1/08 883
1,000 Florida Board of Education Capital
Outlay GO, Series 1996 E,
4.75%, 6/1/22 949
1,000 Orlando Utilities Commission
Water and Electric Auth. Rev.,
Series 1989 D, 6.75%,
10/1/17 1,225
1,000 St. Petersburg Health Auth. Rev.,
(Allegany Health), 7.00%,
12/1/01, Prerefunded at 102%
of Par (MBIA)(2) 1,113
1,350 Tampa Sports Auth. Sales Tax Rev.,
(Tampa Bay Arena Project),
5.75%, 10/1/25 (MBIA) 1,504
3,640 Village Center Community
Development District
Recreational Rev., Series
1998 A, 4.75%, 11/1/22
(MBIA) 3,458
--------------
9,132
--------------
GEORGIA--1.0%
1,000 Georgia Municipal Electric Auth.
Rev., 6.50%, 1/1/12 (MBIA) 1,174
--------------
ILLINOIS--12.2%
1,000 Chicago Gas Supply Rev., Series
1985 B, (Peoples Gas), 7.50%,
3/1/15 1,074
1,000 Cook County GO, 7.00%,
11/1/00, Prerefunded at 102%
of Par (MBIA)(2) 1,088
2,000 Illinois Dedicated Tax Rev., (Civic
Center Project), 6.25%,
12/15/20 (AMBAC) 2,314
1,500 Illinois Development Finance Auth.
Pollution Control Rev., Series
1990 A, (Central Illinois Public
Service), 7.60%, 3/1/14 1,605
1,000 Illinois Development Finance Auth.
Waste Disposal Rev., (Armstrong
World Industries Project), 5.95%,
12/1/24 1,104
See Notes to Financial Statements
www.americancentury.com 23
Long-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$1,500 Illinois GO, 6.25%, 10/1/06 $ 1,639
700 Illinois Health Facilities Auth. Rev.,
Series 1992 C, (Evangelical
Hospital), 6.75%, 4/15/02,
Prerefunded at 102% of Par(2) 777
1,140 Illinois Health Facilities Auth. Rev.
Refunding, Series 1992 C,
(Evangelical Hospital), 6.75%,
4/15/12(2) 1,343
1,000 Illinois Regional Transportation
Auth. Rev., Series 1990 A,
7.20%, 11/1/20 (AMBAC) 1,291
2,000 Springfield Water Rev., 6.50%,
3/1/99, Prerefunded at 102%
of Par(2) 2,080
--------------
14,315
--------------
INDIANA--2.0%
1,000 Indiana Municipal Power Agency
Rev., Series 1990 A, 7.10%,
1/1/00, Prerefunded at 102%
of Par (AMBAC)(2) 1,067
1,000 Indiana Transportation Financing
Auth. Highway Rev., Series
1990 A, 7.25%, 6/1/15 1,257
--------------
2,324
--------------
KANSAS--1.0%
1,000 Kansas City Utility System Rev.,
6.375%, 9/1/23 (FGIC) 1,119
--------------
KENTUCKY--1.0%
1,000 Carroll County Pollution Control
Rev., Series 1992 A, (Kentucky
Utilities Company Project),
7.45%, 9/15/16 1,126
--------------
MASSACHUSETTS--7.9%
1,000 Massachusetts Health and
Education Auth. Rev., Series
1992 F, 6.25%, 7/1/12
(AMBAC) 1,135
1,690 Massachusetts Housing Finance
Agency Rev., Series 1993 H,
6.75%, 11/15/12 (FNMA) 1,824
2,800 Massachusetts Water Resource
Auth. Rev., Series 1993 C,
4.75%, 12/1/23 (MBIA) 2,638
4,000 Massachusetts Water Resource
Auth. Rev., Series 1998 B,
4.50%, 8/1/22 (FSA) 3,632
--------------
9,229
--------------
MICHIGAN--1.7%
2,000 Redford Unified School District
GO, 5.00%, 5/1/22 (AMBAC) 1,997
--------------
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
NEW YORK--9.7%
$5,000 Long Island Power Auth. Electrical
System Rev., Series 1998 A,
5.75%, 12/1/24 $ 5,250
1,000 Municipal Assistance Corp. Rev.,
Series 67, 7.625%, 7/1/99,
Prerefunded at 102% of Par(2) 1,060
3,000 New York City Transitional
Finance Auth. Rev., Series
1998 C, 4.75%, 5/1/23 2,833
1,000 New York Environmental Facilities
Corp. Pollution Control Rev.,
Series 1991 E, 6.30%,
6/15/01, Prerefunded at 102%
of Par(2) 1,083
1,000 New York Local Government
Assistance Corp. Rev., Series
1991 D, 6.75%, 4/1/02,
Prerefunded at 102% of Par(2) 1,112
--------------
11,338
--------------
NORTH CAROLINA--1.0%
1,000 North Carolina Municipal Power
Agency #1 Rev., (Catawba
Electric), 6.00%, 1/1/10
(MBIA) 1,126
--------------
OHIO--0.8%
750 Ohio Higher Educational Facility
Rev., Series 1990 B, (Case
Western Reserve University),
6.50%, 10/1/20 903
--------------
PENNSYLVANIA--4.8%
3,725 Harrisburg GO, Series 1997 F,
5.52%, 9/15/22 (AMBAC)(3) 1,069
5,000 Pennsylvania Higher Educational
Facilities Auth. College and
University Rev., 4.625%,
7/15/30 4,553
--------------
5,622
--------------
PUERTO RICO--3.2%
3,550 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 3,208
500 Puerto Rico Commonwealth GO,
6.45%, 7/1/04, Prerefunded at
101.50% of Par(2) 567
--------------
3,775
--------------
RHODE ISLAND--4.3%
1,100 Rhode Island Clean Water Safe
Drinking Rev., 6.70%, 1/1/15
(AMBAC) 1,250
2,000 Rhode Island Depositors
Economic Protection Corp.
Special Obligation Rev., Series
1993 A, 6.25%, 8/1/16
(MBIA)(2) 2,313
See Notes to Financial Statements
24 1-800-345-2021
Long-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$1,300 Rhode Island Depositors
Economic Protection Corp.
Special Obligation Rev., Series
1993 B, 6.00%, 8/1/17
(MBIA)(2) $ 1,424
--------------
4,987
--------------
SOUTH CAROLINA--2.6%
860 Piedmont Municipal Power
Agency Electric Rev. Refunding,
Series 1991 A, 6.50%, 1/1/16
(FGIC) 1,018
140 Piedmont Municipal Power
Agency Electric Rev. Refunding,
Series 1991 A, 6.50%, 1/1/16
(FGIC)(2) 167
1,500 Piedmont Municipal Power Agency
Electric Rev., 6.75%, 1/1/19
(FGIC) 1,831
--------------
3,016
--------------
TEXAS--6.3%
1,000 Alliance Airport Auth. Special
Facilities Rev., (American
Airlines Project), 7.00%,
12/1/11 (GTEED) 1,189
1,000 Denton Utility System Rev., Series
1996 A, 5.95%, 12/1/14
(MBIA) 1,082
2,000 San Antonio Electric and Gas
System Rev., 7.10%, 2/1/09
(FGIC)(3) 1,216
1,000 Tarrant County Health Facility Rev.,
6.00%, 5/15/11 (MBIA) 1,125
2,500 Texas Municipal Power Agency
Rev., Series 1991 A, 6.75%,
9/1/12 (AMBAC) 2,728
--------------
7,340
--------------
UTAH--1.1%
1,000 Salt Lake City Hospital Rev.
Refunding, Series 1988 A,
(Intermountain Health
Corporation), 8.125%,
5/15/15(2) 1,304
--------------
VIRGINIA--0.9%
1,000 Hampton Industrial Development
Auth. Rev., Series 1994 A,
(Sentara General Hospital),
6.50%, 11/1/12 1,117
--------------
WASHINGTON--4.7%
1,405 Port of Seattle Rev., 7.50%,
12/1/00, Prefunded at 102%
of Par (AMBAC)(2) 1,548
Principal Amount (In Thousands) Value
- -----------------------------------------------------------------------------
$1,625 Seattle Metropolitan Sewer Rev.,
Series 1991 T, 6.875%,
1/1/00, Prerefunded at 102%
of Par(2) $ 1,728
1,000 Washington GO, Series 1990 A,
6.75%, 2/1/15 1,212
1,000 Washington Public Power Supply
Rev., Series 1996 A, (Nuclear
Project #1), 5.75%, 7/1/12
(MBIA) 1,072
--------------
5,560
--------------
WISCONSIN--3.1%
1,180 Winneconne Community School
District GO, 6.75%, 4/1/14
(FGIC) 1,345
1,900 Wisconsin Clean Water Rev.,
6.875%, 6/1/11 2,308
--------------
3,653
--------------
TOTAL MUNICIPAL SECURITIES--97.9% 114,463
--------------
(Cost $106,804)
SHORT-TERM MUNICIPAL SECURITIES
IOWA--0.4%
500 Iowa Finance Solid Waste
Disposal Revenue, (Cedar River
Paper Company Project), VRDN,
4.00%, 6/1/98 (LOC: Bank of
Nova Scotia) 500
--------------
TEXAS--1.7%
2,000 Brazos River Auth. Rev., (Houston
Lighting & Power Co.), VRDN,
3.95%, 6/1/98 (AMBAC)
(SBBPA: Royal Bank of
Canada) 2,000
--------------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES--2.1% 2,500
--------------
(Cost $2,500)
TOTAL INVESTMENT SECURITIES--100.0% $116,963
==============
(Cost $109,304)
See Notes to Financial Statements
www.americancentury.com 25
Long-Term Tax-Free--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GO = General Obligation
GTEED = CG Life Guaranty Agreement
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
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, 1998.
(1) Investment in state is less than 0.05% of total investment securities.
(2) Escrowed to maturity in U.S. government securities or state and local
government securities.
(3) Security is a zero-coupon municipal bond. The yield at purchase is
indicated. Zero-coupon securities are purchased at a substantial discount
from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each state
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
26 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
- -----------------------------------------------------------------------------
MAY 31, 1998
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
ASSETS (In Thousands, Except Per-Share Amounts)
Investment securities, at value
(identified cost of $39,226,
$130,744 and $109,304,
<S> <C> <C> <C>
respectively) (Note 3) ............... $ 39,885 $136,536 $116,963
Cash ................................... 42 226 210
Receivable for investments sold ........ 1,012 1,179 --
Interest receivable .................... 571 2,325 1,843
-------- -------- --------
41,510 140,266 119,016
-------- -------- --------
LIABILITIES
Disbursements in excess
of demand deposit cash ............... 1,307 332 2,200
Payable for investments purchased ...... 1,665 1,803 --
Payable for capital shares redeemed .... 103 127 109
Dividends payable ...................... 9 38 42
Accrued management fees (Note 2) ....... 16 59 50
-------- -------- --------
3,100 2,359 2,401
-------- -------- --------
Net Assets ............................. $ 38,410 $137,907 $116,615
======== ======== ========
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ................ 3,782 13,103 10,784
======== ======== ========
Net Asset Value Per Share .............. $ 10.16 $ 10.52 $ 10.81
======== ======== ========
NET ASSETS CONSIST OF:
Capital paid-in ........................ $ 37,699 $131,464 $107,641
Undistributed net investment income .... -- -- 24
Accumulated undistributed net
realized gain from investment
transactions ......................... 52 651 1,291
Net unrealized appreciation
on investments (Note 3) .............. 659 5,792 7,659
-------- -------- --------
$ 38,410 $137,907 $116,615
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
gains earned on investment activity but not yet paid to shareholders or net
losses on investment activity (known as realized gains or losses); and gains or
losses on securities still owned by the fund (known as unrealized appreciation
or depreciation). This breakout tells you the value of assets that are
performance-related, such as investment gains or losses, and the value of assets
that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
www.americancentury.com 27
<TABLE>
<CAPTION>
Statements of Operations
- -----------------------------------------------------------------------------
PERIOD ENDED MAY 31, 1998(1) AND THE YEAR ENDED OCTOBER 31, 1997
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
1998 1997 1998 1997 1998 1997
INVESTMENT INCOME (In Thousands)
Income:
<S> <C> <C> <C> <C> <C> <C>
Interest .......................... $ 990 $2,056 $4,033 $4,470 $3,548 $3,757
------ ------ ------ ------ ------ ------
Expenses (Note 2):
Management fees ................... 111 259 401 490 330 378
Trustees' fees and expenses ....... 1 1 2 2 2 2
------ ------ ------ ------ ------ ------
112 260 403 492 332 380
------ ------ ------ ------ ------ ------
Net investment income ............. 878 1,796 3,630 3,978 3,216 3,377
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments .. 34 283 652 758 1,317 1,546
Change in net unrealized
appreciation during the
period on investments ........... 102 164 400 1,119 93 853
------ ------ ------ ------ ------ ------
Net realized and unrealized
gain on investments ............. 136 447 1,052 1,877 1,410 2,399
------ ------ ------ ------ ------ ------
Net Increase in Net Assets
Resulting from Operations ....... $1,014 $2,243 $4,682 $5,855 $4,626 $5,776
====== ====== ====== ====== ====== ======
</TABLE>
(1) The Funds' fiscal year end was changed from October 31 to May 31 resulting
in a seven month reporting period.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks out how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
28 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
PERIOD ENDED MAY 31, 1998(1) AND YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 31,
1996
LIMITED-TERM INTERMEDIATE-TERM
Increase (Decrease) in Net Assets 1998 1997 1996 1998 1997 1996
OPERATIONS (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net investment income .................... $ 878 $ 1,796 $ 2,306 $ 3,630 $ 3,978 $ 3,787
Net realized gain on investments ......... 34 283 23 652 758 185
Change in net unrealized
appreciation (depreciation)
on investments ......................... 102 164 (100) 400 1,119 (538)
--------- --------- --------- --------- --------- ---------
Net increase in net assets
resulting from operations .............. 1,014 2,243 2,229 4,682 5,855 3,434
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ............... (878) (1,796) (2,306) (3,630) (3,978) (3,787)
From net realized gains
from investment transactions ........... -- (281) -- (257) (686) (549)
--------- --------- --------- --------- --------- ---------
Decrease in net assets
from distributions ..................... (878) (2,077) (2,306) (3,887) (4,664) (4,336)
--------- --------- --------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................ 12,276 25,373 20,823 22,424 24,839 17,649
Proceeds from shares issued in
connection with acquisition
(Note 4) ............................... -- -- -- -- 60,519 --
Proceeds from reinvestment
of distributions ....................... 780 1,901 2,061 3,161 3,963 3,711
Payments for shares redeemed ............. (11,219) (40,869) (31,778) (20,889) (38,664) (20,138)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in
net assets from capital share
transactions ........................... 1,837 (13,595) (8,894) 4,696 50,657 1,222
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in
net assets ............................. 1,973 (13,429) (8,971) 5,491 51,848 320
NET ASSETS
Beginning of period ...................... 36,437 49,866 58,837 132,416 80,568 80,248
--------- --------- --------- --------- --------- ---------
End of period ............................ $ 38,410 $ 36,437 $ 49,866 $ 137,907 $ 132,416 $ 80,568
========= ========= ========= ========= ========= =========
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ..................................... 1,208 2,515 2,064 2,127 2,387 1,701
Shares issued in connection with
acquisition (Note 4) ................... -- -- -- -- 5,830 --
Issued in reinvestment of distributions .. 77 189 204 301 381 359
Redeemed ................................. (1,106) (4,050) (3,148) (1,986) (3,725) (1,949)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) .................. 179 (1,346) (880) 442 4,873 111
========= ========= ========= ========= ========= =========
</TABLE>
(1) The Funds' fiscal year end was changed from October 31 to May 31 resulting
in a seven month reporting period.
See Notes to Financial Statements
www.americancentury.com 29
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------
(Continued)
PERIOD ENDED MAY 31, 1998(1) AND YEARS ENDED
OCTOBER 31, 1997 AND OCTOBER 31,1996
LONG-TERM
1998 1997 1996
Increase (Decrease) in Net Assets
OPERATIONS (In Thousands)
<S> <C> <C> <C>
Net investment income .................... $ 3,216 $ 3,377 $ 3,007
Net realized gain on investments ......... 1,317 1,546 27
Change in net unrealized appreciation
(depreciation) on investments ......... 93 853 134
--------- --------- ---------
Net increase in net assets resulting
from operations ........................ 4,626 5,776 3,168
--------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............... (3,216) (3,377) (3,007)
From net realized gains from
investment transactions ............... (725) (823) --
--------- --------- ---------
Decrease in net assets
from distributions ..................... (3,941) (4,200) (3,007)
--------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................ 36,917 29,116 20,252
Proceeds from shares issued in
connection with acquisition (Note 4) ... -- 52,028 --
Proceeds from reinvestment
of distributions ....................... 3,148 3,588 2,575
Payments for shares redeemed ............. (33,003) (38,212) (20,213)
--------- --------- ---------
Net increase (decrease) in net assets
from capital share transactions ........ 7,062 46,520 2,614
--------- --------- ---------
Net increase (decrease) in net assets .... 7,747 48,096 2,775
NET ASSETS
Beginning of period ...................... 108,868 60,772 57,997
--------- --------- ---------
End of period ............................ $ 116,615 $ 108,868 $ 60,772
========= ========= =========
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ..................................... 3,424 2,730 1,920
Shares issued in connection
with acquisition (Note 4) .............. -- 4,905 --
Issued in reinvestment of distributions .. 292 337 245
Redeemed ................................. (3,057) (3,591) (1,925)
--------- --------- ---------
Net increase (decrease) .................. 659 4,381 240
========= ========= =========
</TABLE>
(1) The Funds' fiscal year end was changed from October 31 to May 31 resulting
in a seven month reporting period.
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past three reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions and capital share transactions result in net assets at the end of
the period.
See Notes to Financial Statements
30 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
MAY 31, 1998
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 Limited-Term Tax-Free Fund (Limited-Term),
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 eight funds issued by the Trust. The Funds are diversified
under the 1940 Act. Their 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
objective. 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--Portfolio securities 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
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 income taxes.
Distributions to Shareholders--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized capital
gains are declared and paid annually.
For the seven months ended May 31, 1998, 100% (unaudited) of the Funds'
distributions from net investment income have been designated as exempt from
federal income tax.
The character of distributions made during the year from net investment
income or net realized capital gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect the
differing character of certain income items and net capital gains and losses for
financial statement and tax purposes and may result in reclassification among
certain capital accounts.
Futures Contracts--The 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 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
contracts 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, 1998.
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.
Additional Information--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
www.americancentury.com 31
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM) that provides each Fund with investment
advisory and management services in exchange for a single, unified management
fee. Expenses excluded from these agreements are brokerage, taxes, portfolio
insurance, interest, fees and expenses of the Trustees who are not considered
"interested persons" as defined in the Investment Company Act of 1940 (including
counsel fees) and extraordinary expenses. The annual rate at which this fee is
assessed is determined monthly in a two-step process: First, a fee rate schedule
is applied to the net assets of all of the funds in the Fund's investment
category which are managed by ACIM (the "Investment Category Fee"). The overall
investment objective of each Fund determines its Investment Category. The three
investment categories are: the Money Market Fund Category, the Bond Fund
Category and the Equity Fund Category. The Funds are included in the Bond Fund
Category. Second, a separate fee rate schedule is applied to the net assets of
all of the funds managed by ACIM (the "Complex Fee"). The Investment Category
Fee and the Complex Fee are then added to determine the unified management fee
rate. The management fee is paid monthly by each Fund based on each Fund's
aggregate average daily net assets during the previous month multiplied by the
monthly management fee rate.
The annualized Investment Category Fee schedule for each Fund is as
follows:
0.2800% of the first $1 billion
0.2280% of the next $1 billion
0.1980% of the next $3 billion
0.1780% of the next $5 billion
0.1650% of the next $15 billion
0.1630% of the next $25 billion
0.1625% of the average daily net assets over $50 billion
The annualized Complex Fee schedule (for all Funds) is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
Certain officers and trustees of the Trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Trust's investment manager, ACIM, and the
Trust's transfer agent, American Century Services, Inc.
32 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, were as follows:
<TABLE>
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
PURCHASES (In Thousands)
<S> <C> <C> <C>
Municipal Debt Obligations ........ $12,689 $27,802 $57,184
PROCEEDS FROM SALES (In Thousands)
Municipal Debt Obligations ........ $10,325 $22,601 $51,170
On May 31, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
(In Thousands)
Appreciation ....... $659 $ 5,876 $7,755
Depreciation ....... -- (84) (96)
--------------------------------------------------------------
Net ................ $659 $5,792 $7,659
==============================================================
</TABLE>
The aggregate cost of investments for federal income tax purposes was the
same as the cost for financial reporting purposes for the Funds.
- --------------------------------------------------------------------------------
4. REORGANIZATION PLAN
On August 29, 1997, Limited-Term, Intermediate-Term, and Long-Term acquired
all of the net assets of the American Century - Benham Limited-Term Tax-Exempt
Fund (Limited-Term Tax-Exempt), American Century - Benham Intermediate-Term
Tax-Exempt Fund (Intermediate-Term Tax-Exempt), and American Century - Benham
Long-Term Tax-Exempt Fund (Long-Term Tax-Exempt), respectively, pursuant to a
plan of reorganization approved by the acquired funds' shareholders on July 30,
1997. The surviving funds for the purposes of maintaining the financial
statements and performance history in the post-reorganization are Limited-Term
Tax-Exempt, Intermediate-Term Tax-Exempt, and Long-Term Tax-Exempt. These funds
were also reorganized as funds issued by American Century Municipal Trust.
The acquisition was accomplished by a tax-free exchange of shares of
Limited-Term, Intermediate-Term, and Long-Term of 3,729,594, 5,588,194, and
4,402,660, respectively, for 3,729,594, 5,830,457, and 4,904,754 shares of
Limited-Term Tax-Exempt, Intermediate-Term Tax-Exempt, and Long-Term Tax-Exempt,
respectively, outstanding on August 29, 1997. The net assets of
Intermediate-Term, and Long-Term immediately before the acquisitions were
$60,519,330 and $52,028,294, respectively. Since Limited-Term was not a legal
entity prior to the merger, there were no assets prior to the reorganization.
Unrealized appreciation of $2,290,179 and $3,743,216 for Intermediate-Term and
Long-Term, respectively, was combined with that of Intermediate-Term Tax-Exempt
and Long-Term Tax-Exempt. Immediately after the acquisition, the combined net
assets of Limited-Term, Intermediate-Term, and Long-Term were $37,556,857,
$133,562,791, and $106,095,509, respectively.
www.americancentury.com 33
<TABLE>
<CAPTION>
Limited-Term Tax-Free--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
1998(1) 1997 1996 1995 1994 1993(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................... $ 10.11 $ 10.08 $ 10.09 $ 9.95 $ 10.04 $ 10.00
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............... 0.24 0.41 0.43 0.44 0.36 0.21
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ... 0.05 0.10 (0.01) 0.14 (0.09) 0.04
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations .... 0.29 0.51 0.42 0.58 0.27 0.25
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......... (0.24) (0.41) (0.43) (0.44) (0.36) (0.21)
From Net Realized Gains on
Investment Transactions ............. -- (0.07) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ................. (0.24) (0.48) (0.43) (0.44) (0.36) (0.21)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $ 10.16 $ 10.11 $ 10.08 $ 10.09 $ 9.95 $ 10.04
========== ========== ========== ========== ========== ==========
Total Return(3) ..................... 2.87% 5.22% 4.26% 5.95% 2.75% 2.55%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.52%(4) 0.59% 0.38%(5) --(5) --(5) --(5)
Ratio of Net Investment Income to
Average Net Assets .................. 4.04%(4) 4.05% 4.28% 4.38% 3.62% 3.09%(4)
Portfolio Turnover Rate ............... 28% 74% 68% 78% 42% 3%
Net Assets, End of Period
(in thousands) ...................... $ 38,410 $ 36,437 $ 49,866 $ 58,837 $ 60,857 $ 52,265
</TABLE>
(1) Seven months ended May 31, 1998. The Fund's fiscal year end was changed
from October 31 to May 31 resulting in a seven month reporting period.
(2) March 1, 1993 (inception) through October 31, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) American Century Investment Management, Inc. had voluntarily waived its
management fee through February 29, 1996. In absence of the waiver, the
ratio of operating expenses to average net assets would have been 0.60%.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last six fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced
See Notes to Financial Statements
34 1-800-345-2021
<TABLE>
<CAPTION>
Intermediate-Term Tax-Free--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
1998(1) 1997 1996 1995 1994 1993(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................. $ 10.46 $ 10.35 $ 10.45 $ 10.01 $ 10.75 $ 10.27
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............. 0.28 0.49 0.48 0.49 0.48 0.48
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. 0.08 0.21 (0.03) 0.52 (0.61) 0.55
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations ... 0.36 0.70 0.45 1.01 (0.13) 1.03
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ......... (0.28) (0.49) (0.48) (0.49) (0.48) (0.48)
From Net Realized Gains on
Investment Transactions ............ (0.02) (0.10) (0.07) (0.08) (0.13) (0.07)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ................ (0.30) (0.59) (0.55) (0.57) (0.61) (0.55)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ....... $ 10.52 $ 10.46 $ 10.35 $ 10.45 $ 10.01 $ 10.75
========== ========== ========== ========== ========== ==========
Total Return(3) .................... 3.50% 6.88% 4.47% 10.41% (1.25)% 10.25%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.51%(4) 0.58% 0.60% 0.60% 0.60% 0.72%
Ratio of Net Investment Income
to Average Net Assets .............. 4.62%(4) 4.71% 4.66% 4.77% 4.59% 4.51%
Portfolio Turnover Rate .............. 17% 35%(5) 39% 32% 74% 38%
Net Assets, End of Period
(in thousands) ..................... $ 137,907 $ 132,416 $ 80,568 $ 80,248 $ 81,400 $ 98,740
</TABLE>
(1) Seven months ended May 31, 1998. The Fund's fiscal year end was changed
from October 31 to May 31 resulting in a seven month reporting period.
(2) The data presented has been restated to give effect to a 10 to 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Purchases, sales, and market value amounts for Benham Intermediate-Term
Tax-Free Fund prior to the merger were excluded from the portfolio turnover
calculation. See Note 4 in Notes to Financial Statements.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last six fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced
See Notes to Financial Statements
www.americancentury.com 35
<TABLE>
<CAPTION>
Long-Term Tax-Free--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
1998(1) 1997 1996 1995 1994 1993(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................. $ 10.75 $ 10.58 $ 10.54 $ 9.75 $ 11.10 $ 10.36
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............. 0.31 0.55 0.53 0.53 0.52 0.53
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. 0.13 0.33 0.04 0.83 (1.01) 0.90
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations ... 0.44 0.88 0.57 1.36 (0.49) 1.43
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ......... (0.31) (0.55) (0.53) (0.53) (0.52) (0.53)
From Net Realized Gains on
Investment Transactions ............ (0.07) (0.16) -- (0.04) (0.34) (0.16)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ................ (0.38) (0.71) (0.53) (0.57) (0.86) (0.69)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ....... $ 10.81 $ 10.75 $ 10.58 $ 10.54 $ 9.75 $ 11.10
========== ========== ========== ========== ========== ==========
Total Return(3) .................... 4.18% 8.59% 5.60% 14.45% (4.70)% 14.32%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ................. 0.51%(4) 0.58% 0.59% 0.59% 0.60% 0.73%
Ratio of Net Investment Income to
Average Net Assets ................. 4.96%(4) 5.16% 5.06% 5.24% 5.00% 4.90%
Portfolio Turnover Rate .............. 47% 65%(5) 60% 61% 66% 81%
Net Assets, End of Period
(in thousands) ..................... $ 116,615 $ 108,868 $ 60,772 $ 57,997 $ 50,964 $ 70,757
</TABLE>
(1) Seven months ended May 31, 1998. The Fund's fiscal year end was changed
from October 31 to May 31 resulting in a seven month reporting period.
(2) The data presented has been restated to give effect to a 10 to 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Purchases, sales, and market value amounts for Benham Long-Term Tax-Free
Fund prior to the merger were excluded from the portfolio turnover
calculation. See Note 4 in Notes to Financial Statements.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last six fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced
See Notes to Financial Statements
36 1-800-345-2021
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Board of Trustees of the
American Century Municipal Trust
and Shareholders of the American Century - Benham
Limited-Term Tax-Free Fund, American Century - Benham
Intermediate-Term Tax-Free Fund and the
American Century - Benham Long-Term Tax-Free Fund
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations, changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the American Century - Benham Limited-Term
Tax-Free Fund, the American Century - Benham Intermediate-Term Tax-Free Fund and
the American Century - Benham Long-Term Tax-Free Fund (three of the funds
constituting The American Century Municipal Trust, hereafter referred to as the
"Funds") at May 31, 1998, the results of each of their operations, the changes
in each of their net assets and the financial highlights for the period November
1, 1997 through May 31, 1998 and the year ended October 31, 1997, in conformity
with generally accepted accounting principles. The statement of changes in net
assets for the year ended October 31, 1996 and the financial highlights for the
four years in the period ended October 31, 1996 were audited by other auditors,
whose report, dated November 20, 1996, expressed an unqualified opinion on those
statements. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 1998 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 16, 1998
www.americancentury.com 37
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies
Limited-Term Tax-Free seeks interest income exempt from federal income
taxes by investing in municipal securities. The fund maintains a weighted
average maturity of five years or less.
Intermediate-Term Tax-Free seeks interest income exempt from federal income
taxes by investing in municipal securities. The fund maintains a weighted
average maturity of 5-10 years.
Long-Term Tax-Free seeks interest income exempt from federal income taxes
by investing in municipal securities. The fund maintains a weighted average
maturity of 10 or more years.
Investment income may be subject to state and local taxes and, depending on
your tax status, the federal alternative minimum tax. Capital gains are not
exempt from federal income taxes.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The Merrill Lynch 0- to 3-Year Municipal Index is composed of 23 municipal
securities with an average maturity of approximately two years. The bonds in the
index have an average rating of AA1.
The Lehman Brothers Five-Year Municipal General Obligation Index is a
municipal bond index composed of 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 a broad-based, total
return index. The index is composed of municipal bonds with maturities greater
than 22 years. The bonds are all investment grade, fixed rate and are selected
from issues larger than $50 million dated since January 1984.
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:
Short/Intermediate Municipal Debt Funds (Limited-Term Tax-Free)--funds that
invest in municipal debt issues with dollar-weighted average maturities of 1-5
years.
Intermediate Municipal Debt Funds (Intermediate-Term Tax-Free)--funds that
invest in municipal debt issues with dollar-weighted average maturities of 5-10
years.
General Municipal Debt Funds (Long-Term Tax-Free)--funds that invest at
least 65% of their assets in municipal debt issues in the top four credit
ratings (AAA, AA, A and BBB).
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS:
DAVE MACEWEN
JOEL SILVA
MUNICIPAL CREDIT RESEARCH TEAM
MANAGER:
STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS:
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
38 1-800-345-2021
Glossary
- -----------------------------------------------------------------------------
RETURNS
* 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.
* 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 34-36.
YIELDS
* 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.
* 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
* 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%).
* 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
* Number of Securities--the number of different securities held by a fund on a
given date.
* 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.
* 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.
* 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
* AMT Paper--instruments with income subject to the federal alternative minimum
tax.
* COPs/Leases--securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases.
* GO Bonds--general obligation securities backed by the taxing power of the
issuer.
* Land-Secured Bonds--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
* 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.
* 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).
www.americancentury.com 39
Notes
- -----------------------------------------------------------------------------
40 1-800-345-2021
/inside back cover/
[american century logo(reg.sm)]
American
Century(reg.tm)
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
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution
to prospective investors unless preceded or accompanied by an effective
prospectus.
(C) 1998 American Century Services Corporation Funds Distributor, Inc.
[recycled logo]
Recycled
/back cover/
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
American Century Investments Bulk Rate
P.O. Box 419200 U.S. Postage Paid
Kansas City, MO 64141-6200 American Century
www.americancentury.com Companies
9807 (C)1998 American Century Services Corporation
SH-BKT-13101 Funds Distributor, Inc.
<PAGE>
/front cover/
May 31, 1998
Annual Report
- -------------
American Century
[graphic of U.S. currency and two individuals walking up stairs]
Benham Group
- ------------
High-Yield Municipal
[american century logo(reg.sm)]
American
Century(reg.tm)
/inside front cover/
A Note from the Founder
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in tern, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very
good information, from fund statistics and financials to Q&A's with fund
managers. We hope the new design will make the reports more interesting and
understandable, while helping you keep abreast of your fund's strategy and
performance.
What's New
The reports are designed to be attractive and easy to use whether you're
reading them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
The Bottom Line
The new design actually costs slightly less than the old one. We
reallocated costs and eliminated a cover letter and the envelope that previously
came with your report enclosed. This not only saves money but reduces the number
of mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-
friendly publication.
We hope you enjoy it.
[left margin]
Benham Group
High-Yield Municipal
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
Our Message to You
- -----------------------------------------------------------------------------
/photo James E. Stowers, Jr. with James E. Stowers III, seated/
James E. Stowers, Jr. with James E. Stowers III, seated
We are proud to present our first annual report for High-Yield Municipal,
the newest, most aggressive fund in our lineup of national tax-free and
municipal funds. Opened on March 31, 1998, the fund is designed for investors
looking for high current income free from federal taxes and the potential for
higher returns than those offered by higher-quality municipal bond funds. Of
course, the fund's higher yield and return potential are based on its investment
in lower-rated bonds, which are subject to greater credit risk, default risk and
liquidity risk.
We are pleased to report that High-Yield Municipal outperformed many of its
peers during its first two months of existence. Low inflation, economic turmoil
overseas, and healthy economic and credit conditions in the U.S. created a
favorable investment climate for municipal bonds.
Turning to the corporate front, we've had an eventful year at American
Century. We gained a powerful business partner in January, when J.P. Morgan, one
of the oldest, largest and most James E. Stowers, Jr. with James E. Stowers III,
respected financial service institutions in the U.S., became a substantial
minority shareholder. The new business partnership will allow both companies to
offer investors a highly diverse menu of investment options and services.
Another significant event was the retirement of Jim Benham, founder of The
Benham Group, in December. With the integration of Benham and American Century
successfully completed, Jim felt it was time to step back from the business.
Much of the Benham culture has become a part of American Century, including the
educational investor seminar Jim created.
Overall, we've had a noteworthy record of continuity in the management of
American Century's tax-free and municipal funds. The investment team that
manages the Tax-Free funds has expanded its resources and hasn't experienced any
portfolio manager turnover since Benham merged with American Century. High-Yield
Municipal's investment team is another example of that continuity--the fund is
managed in the same way and by the same experienced management team as our
successful California High-Yield Municipal fund.
Our tax-free and municipal funds have performed well and serve as an
example of the quality investment tools we aim to provide shareholders to help
them meet their financial goals. We're committed to making your relationship
with us as easy and productive as possible.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER CHIEF EXECUTIVE OFFICER
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
Municipal Credit Review ................................................. 4
HIGH-YIELD MUNICIPAL
Performance Information ................................................. 5
Management Q&A .......................................................... 6
Schedule of Investments ................................................. 9
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ........................................................... 12
Statement of Operations ................................................. 13
Statement of Changes
in Net Assets ......................................................... 14
Notes to Financial
Statements ............................................................ 15
Financial Highlights .................................................... 17
Report of Independent
Accountants ........................................................... 18
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ........................................................ 19
Comparative Indices ................................................... 19
Lipper Rankings ....................................................... 19
Investment Team
Leaders ............................................................. 19
Glossary ................................................................ 20
www.americancentury.com 1
Report Highlights
- -----------------------------------------------------------------------------
MARKET PERSPECTIVE
* Low inflation and economic turmoil in Asia helped push interest rates lower,
which caused municipal bond prices to increase.
* Most of the rate declines and price gains occurred in the fourth quarter of
1997. Rates and prices were more stable through the first five months of
1998.
* The supply of municipal securities grew dramatically, thanks to low interest
rates and a record-setting new municipal issue from the Long Island Power
Authority.
MUNICIPAL CREDIT REVIEW
* Municipal credit quality remained generally positive, due largely to the
healthy national economy.
* Municipal credit rating upgrades continued to outpace rating downgrades, with
nearly five upgrades for every downgrade.
* However, Alaska and Hawaii experienced credit downturns, and we're carefully
monitoring the effect of the Asian economic crisis on the western U.S.
* We expanded our municipal credit research team to six analysts.
MANAGEMENT Q&A
* High-Yield Municipal performed well in its first two months of existence,
producing greater returns and more federal tax-free income than the average
municipal high-yield fund, according to Lipper Analytical Services.
* One reason for High-Yield Municipal's good relative performance is that we've
waived expenses through April 30, 1999. Other things being equal, lower
expenses mean higher yields and returns for fund shareholders.
* High-Yield Municipal will generally hold about 40-60% of assets in high-yield
bonds, with the remainder of the portfolio in higher-quality,
investment-grade securities.
* We expect to maintain an average maturity greater than 10 years and a
duration between six and eight years. (Average maturity and duration are
measures of a bond portfolio's sensitivity to changes in interest rates.)
* We have a generally positive outlook for the municipal bond market, but
investors should keep in mind that we're in a low interest rate environment
overall, making it harder to find attractive, higher-yielding securities.
* Going forward, we'll try to outperform our peers by using a credit-intensive
approach to security selection rather than making big bets on duration.
[left margin]
"HIGH-YIELD MUNICIPAL PERFORMED WELL IN ITS FIRST TWO MONTHS OF EXISTENCE,
PRODUCING GREATER RETURNS AND MORE FEDERAL TAX-FREE INCOME THAN THE AVERAGE
MUNICIPAL HIGH-YIELD FUND, ACCORDING TO LIPPER ANALYTICAL SERVICES."
HIGH-YIELD MUNICIPAL
TOTAL RETURNS: AS OF 5/31/98
Since Inception 1.81%*
NET ASSETS: $18.8 million
30-DAY SEC YIELD: 5.31%
COMMENCEMENT OF
INVESTMENT OPERATIONS: 3/31/98
* Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on page 20.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- -----------------------------------------------------------------------------
/photo of Randall W. Merk, director of fixed-income investing at American
Century/
Randall W. Merk, director of fixed-income investing at American Century
PERFORMANCE PICTURE
Municipal securities produced moderate gains during the year ended May 31,
1998.* Economic turmoil in Asia helped cool inflationary pressures, pushing
municipal bond yields lower and prices higher. Long-term municipal bonds, which
are most sensitive to interest rate changes, performed best. The Lehman Brothers
Long-Term Municipal Bond Index returned 11.67%.
INTEREST RATE OVERVIEW
The majority of municipals' gains came in the fourth quarter of 1997, when
long-term interest rates trended downward. Rates came down because of the
worsening Asian economic crisis, which curtailed U.S. business overseas and put
a lid on corporate America's ability to raise prices for its goods and services.
That eased growing inflationary pressures, sparking the bond market rally. In
1998, however, interest rates and bond prices traded in a much narrower range.
That's because the U.S. economy remained healthy enough to keep the job market
growing at a historically strong pace. Lacking a clear signal as to whether a
weaker Asia or rising domestic wages would ultimately win out, the Federal
Reserve (the Fed) left interest rates unchanged.
INCREASED SUPPLY
The supply of municipals grew dramatically, thanks in large part to a
record-setting new municipal issue. In May, the Long Island Power Authority
issued $3.5 billion in municipal debt, the single largest municipal deal in
history. Scrambling to take advantage of low interest rates, other issuers
brought to market an enormous number of new municipal securities. For the first
five months of 1998, new issue volume was up over 53% compared with the previous
year.
The demand for municipals didn't keep pace with the growing appetite for
U.S. Treasury bonds, which are seen as a safe haven against international market
turmoil. The near-record amount of municipal issuance and the growing demand for
Treasury securities caused municipals to underperform Treasurys. As a result,
municipal bonds were very attractively valued relative to Treasurys.
FLATTENING YIELD CURVE
Reflecting the Fed's stable interest rate policy, short-term interest rates
remained relatively unchanged. However, yields on long-term municipal securities
fell about 50 basis points (a basis point equals 0.01%). This resulted in the
"flattening" yield curve shown in the accompanying graph. The yield difference
between a one-year note and a 30-year bond fell to just 128 basis points on May
31, 1998.
* Although High-Yield Municipal began operations on March 31, 1998, this
overview covers the year ended May 31, 1998, to provide a broader perspective
on the market.
[right margin]
"ECONOMIC TURMOIL IN ASIA HELPED COOL INFLATIONARY PRESSURES, PUSHING MUNICIPAL
BOND YIELDS LOWER AND PRICES HIGHER."
[line chart]
FLATTENING MUNICIPAL YIELD CURVE
5/31/97 5/31/98
YEARS TO MATURITY
1 3.85% 3.69%
2 4.15% 3.85%
3 4.35% 3.95%
4 4.50% 4.04%
5 4.60% 4.09%
6 4.66% 4.16%
7 4.72% 4.23%
8 4.78% 4.30%
9 4.84% 4.37%
10 4.90% 4.44%
11 4.98% 4.51%
12 5.05% 4.59%
13 5.13% 4.66%
14 5.20% 4.74%
15 5.28% 4.81%
16 5.31% 4.84%
17 5.34% 4.86%
18 5.36% 4.89%
19 5.39% 4.91%
20 5.42% 4.94%
21 5.43% 4.94%
22 5.43% 4.94%
23 5.44% 4.95%
24 5.44% 4.95%
25 5.45% 4.95%
26 5.45% 4.95%
27 5.46% 4.96%
28 5.46% 4.96%
29 5.47% 4.97%
30 5.47% 4.97%
Source: Bloomberg Financial Markets
"THE YIELD DIFFERENCE BETWEEN A ONE-YEAR NOTE AND A 30-YEAR BOND FELL TO JUST
128 BASIS POINTS ON MAY 31, 1998.
www.americancentury.com 3
Municipal Credit Review
- -----------------------------------------------------------------------------
POSITIVE CREDIT TRENDS
Municipal credit trends, benefiting primarily from the healthy national
economy, remained generally positive during the year ended May 31, 1998. During
the first three months of 1998, the U.S. economy grew at an impressive 5.4%
annual rate after increasing 3.7% in 1997. The unemployment rate declined
throughout the period to a 28-year low of 4.3% in May.
Municipal credit rating upgrades continued to outpace downgrades. Overall,
there were nearly five upgrades for every downgrade for the year ended in May.
The generally positive overall municipal credit environment is reflected in the
accompanying map, which shows state credit ratings where available.
REGIONAL PERFORMANCE
The vast majority of the country continued to see stable to improving
credit quality thanks to increased revenues and property values. Nevada, Arizona
and Utah remain three of the fastest growing states, leading the trend toward
improved credit quality in the western and Rocky Mountain states. The Southeast
also saw many states receive credit rating upgrades in the last year.
However, a few states are experiencing credit downturns. Alaska has a
negative credit outlook because of the recent decline in oil prices, which hit a
nine-year low in May. Hawaii's credit quality declined recently due to a
decrease in tourism and its strong ties to Asia. Though the Asian economic
crisis has so far had only a limited effect on other western states, we are
carefully monitoring its impact on the high technology sector, tourism,
agriculture and other export-oriented businesses in these states. In addition,
we're concerned that full employment and rapidly rising wages and benefits costs
could trigger inflation in select areas of the country.
SECTOR ANALYSIS
Tax-backed bonds have benefited most from positive credit trends in recent
years because their quality is closely tied to the health of the economy.
Bonds backed by the revenue from a specific municipal project or entity
have also generally fared well. However, municipal electric utilities continue
to struggle after the recent deregulation of the industry--many public utilities
have been exposed to competition for the first time, and their bonds have come
under pressure as a result.
We also continue to carefully monitor the health care sector. The trend
toward managed care has brought small, single-site health care providers under
intense pressure to cut costs and improve efficiency.
EXPANDING CREDIT TEAM
Careful credit analysis and security selection are vital to our investment
approach for the Benham Municipal and Tax-Free funds. To strengthen that
approach, we continued to add to our team of municipal credit analysts--the
sixth member of our team joined us in July. We believe a larger and more diverse
credit team gives us a better opportunity to add value for our shareholders
because each team member brings unique experience and industry-specific
knowledge.
[left margin]
[map of U.S.]
NATIONAL CREDIT QUALITY AS OF MAY 31, 1998
STATE S. & P. RATING
Alabama AA
Alaska AA
Arizona AA
Arkansas AA
California A+
Colorado AA
Connecticut AA-
Delaware AA+
District Of Columbia BB
Florida AA+
Georgia AAA
Hawaii A+
Idaho AA
Illinois AA
Indiana AA
Iowa AA
Kansas AA
Kentucky AA
Louisiana A-
Maine AA+
Maryland AAA
Massachusetts AA-
Michigan AA+
Minnesota AAA
Mississippi AA
Missouri AAA
Montana AA-
Nebraska NR
Nevada AA
New Hampshire AA+
New Jersey AA+
New Mexico AA+
New York A
North Carolina AAA
North Dakota AA-
Ohio AA+
Oklahoma AA
Oregon AA
Pennsylvania AA-
Rhode Island AA-
South Carolina AAA
South Dakota AA
Tennessee AA+
Texas AA
Utah AAA
Vermont AA-
Virginia AAA
Washington AA+
West Virginia AA-
Wisconsin AA
Wyoming NR
Source: Standard & Poor's
CREDIT RATING DEFINITIONS
* AAA, AA AND A ARE STANDARD & POOR'S HIGHEST LONG-TERM CREDIT RATINGS.
BONDS IN THESE RATING CATEGORIES ARE CONSIDERED "INVESTMENT GRADE,"
MEANING THEY'RE RELATIVELY SAFE FROM DEFAULT.
* AAA--EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* AA--VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* A--STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
4 1-800-345-2021
<TABLE>
<CAPTION>
High-Yield Municipal--Performance
- -----------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1998
COMMENCEMENT OF INVESTMENT OPERATIONS 3/31/98
HIGH-YIELD LEHMAN LONG-TERM HIGH CURRENT YIELD MUNICIPAL FUNDS(2)
MUNICIPAL MUNI BOND INDEX AVERAGE RETURN FUND'S RANKING
- -----------------------------------------------------------------------------------
RETURNS
<S> <C> <C> <C> <C>
LIFE OF FUND(1) .. 1.81% 1.41% 1.00% --
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
</TABLE>
See pages 19-20 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain chart]
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made 3/31/98
Value on 5/31/98
High-Yield Lehman Long-Term Muni
Municipal Bond Index
3/31/98 $10,000 $10,000
4/30/98 $9,995 $9,946
5/31/98 $10,181 $10,141
The chart at left shows the growth of a $10,000 investment over the life of the
fund. The Lehman Long-Term Muni Bond Index is provided for comparison.
High-Yield's returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the returns of the index do not.
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.
www.americancentury.com 5
High-Yield Municipal--Q&A
- -----------------------------------------------------------------------------
An interview with Steven Permut and Joel Silva, portfolio managers on the
High-Yield Municipal fund investment team.
HOW HAS HIGH-YIELD MUNICIPAL PERFORMED SINCE ITS INCEPTION ON MARCH 31, 1998?
The fund produced a 1.81% total return during its first two months of
existence. By comparison, the 57 municipal high-yield funds tracked by Lipper
Analytical Services produced an average return of 1.00% over the same period.
(See the Total Returns table on the previous page.)
WHAT ABOUT HIGH-YIELD MUNICIPAL'S YIELD?
High-Yield Municipal produced a high level of federal tax-free income, with
a 30-day SEC yield of 5.31% on May 31. By comparison, the average municipal
high-yield fund yielded 4.65%, according to Lipper. Our comparatively high yield
reflects the fact that we were able to invest new money coming into the fund
relatively quickly, and that we've waived management fees for a year. Without
the fee waiver, the yield would have been 4.67%.
CAN YOU EXPLAIN A LITTLE BIT MORE ABOUT THE FEE WAIVER?
We've waived management fees through April 30, 1999. Other things being
equal, lower fees mean higher yields and returns for fund shareholders. The fee
waiver was a good way for us to provide a competitive yield right away. Many of
High-Yield Municipal's peers hold bonds purchased in higher interest rate
environments, so their yields were likely to be higher than yields on new bonds
we can purchase today, when rates are relatively low. Over time, as our
competitors' higher-yielding bonds mature or are called away and we have an
opportunity to purchase higher-yielding bonds in the secondary market, any yield
advantage they have should disappear.
And we should point out that even without the fee waiver, High-Yield
Municipal's expense ratio of approximately 0.65% should be well below
average--according to Lipper, the average high-yield municipal fund charged
1.15% on May 31, 1998.
WHAT WERE HIGH-YIELD MUNICIPAL'S TAX-EQUIVALENT YIELDS?
High-Yield Municipal's performance was very good on an after-tax basis.
Tax-equivalent yields ranged from 7.38% for an investor in the 28% federal
income tax bracket to 8.79% for someone in the highest bracket (see the Yields
table at left for additional tax-equivalent yields). However, a portion of fund
income will be taxable for shareholders who file under the federal alternative
minimum tax (AMT). Investors should also keep in mind that capital gains aren't
tax exempt.
WHAT PERCENT OF ASSETS DO YOU EXPECT TO KEEP IN BONDS WHOSE INTEREST PAYMENTS
ARE SUBJECT TO AMT?
Right now, about a third of assets are in AMT bonds, but that number will
fluctuate based on the size of the fund and market conditions. Even though AMT
securities tend to offer higher yields, we're not necessarily buying those bonds
as a yield play. Instead, the presence of AMT bonds in the fund reflects the
nature of the municipal high-yield market, which tends to have more AMT
securities than the investment-grade portion of the market.
[left margin]
"WE'VE WAIVED MANAGEMENT FEES THROUGH APRIL 30, 1999. OTHER THINGS BEING EQUAL,
LOWER FEES MEAN HIGHER YIELDS AND RETURNS FOR FUND SHAREHOLDERS."
PORTFOLIO AT A GLANCE
5/31/98
NUMBER OF SECURITIES 35
WEIGHTED AVERAGE
MATURITY 19.4 YRS
AVERAGE DURATION 7.3 YRS
EXPENSE RATIO 0.00%*
* Fund expenses of approximately 0.64% are being waived through April 30, 1999.
YIELDS AS OF MAY 31, 1998
30-DAY SEC YIELD
5.31%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 7.38%
31.0% TAX BRACKET 7.70%
36.0% TAX BRACKET 8.30%
39.6% TAX BRACKET 8.79%
Without the fee waiver, tax-equivalent yields would have been 6.49%, 6.77%,
7.30% and 7.73% for the four tax brackets.
Investment terms are defined in the Glossary on page 20.
6 1-800-345-2021
High-Yield Municipal--Q&A
- -----------------------------------------------------------------------------
(Continued)
HOW WILL YOU MANAGE HIGH-YIELD MUNICIPAL'S CREDIT QUALITY?
The portfolio will hold a mix of higher-quality, investment-grade bonds and
lower-rated, high-yield securities (see the Portfolio Composition by Credit
Rating table at right). We'll adjust the credit structure as market conditions
vary to try and build a portfolio that we think will produce good returns and
yields for our shareholders. But in general, investors can expect that around
40-60% of assets will be in high-yield municipal bonds rated below investment
grade. That's consistent with our goal of producing high federal tax-free income
and potentially greater returns than investors could earn with high-quality
municipals.
HOW DO HIGH-YIELD BONDS COMPARE WITH HIGHER-QUALITY INVESTMENTS IN TERMS OF
CREDIT RISK?
Municipal bonds are tied to the credit quality and financial health of the
issuing city, state or other municipal entity. Credit quality represents an
estimate of the likelihood that the municipality will be able to pay its debts
(bond interest and principal payments) on time. The lower a bond's rating, the
greater its credit risk, and the more risk, the more yield you're paid to
compensate for holding that bond.
Securities rated AAA, AA, A and BBB are called "investment grade" because
they're judged to be relatively safe from default. In contrast, high-yield bonds
(securities rated below investment grade) are more speculative and are more
likely to be affected by changes in the economy.
But credit quality can vary even within these ratings. In addition, many
high-yield municipal bonds aren't rated at all. For these reasons, we work
closely with our experienced municipal credit research team to conduct thorough,
case-by-case analysis of securities we're considering for High-Yield Municipal.
CAN YOU DESCRIBE HOW THE CREDIT TEAM HELPS YOU PICK SECURITIES?
Sure. Our analysts perform extensive financial and demographic analysis and
frequently conduct site visits to determine a security's value. We think this
hands-on approach to credit analysis and security selection helps us buy good
bonds at attractive prices. We're looking for bonds with solid underlying
fundamentals that we think are good candidates for credit rating upgrades.
Finding those bonds is good for shareholders because upgraded securities
typically rise in value. To help us with that approach, we've expanded our
municipal credit team to six analysts.
HOW DO YOU EXPECT TO MANAGE THE FUND'S AVERAGE MATURITY AND DURATION?
While we have the flexibility to invest in bonds across the maturity
spectrum, we generally expect to maintain an average maturity of 10 years or
more and a duration of around six to eight years. (Average maturity and duration
are measures of a bond portfolio's sensitivity to changes in interest rates. The
longer a fund's average maturity and duration, the more its share price tends to
rise or fall when rates change.) We prefer to maintain a duration that's close
to the peer group average rather than make interest rate bets. Instead, we look
to outperform our peers by using careful credit analysis and security selection.
[right margin]
"OUR ANALYSTS PERFORM EXTENSIVE FINANCIAL AND DEMOGRAPHIC ANALYSIS AND
FREQUENTLY CONDUCT SITE VISITS TO DETERMINE A SECURITY'S VALUE."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF
5/31/98
AAA 8%
AA 11%
A 16%
BBB 26%
BB 9%
UNRATED 30%
Ratings provided by Standard & Poor's. (See pages 4 and 20 for more
information.)
"WE GENERALLY EXPECT TO MAINTAIN AN AVERAGE MATURITY OF 10 YEARS OR MORE AND A
DURATION OF AROUND SIX TO EIGHT YEARS."
www.americancentury.com 7
High-Yield Municipal--Q&A
- -----------------------------------------------------------------------------
(Continued)
WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET?
We have a generally positive outlook. Municipal bonds in general are very
attractively valued relative to Treasury securities right now. That should help
spur demand for municipals. Many analysts expect economic data to show slower
growth in the second quarter as a result of a big buildup in business
inventories, the General Motors strike and slower business with Asia.
However, a robust consumer sector, which accounts for about two-thirds of
economic growth, suggests it's unlikely the economy will slow dramatically in
the near future. Nevertheless, inflation remains low, having risen at a 1.5%
annual rate so far in 1998. We believe that probably means interest rates can
trend a little lower, though they'll probably continue to fluctuate in a
relatively narrow range until we see evidence that the economy is slowing.
But while we're positive on the market, investors should keep in mind that
we're in a low interest rate environment overall, making it harder to find
attractive, higher-yielding securities.
WHAT IS YOUR STRATEGY FOR HIGH-YIELD MUNICIPAL OVER THE NEXT SIX MONTHS?
We'll continue to take a conservative approach to managing duration,
keeping it neutral relative to the average municipal high-yield fund. We'll also
work to invest new money coming into the fund quickly to build a balanced
portfolio of high-yield and investment-grade bonds. Above all, we're going to do
our homework and use our value-oriented approach to buy bonds we think offer the
best yields with the least risk for our shareholders.
[left margin]
"WE'RE GOING TO DO OUR HOMEWORK AND USE OUR VALUE-ORIENTED APPROACH TO BUY
BONDS WE THINK OFFER THE BEST YIELDS WITH THE LEAST RISK FOR OUR SHAREHOLDERS."
[pie chart]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF MAY 31, 1998
Revenue 87%
COPs/Leases 1%
Land-Secured 12%
"BUT WHILE WE'RE POSITIVE ON THE MARKET, INVESTORS SHOULD KEEP IN MIND THAT
WE'RE IN A LOW INTEREST RATE ENVIRONMENT OVERALL, MAKING IT HARDER TO FIND
ATTRACTIVE, HIGHER-YIELDING SECURITIES."
8 1-800-345-2021
High-Yield Municipal--Schedule of Investments
- -----------------------------------------------------------------------------
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
MUNICIPAL SECURITIES
ALASKA--1.2%
$ 245,000 Alaska Industrial Development
and Export Auth. Power Rev.,
(Upper Lynn Canal Regional
Power), 5.80%, 1/1/18 $ 246,401
--------------
CALIFORNIA--10.6%
650,000 Poway Community Facilities
District Special Tax, (No. 88-1,
Parkway Business Center),
6.75%, 8/15/15 707,590
1,000,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 5.80%, 9/1/14(1) 1,001,810
450,000 Upland Certificates of
Participation, (San Antonio
Community Hospital), 5.00%,
1/1/18 432,058
--------------
2,141,458
--------------
FLORIDA--8.6%
1,500,000 Heritage Isles Community
Development District Special
Assessment Rev., Series
1998 A, 5.75%, 5/1/05(2) 1,487,700
215,000 Manatee County Housing Finance
Auth. Mortgage Rev., (Single
Family), 7.20%, 5/1/28
(GNMA/FNMA/FHLMC) 243,449
--------------
1,731,149
--------------
GEORGIA--2.5%
500,000 Fulton County Development Auth.
Special Facilities Rev., (Delta
Airlines), 5.50%, 5/1/33(1) 500,410
--------------
HAWAII--2.5%
500,000 Hawaii Department of
Transportation Special Facilities
Rev., (Continental Airlines),
5.625%, 11/15/27 501,790
--------------
IDAHO--2.6%
500,000 Idaho Housing Agency Rev.,
Series 1995 C-2, (Single
Family Mortgage), 6.35%,
7/1/15 533,335
--------------
INDIANA--4.8%
250,000 Indiana Health Facilities Financing
Auth. Hospital Rev., (Jackson
County Scheck Memorial),
5.125%, 2/15/17 241,518
Principal Amount Value
- -----------------------------------------------------------------------------
$ 500,000 Indiana Health Facilities Financing
Auth. Hospital Rev., (Jackson
County Scheck Memorial),
5.25%, 2/15/22 $ 484,150
220,000 Indianapolis Airport Auth. Rev.,
Series 1995 A, (United Airlines
Project), 6.50%, 11/15/31 239,494
--------------
965,162
--------------
KENTUCKY--1.1%
200,000 Kentucky Housing Corp. Rev.,
Series 1988 C, 7.90%, 1/1/21
(FHA/VA Mortgages) 211,158
--------------
MISSOURI--3.6%
465,000 Hannibal Industrial Development
Auth. Educational Facilities Rev.,
(Hannibal-Lagrange College),
5.90%, 10/1/18 468,571
250,000 Raymore Special Obligation Rev.,
5.70%, 3/1/23 248,335
--------------
716,906
--------------
NEW MEXICO--5.1%
1,000,000 Santa Fe Educational Facilities
Rev., (College of Santa Fe),
5.875%, 10/1/21 1,033,660
--------------
NORTH CAROLINA--4.8%
965,000 Charlotte Special Facilities Rev.,
(Charlotte/Douglas International
Airport US Airways Group Inc.),
5.60%, 7/1/27 965,280
--------------
OHIO--7.5%
1,000,000 Cleveland Airport Special Rev.,
(Continental Airlines Inc.),
5.375%, 9/15/27 976,840
500,000 Erie County Franciscan Services
Corp. Rev., (Providence Hospital
Inc.), 6.00%, 1/1/13 527,355
--------------
1,504,195
--------------
PENNSYLVANIA--7.8%
495,000 Delaware County Auth. Hospital
Rev., (Crozer-Chester Medical
Center), 5.375%, 12/1/18 486,847
1,080,000 Pottsville Hospital Auth. Rev.,
(Pottsville Hospital & Warne
Clinic), 5.625%, 7/1/24 1,077,743
--------------
1,564,590
--------------
TENNESSEE--1.2%
230,000 Tennessee Housing Development
Agency Mortgage Finance Rev.,
Series 1995 C, 6.45%, 7/1/21 246,401
--------------
See Notes to Financial Statements
www.americancentury.com 9
High-Yield Municipal--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
Principal Amount Value
- -----------------------------------------------------------------------------
TEXAS--3.1%
$ 600,000 Texoma Housing Finance Corp.
Single Family Mortgage Rev.,
5.80%, 9/1/28
(GNMA/FNMA)(2) $ 615,894
--------------
VERMONT--6.2%
1,250,000 Vermont Educational and Health
Buildings Financing Agency
Rev., (Norwich University),
5.50%, 7/1/21 1,241,850
--------------
WASHINGTON--4.0%
305,000 Kitsap County Housing Auth. Rev.,
Series 1998 A, (Pooled
Housing), 5.60%, 12/1/28 299,745
500,000 Port Anacortes Rev., Series
1998 A, 5.625%, 9/1/16 500,570
--------------
800,315
--------------
WYOMING--2.9%
400,000 Teton County Hospital District Rev.,
5.80%, 12/1/17 404,348
175,000 Wyoming Community Development
Auth. Rev., Series 1990 B,
(Single Family Mortgage),
8.125%, 6/1/21 (FHA) 183,383
--------------
587,731
--------------
TOTAL MUNICIPAL SECURITIES--80.1% 16,107,685
--------------
(Cost $15,945,473)
SHORT-TERM MUNICIPAL SECURITIES
ARIZONA--4.5%
900,000 Pinal County Industrial
Development Auth. Pollution
Control Rev., Series 1984 A,
(Newmont), VRDN, 4.00%,
6/1/98 (LOC: National
Westminster Bank PLC) 900,000
--------------
CALIFORNIA--4.7%
800,000 Los Angeles County Industrial
Development Auth. Rev., (Bicara
Limited), VRDN, 5.85%,
6/3/98 (LOC: Dai-Ichi Kangyo
Bank Ltd.) 800,000
150,000 Los Angeles County Industrial
Development Auth. Rev.,
(Seaboard Envelope Inc.), VRDN,
5.85%, 6/3/98 (LOC: Dai-Ichi
Kangyo Bank Ltd.) 150,000
--------------
950,000
--------------
Principal Amount Value
- -----------------------------------------------------------------------------
ILLINOIS--1.4%
$ 275,000 Illinois Development Finance Auth.
Industrial Development Rev.,
(Mattoon Precision
Manufacturing), VRDN, 4.50%,
6/3/98 (LOC: Industrial Bank
of Japan) $ 275,000
-------------
MISSOURI--5.3%
1,065,000 Missouri Industrial Development
Board Rev., (Kawasaki Motors
Manufacturing Co.), VRDN,
4.50%, 6/3/98 (LOC: Dai-Ichi
Kangyo Bank Ltd. and Industrial
Bank of Japan) 1,065,000
-------------
NEVADA--3.0%
600,000 Washoe County Water Facility
Rev., (Sierra Pacific Power Co.),
VRDN, 4.15%, 6/1/98 (LOC:
Union Bank of Switzerland) 600,000
-------------
WASHINGTON--1.0%
200,000 Port Angeles Industrial
Development Corp. Rev.,
Series 1992 B, (Daishowa America),
VRDN, 4.50%, 6/3/98 (LOC:
Industrial Bank of Japan) 200,000
-------------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES--19.9% 3,990,000
-------------
(Cost $3,990,000)
TOTAL INVESTMENT SECURITIES--100.0% $20,097,685
=============
(Cost $19,935,473)
See Notes to Financial Statements
10 1-800-345-2021
High-Yield Municipal--Schedule of Investments
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
NOTES TO SCHEDULE OF INVESTMENTS
FHA = Federal Housing Authority
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Corporation
LOC = Letter of Credit
VA = Veteran's Administration
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, 1998.
(1) When-issued security.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for when-issued securities.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each state
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 11
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
MAY 31, 1998
ASSETS
Investment securities, at value
(identified cost of $19,935,473)
(Note 3) .............................................. $ 20,097,685
Cash ..................................................... 775,611
Receivable for investments sold .......................... 1,131,273
Interest receivable ...................................... 210,477
------------
22,215,046
------------
LIABILITIES
Payable for investments purchased ........................ 3,415,679
Payable for capital shares redeemed ...................... 7,332
Dividends payable ........................................ 4,478
------------
3,427,489
------------
Net Assets ............................................... $ 18,787,557
============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................................. 1,863,618
============
Net Asset Value Per Share ................................ $ 10.08
============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $ 18,642,841
Accumulated net realized loss
on investment transactions ............................. (17,496)
Net unrealized appreciation on
investments (Note 3) .................................. 162,212
------------
$ 18,787,557
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
income not yet paid to shareholders; net gains earned on investment activity but
not yet paid to shareholders or net losses on investment activity (known as
realized gains or losses); and gains or losses on securities still owned by the
fund (known as unrealized appreciation or depreciation). This breakout tells you
the value of net assets that are performance-related, such as investment gains
or losses, and the value of net assets that are not related to performance, such
as shareholder investments and redemptions.
See Notes to Financial Statements
12 1-800-345-2021
Statement of Operations
- -----------------------------------------------------------------------------
MARCH 31, 1998 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH MAY 31, 1998
INVESTMENT INCOME
Income:
Interest ................................................... $ 105,829
---------
Expenses (Note 2):
Management fees ............................................ 12,677
Amount waived .............................................. (12,677)
---------
Net expenses ............................................. 0
---------
Net investment income ...................................... 105,829
---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ........................... (17,496)
Change in net unrealized
appreciation on investments .............................. 162,212
---------
Net realized and unrealized
gain on investments ...................................... 144,716
---------
Net Increase in Net Assets
Resulting from Operations ................................ $ 250,545
=========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
www.americancentury.com 13
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------
MARCH 31, 1998 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH MAY 31, 1998
1998
OPERATIONS
Net investment income .................................... $ 105,829
Net realized loss on investment
transactions ........................................... (17,496)
Change in net unrealized
appreciation on investments ............................ 162,212
------------
Net increase in net assets
resulting from operations .............................. 250,545
------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ............................... (105,829)
------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................................ 19,646,119
Proceeds from reinvestment
of distributions ....................................... 89,532
Payments for shares redeemed ............................. (1,092,810)
------------
Net increase in net assets
from capital share transactions ........................ 18,642,841
------------
Net increase in net assets ............................... 18,787,557
NET ASSETS
Beginning of period ...................................... --
------------
End of period ............................................ $ 18,787,557
============
TRANSACTIONS IN SHARES OF THE FUND
Sold ..................................................... 1,964,064
Issued in reinvestment
of distributions ....................................... 8,907
Redeemed ................................................. (109,353)
------------
Net increase ............................................. 1,863,618
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF CHANGES IN NET ASSETS--This statement shows how
the fund's net assets changed over the past reporting period. It details how
much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions results in net
assets at the end of the period.
See Notes to Financial Statements
14 1-800-345-2021
Notes to Financial Statements
- -----------------------------------------------------------------------------
MAY 31, 1998
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 High-Yield Municipal Fund (the Fund) is one
of the eight Funds issued by the Trust. The Fund is non-diversified under the
1940 Act. Its investment objective is to seek high current income exempt from
federal income taxes as is consistent with its investment policies, which permit
investment in lower-rated and unrated securities. As a secondary objective, the
Fund seeks capital appreciation. The Fund invests primarily in lower-rated debt
securities, which are subject to greater credit risk and consequently offer
higher yield. Securities of this type are subject to substantial risks including
price volatility, liquidity risk and default risk. The following significant
accounting policies relating to the Fund are in accordance with accounting
policies generally accepted in the investment company industry.
SECURITY VALUATIONS--Portfolio securities held by the Fund are valued
through 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
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 income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized capital
gains are declared and paid annually. For the two months ended May 31, 1998,
100% (unaudited) of the Fund's distributions from net investment income have
been designated as exempt from federal income tax.
The fund has elected to treat $17,496 of net capital losses incurred in the
two month period ended May 31, 1998, as having incurred in the following fiscal
year.
The character of distributions made during the year from net investment
income or net realized capital gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect the
differing character of certain income items and net capital gains and losses for
financial statement and tax purposes and may result in reclassification among
certain capital accounts.
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
contracts 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, 1998.
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.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
www.americancentury.com 15
Notes to Financial Statements
- -----------------------------------------------------------------------------
(Continued)
MAY 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM) that provides the Fund with investment
advisory and management services in exchange for a single, unified management
fee. Expenses excluded from this agreement are brokerage, taxes, portfolio
insurance, interest, fees and expenses of the Trustees who are not considered
"interested persons" as defined in the Investment Company Act of 1940 (including
counsel fees) and extraordinary expenses. The annual rate at which this fee is
assessed is determined monthly in a two-step process: First, a fee rate schedule
is applied to the net assets of all of the funds in the Fund's investment
category which are managed by ACIM (the "Investment Category Fee"). The overall
investment objective of each Fund determines its Investment Category. The three
investment categories are: the Money Market Fund Category, the Bond Fund
Category and the Equity Fund Category. The Fund is included in the Bond Fund
Category. Second, a separate fee rate schedule is applied to the net assets of
all of the funds managed by ACIM (the "Complex Fee"). The Investment Category
Fee and the Complex Fee are then added to determine the unified management fee
rate. The management fee is paid monthly by each Fund based on each Fund's
aggregate average daily net assets during the previous month multiplied by the
monthly management fee rate.
The annualized Investment Category Fee schedule for the Fund is as follows
0.4100% of the first $1 billion
0.3580% of the next $1 billion
0.3280% of the next $3 billion
0.3080% of the next $5 billion
0.2950% of the next $15 billion
0.2930% of the next $25 billion
0.2925% of the average daily net assets over $50 billion
The annualized Complex Fee schedule is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
ACIM has agreed to waive all expenses of the Fund through April 30, 1999.
Certain officers and trustees of the Trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Trust's investment manager, ACIM, and the
Trust's transfer agent, American Century Services, Inc.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of municipal debt obligations for the Fund, excluding
short-term investments, totaled $20,381,024 and $4,415,227, respectively.
As of May 31, 1998, accumulated net unrealized appreciation for the Fund
was $162,212, which consisted of unrealized appreciation of $166,157 and
unrealized depreciation of $3,945. The aggregate cost of investments for federal
income tax purposes was the same as the cost for financial reporting purposes.
16 1-800-345-2021
High-Yield Municipal--Financial Highlights
- -----------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ...................... $ 9.99
----------
Income From Investment Operations
Net Investment Income ................................... 0.09
Net Realized and Unrealized Gain
on Investment Transactions .............................. 0.09
----------
Total From Investment Operations ........................ 0.18
----------
Distributions
From Net Investment Income .............................. (0.09)
----------
Net Asset Value, End of Period ............................ $ 10.08
==========
Total Return(2) ......................................... 1.81%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets(3) ................................... --
Ratio of Net Investment Income to
Average Net Assets(3) ................................... 5.38%
Portfolio Turnover Rate ................................... 44%
Net Assets, End of Period
(in thousands) .......................................... $ 18,788
(1) March 31, 1998 (commencement of investment operations) through May 31, 1998.
(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. ACIM has voluntarily agreed to pay all expenses of the Fund
through April 30, 1999. In absence of the waiver, the annualized ratio of
operating expenses to average net assets would have been 0.64% and the
annualized ratio of net investment income to average net assets would have
been 4.74%.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This page itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years (or less, if the fund is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced
See Notes to Financial Statements
www.americancentury.com 17
Report of Independent Accountants
- -----------------------------------------------------------------------------
To the Board of Trustees of the
American Century Municipal Trust
and Shareholders of American Century - Benham
High-Yield Municipal Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statement of operations, changes in
net assets and the financial highlights present fairly, in all material
respects, the financial position of the American Century- Benham High-Yield
Municipal Fund (one of the funds constituting The American Century Municipal
Trust, hereafter referred to as the "Fund") at May 31, 1998, the results of its
operations, the changes in its net assets and the financial highlights for the
period March 31, 1998 (commencement of operations) through May 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 16, 1998
18 1-800-345-2021
Background Information
- -----------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, the fund has its own investment policies:
HIGH-YIELD MUNICIPAL seeks to provide a high level of interest income
exempt from federal income taxes by investing in high-yielding municipal
securities. As a secondary objective, the fund seeks capital appreciation. The
fund invests primarily in lower-rated or unrated municipal bonds. The fund has
no average maturity restrictions, but is expected to maintain an average
maturity of 10 years or more.
Lower-rated and unrated bonds may be subject to greater default risk,
liquidity risk and price volatility. Investment income may be subject to certain
state and local taxes and, depending on your tax status, the federal alternative
minimum tax. Capital gains are not exempt from federal taxes.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is a broad-based, total
return index. The index is composed of municipal bonds with maturities greater
than 22 years. The bonds are all investment grade, fixed rate and are selected
from issues larger than $50 million dated since January 1984.
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 category for the High-Yield Municipal Fund is:
HIGH-YIELD MUNICIPAL DEBT FUNDS--funds that invest at least 50% of assets
in lower-rated municipal debt issues.
[right margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS:
STEVEN PERMUT
JOEL SILVA
MUNICIPAL CREDIT RESEARCH TEAM
MANAGER: STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS:
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
www.americancentury.com 19
Glossary
- -----------------------------------------------------------------------------
RETURNS
* 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.
YIELDS
* 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 rate of 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.
* 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.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES--the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measure 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. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* 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. As the
duration of a portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
* 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
* AMT PAPER--instruments with income subject to the federal alternative minimum
tax.
* COPS/LEASES--securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases.
* LAND-SECURED BONDS--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
* 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).
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. Ratings are based on an issuer's financial
strength and ability to pay interest and principal in a timely manner.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
Securities rated AAA, AA, A or BBB are considered "investment grade,"
meaning they're relatively safe from default. In addition to these securities,
High-Yield Municipal invests in bonds that are rated below investment grade.
20 1-800-345-2021
[inside back cover]
[american century logo(reg.sm)]
American
Century(reg.tm)
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
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution
to prospective investors unless preceded or accompanied by an effective
prospectus.
(C) 1998 American Century Services Corporation Funds Distributor, Inc.
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Recycled
[back cover]
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century(reg.tm)
1958 * 1998
American Century Investments Bulk Rate
P.O. Box 419200 U.S. Postage Paid
Kansas City, MO 64141-6200 American Century
www.americancentury.com Companies
9807 (C)1998 American Century Services Corporation
SH-BKT-13102 Funds Distributor, Inc.
