[front cover]
MAY 31, 1999
ANNUAL REPORT
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AMERICAN CENTURY
[graphic of stairs]
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ARIZONA INTERMEDIATE-TERM
MUNICIPAL
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
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Y2K, short for the year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and returned
to production. We have an ongoing commitment to testing our systems with our
vendors and business partners and within the industry throughout the rest of the
year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans will minimize the impact on our investors and help us
maintain operations in the event of any Y2K-related incidents. We will conduct
practice drills of contingency scenarios during the rest of 1999 and refine
those plans to respond quickly and effectively so that the date change is as
seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
ARIZONA INTERMEDIATE-TERM MUNICIPAL
(BEAMX)
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Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
AN IMPORTANT MESSAGE
On March 1, we reorganized our funds under the American Century name. Though
the venerable Benham name is gone, your funds will maintain their same
disciplined investment management approach.
James Benham's proven fixed-income investment philosophy, which provides
investors a "pure play" on a sector of the bond market, will remain. That
investment practice--now a hallmark of investing at American Century--has helped
our fixed-income funds deliver solid performance over the years.
In addition, we will continue to build our team of experienced fixed-income
portfolio managers, which has doubled in size since American Century was formed.
We look forward to continuing to meet your fixed-income investment needs in
the tradition you have come to expect.
Our Message to You
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/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
We experienced several investment mood swings in the U.S. financial markets
during the year ended May 31, 1999. When we last addressed you in the semiannual
report for American Century Arizona Intermediate-Term Municipal, yields had
fallen as the U.S. bond market rallied. The bond gains were spurred by global
economic and financial turmoil. The Federal Reserve (the U.S. central bank) cut
short-term interest rates to bolster a seemingly vulnerable U.S. economy and
help stabilize markets worldwide.
The Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was posting strong growth, and
investor confidence had rebounded. As a result, stocks rallied and U.S. bond
yields generally returned to higher levels, though they remained lower than they
were a year earlier. Municipal bonds, which had underperformed Treasury bonds in
1998, outperformed Treasurys during the first five months of 1999.
Investors in American Century tax-free and municipal funds benefited from
other positive developments as 1999 unfolded. In March, we consolidated all our
funds under the American Century name. We believe the change makes it simpler
for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we enhanced our Web site (www.americancentury.com). There
you'll find daily fund information -- including performance and price data --
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You can also sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, we continued to expand the American Century investment team, which
has doubled over the last three years. We're committed to building and
maintaining a talented management group.
As always, we appreciate your continued confidence in 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 Vice Chairman of the Board and
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
Yields .................................................................. 6
Portfolio at a Glance ................................................... 6
Top Five Sectors ........................................................ 7
Portfolio Composition
by Credit Rating ..................................................... 7
Schedule of Investments ................................................. 8
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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MARKET PERSPECTIVE
* Municipal bonds posted positive returns overall during the year ended May
31, 1999, though most of their gains occurred in 1998 when interest rates
fell.
* At the beginning of last summer, municipal bonds languished as investors
worried that strong U.S. economic growth might ignite inflation.
* In 1999, better-than-expected U.S. economic growth and other indications
that higher inflation and interest rates might be ahead caused bond prices
to retrace much of the ground they gained in 1998.
* Despite that environment, municipal bonds benefited from decreased supply
and increased demand, helping them to regain considerable ground on their
Treasury counterparts.
ARIZONA MUNICIPAL CREDIT REVIEW
* Municipal credit quality remained solid in Arizona during the year ended May
31, 1999.
* A growing jobs base, a burgeoning population, and personal income growth
continued to be the mainstays of the state's credit strength.
* Arizona's employment growth slowed during 1998. However, the state's 4.7%
jobs expansion was still the highest of any state in the U.S., even
outpacing Nevada, which had held top honors since 1994.
* Going forward, our overall outlook for the state's credit health remains
generally upbeat.
MANAGEMENT Q&A
* Arizona Intermediate-Term Municipal finished at the top of its Lipper
category for the year, providing a respectable return in spite of the sharp
rise in interest rates in 1999. The fund's long-term returns are equally
impressive.
* In addition to a solid finish among its peers, Arizona Intermediate-Term
Municipal's 30-day SEC yield of 3.87% on May 31, 1999, compared favorably
with the 3.47% average SEC yield of the fund's Lipper peers.
* We think that several techniques, such as careful yield-curve analysis,
diligent credit research, effective duration management, and maturity
structure adjustments, helped us enhance returns.
* Looking ahead, we will probably keep the portfolio's sensitivity to interest
rate changes fairly neutral in light of the uncertain market environment. We
also plan to concentrate our holdings in bonds maturing in the middle of the
fund's maturity spectrum--the three- to 10-year area.
[left margin]
ARIZONA INTERMEDIATE-TERM
MUNICIPAL (BEAMX)
TOTAL RETURNS: AS OF 5/31/99
6 Months 0.79%*
1 Year 4.51%
30-DAY SEC YIELD: 3.87%
INCEPTION DATE: 4/11/94
NET ASSETS: $45.4 million
* Not annualized.
Investment terms are defined in the Glossary on pages 19-20.
2 1-800-345-2021
Market Perspective from Randall W. Merk
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/photo of Randall W. Merk/
Randall W. Merk, chief investment officer of fixed income
MUNICIPAL BOND PERFORMANCE
Municipal bonds posted positive returns overall during the year ended May
31, 1999, though most of their gains occurred in 1998 when interest rates fell.
In the first five months of 1999, tax-free bond prices generally declined and
yields rose because of strong economic growth and inflation concerns.
Short- and intermediate-term municipal bonds outperformed long-term
municipals, which are more sensitive to interest rate changes (see the
accompanying bond index returns table). Also, lower-quality municipal bonds
(those rated BBB or lower) generally outperformed higher-rated (A to AAA) bonds
as strong economic conditions caused the yield gap between lower- and
higher-rated bonds to narrow.
ECONOMIC ENGINE SPUTTERS BUT REGAINS POWER
At the beginning of last summer, municipal bonds languished as investors
worried that strong U.S. economic growth might ignite inflation. That view
changed radically in July 1998, when protracted economic and financial problems
in Asia and Latin America threatened to weaken global economic growth. Bonds
rallied as recessionary expectations increased. To stem overseas problems and
boost the U.S. economy, the Federal Reserve (the Fed) lowered short-term U.S.
interest rates three times last fall.
Winter brought another shift. The Fed's actions seemed to achieve their
intended result--U.S. economic growth accelerated, while parts of Asia and Latin
America showed signs of stabilizing. Better-than-expected U.S. economic growth
and other indications that higher inflation might be ahead caused bond yields to
rise and prices to retrace much of the ground they gained in 1998. May brought
word that the Fed was leaning toward raising interest rates, which further
dampened bond investors' moods.
TREASURYS FALTER AS MUNICIPALS GAIN GROUND
In 1998, despite falling interest rates, municipals were hamstrung by
unfavorable supply and demand conditions and lagged Treasury securities as a
result. By October, the difference between municipal and Treasury yields was as
small as it had been in a decade, indicating that Treasury bonds were relatively
expensive and municipal bonds were comparatively undervalued.
So far in 1999, however, municipal bonds benefited from decreased supply
and increased demand, helping them to regain considerable ground on their
Treasury counterparts. Even after outperforming Treasurys in recent months,
municipal bonds continue to offer attractive yields on a tax-equivalent basis.
As of May 31, 1999, an investor in the highest federal tax bracket could earn a
tax-adjusted yield of nearly 7.4% on a 10-year AAA-rated municipal bond, well
above the 5.6% yield on a 10-Year U.S. Treasury bond.
[right margin]
"BETTER-THAN-EXPECTED U.S. ECONOMIC GROWTH AND OTHER INDICATIONS THAT HIGHER
INFLATION MIGHT BE AHEAD CAUSED BOND YIELDS TO RISE AND PRICES TO RETRACE MUCH
OF THE GROUND THEY GAINED IN 1998."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED MAY 31, 1999
MERRILL LYNCH 0- TO 3-YEAR
MUNICIPAL INDEX 4.58%
LEHMAN BROS. 5-YEAR
MUNICIPAL GO INDEX 4.90%
LEHMAN BROS. LONG-TERM
MUNICIPAL BOND INDEX 4.35%
Source: Bloomberg Financial Markets
[line graph - data below]
SHIFTING MUNICIPAL YIELD CURVES
YEARS TO
MATURITY 5/31/98 11/30/98 5/31/99
1 3.80% 3.19% 3.36%
2 3.95% 3.49% 3.59%
3 4.06% 3.64% 3.80%
4 4.15% 3.76% 3.98%
5 4.20% 3.86% 4.12%
6 4.27% 3.96% 4.22%
7 4.34% 4.05% 4.31%
8 4.41% 4.13% 4.38%
9 4.48% 4.21% 4.46%
10 4.55% 4.29% 4.54%
11 4.62% 4.38% 4.62%
12 4.69% 4.47% 4.70%
13 4.77% 4.56% 4.78%
14 4.84% 4.65% 4.86%
15 4.92% 4.73% 4.95%
16 4.95% 4.77% 4.98%
17 4.98% 4.80% 5.01%
18 5.00% 4.84% 5.04%
19 5.03% 4.87% 5.08%
20 5.05% 4.91% 5.12%
21 5.05% 4.91% 5.12%
22 5.05% 4.91% 5.13%
23 5.05% 4.92% 5.14%
24 5.06% 4.92% 5.15%
25 5.06% 4.93% 5.16%
26 5.06% 4.93% 5.16%
27 5.06% 4.93% 5.16%
28 5.07% 4.94% 5.17%
29 5.07% 4.94% 5.17%
30 5.08% 4.95% 5.18%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Municipal Credit Review
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CREDIT SNAPSHOT
Municipal credit quality remained solid in Arizona during the year ended
May 31, 1999. A growing jobs base, a burgeoning population, and personal income
growth continued to be the mainstays of the state's credit strength.
EMPLOYMENT GROWTH ROSE AT A MORE REASONABLE PACE . . .
Arizona's employment growth slowed during 1998. However, the state's 4.7%
jobs expansion was still the highest of any state in the U.S., even outpacing
Nevada, which had held top honors since 1994. New jobs in Arizona were
predominantly service-related ones and although manufacturing positions were
created, the industry's 1% growth in 1998 was far less than 1997's torrid 6%.
Economic turmoil in Asia, the destination for roughly half of Arizona's
exports, was the catalyst for the slowdown. With demand from the Far East
tapering off, cutbacks ensued at Phoenix's major semiconductor producers. Asian
economies are showing signs of recovery in 1999, however, enhancing the
long-term outlook for the state's high-tech industry. Improvements in Mexico's
economy should also lead to increased growth opportunities for Arizona in the
form of additional trade and tourism.
Overall, job growth in 1999 is on track to continue slowing but remain well
above 3%, which should allow Arizona to remain one of the fastest growing
employment spots in the nation.
. . . AS ARIZONA'S POPULATION CONTINUED TO SWELL
The state's favorable climate, low housing costs, and growing jobs base
attracted a net 116,000 new residents in 1998, and that figure is on track to be
even higher in 1999. Despite the swelling population, the state's unemployment
rate continued to drop, falling to only 4.1% in 1998--well below the national
average. The unemployment rate remains on track to fall further still in 1999 as
labor markets continue to tighten. Personal incomes also continued to
rise--income growth jumped 7% in 1998 and may remain over 6% in 1999. Going
forward, our overall outlook for the state's credit health remains generally
upbeat.
ON THE LEGISLATIVE FRONT
We have continued to monitor developments surrounding the Students First
Act of 1998 (see the fund's May 31, 1998 annual report for details on Students
First). Though Arizona's increased financial responsibilities under the new
legislation are formidable, solid economic growth and prudent fiscal management
should allow the initiative to succeed without affecting the state's long-term
stability. And while the Act reduces the pool of municipal securities from which
we can choose, from a credit standpoint, Students First has had little to no
discernable impact.
[left margin]
"A GROWING JOBS BASE, A BURGEONING POPULATION, AND PERSONAL INCOME GROWTH
CONTINUED TO BE THE MAINSTAYS OF THE STATE'S CREDIT STRENGTH."
MUNICIPAL CREDIT
RESEARCH TEAM
MANAGER
STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
4 1-800-345-2021
Arizona Intermediate-Term --Performance
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<TABLE>
TOTAL RETURNS AS OF MAY 31, 1999
ARIZONA
INTERMEDIATE- 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) 0.79% 1.42% 0.34% --
1 YEAR 4.51% 4.90% 3.41% 1 OUT OF 80
======================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS(3) 5.82% 5.97% 5.47% 15 OUT OF 62
5 YEARS(3) 5.92% 5.91% 5.35% 1 OUT OF 46
LIFE OF FUND(3) 6.17% 5.92%(4) 5.43%(4) 1 OUT OF 45(4)
</TABLE>
The fund's inception date was 4/11/94.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Returns and rankings would have been lower if management fees had not been
waived.
(4) 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 graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 5/31/99
Arizona Intermediate-Term
Municipal $13,457
Lehman 5-Year GO Index $13,348
Arizona Intermediate- Lehman 5-Year
Term Municipal GO Index
DATE VALUE VALUE
4/30/94 $10,000 $10,000
6/30/94 $10,064 $9,996
9/30/94 $10,202 $10,077
12/31/94 $10,098 $10,044
3/31/95 $10,562 $10,450
6/30/95 $10,855 $10,717
9/30/95 $11,131 $11,010
12/31/95 $11,431 $11,211
3/31/96 $11,371 $11,246
6/30/96 $11,433 $11,295
9/30/96 $11,619 $11,479
12/31/96 $11,859 $11,730
3/31/97 $11,816 $11,711
6/30/97 $12,130 $12,002
9/30/97 $12,414 $12,264
12/31/97 $12,676 $12,490
3/31/98 $12,764 $12,636
6/30/98 $12,914 $12,764
9/30/98 $13,325 $13,115
12/31/98 $13,424 $13,218
3/31/99 $13,504 $13,354
5/31/99 $13,457 $13,348
$10,000 investment made 4/30/94
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Lehman 5-Year GO Index is provided for comparison in each graph. Arizona
Intermediate-Term Municipal's total returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
returns of the index do not. 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 graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MAY 31)
Arizona Intermediate- Lehman 5-Year
Term Municipal GO Index
DATE RETURN RETURN
5/31/94 0.92% 0.56%
5/31/95 7.52% 6.89%
5/31/96 4.65% 4.74%
5/31/97 5.77% 6.08%
5/31/98 7.19% 6.95%
5/31/99 4.51% 4.90%
* From 4/30/94 (the date nearest the fund's inception for which index data are
available) to 5/31/94.
www.americancentury.com 5
Arizona Intermediate-Term--Q&A
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/photo of Ken Salinger/
An interview with Ken Salinger, a portfolio manager on the Arizona
Intermediate-Term Municipal investment team.
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED MAY 31, 1999?
Arizona Intermediate-Term Municipal finished at the top of its Lipper
category for the year, providing a respectable return in spite of the sharp rise
in interest rates in 1999. The fund returned 4.51%, outperforming the 3.41%
average return of the 80 funds in Lipper Inc.'s Other States Intermediate
Municipal Debt Funds category.
Arizona Intermediate-Term Municipal's five-year and life-of-fund returns
were also the highest in its Lipper group. The fund's benchmark, the Lehman
5-Year GO Index, returned 4.90%. (See page 5 for fund performance comparisons.)
In addition, Arizona Intermediate-Term Municipal's 30-day SEC yield of
3.87% on May 31, 1999, compared favorably with the 3.47% average SEC yield of
the fund's Lipper peers.
WHY DID ARIZONA INTERMEDIATE-TERM MUNICIPAL FINISH AT THE TOP OF ITS LIPPER
CATEGORY?
We think that several techniques, such as careful yield-curve analysis,
diligent credit research, effective duration management, and maturity- structure
adjustments, helped us enhance returns. Our careful analysis of the municipal
yield curve--a graphic representation of the relationship between bond yields
and maturities (see page 3 for an example)--helped us target maturity areas of
the municipal market that seemed to offer the most attractive relative values.
Then, with the help of our municipal credit team, we looked for what we
believed were undervalued securities within that maturity range. We made finding
such securities a high priority because they often enhance returns with little
or no additional risk.
HOW DID DURATION MANAGEMENT FACTOR IN?
Controlling the portfolio's sensitivity to interest rate changes through
effective duration management proved an important ingredient in Arizona
Intermediate-Term Municipal's continued success.
During much of 1998, we maintained a slightly long duration compared with
the fund's Lipper peers, a position of 5.4-5.8 years. The fund reached the
longer end of this range toward year-end, when our peers also extended. That
choice enhanced returns because the portfolio's greater interest rate
sensitivity allowed it to more fully benefit from the drop in rates that
occurred in 1998.
[left margin]
"ARIZONA INTERMEDIATE-TERM MUNICIPAL FINISHED AT THE TOP OF ITS LIPPER CATEGORY
FOR THE YEAR, PROVIDING A RESPECTABLE RETURN IN SPITE OF THE SHARP RISE IN
INTEREST RATES IN 1999."
YIELDS AS OF MAY 31, 1999
30-DAY SEC YIELD 3.87%
30-DAY TAX-EQUIVALENT YIELDS
31.02% TAX BRACKET 5.61%
33.90% TAX BRACKET 5.85%
34.59% TAX BRACKET 5.92%
39.33% TAX BRACKET 6.38%
PORTFOLIO AT A GLANCE
5/31/99 5/31/98
NUMBER OF SECURITIES 53 42
WEIGHTED AVERAGE
MATURITY 9.7 YRS 8.3 YRS
AVERAGE DURATION 5.6 YRS 5.3 YRS
EXPENSE RATIO 0.51% 0.54%
Investment terms are defined in the Glossary on pages 19-20.
6 1-800-345-2021
Arizona Intermediate-Term--Q&A
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(Continued)
In 1999, however, we have adopted a less aggressive stance. This has meant
shortening duration a bit to keep the fund fairly neutral to slightly long
compared with its peers.
WHAT PROMPTED THAT STRATEGY SHIFT?
Inflation concerns, which have been driven by robust economic growth and an
apparent recovery in overseas markets. A recent rise in consumer prices prompted
the Federal Reserve to raise its short-term interest rate target by 25 basis
points (0.25%--a basis point equals 0.01%) to slow economic growth to a
more-sustainable, non-inflationary pace.
DO YOU EXPECT TO MAINTAIN THE PORTFOLIO'S SOMEWHAT CONSERVATIVE DURATION IN THE
NEAR FUTURE?
That depends on several factors. Bond yields have risen to levels not seen
since before the Asian crisis worsened at the start of 1998, and Federal Reserve
actions are always tough to gauge.
The bond market viewed the Fed's June rate increase as a positive and
rallied slightly on the news. The announcement fueled expectations that the Fed
will remain vigilant on the inflation front. The Fed's switch to a neutral
stance toward rates in the wake of that tightening, rather than their previous
bias toward a rate increase, was also behind the rally.
Despite that positive event, we've continued to see a wave of strength in
the latest economic reports. So municipal bond yields currently reflect
expectations that the Fed will raise its short-term interest rate target again
before 1999 winds down. The big question on which the municipal market is
balancing right now is whether economic growth will remain overly strong and
spark additional Fed tightenings, or whether those concerns are too bearish. If
economic growth remains robust, the municipal market may be in for more of the
kinds of disappointing returns that we've seen so far this year. By the same
token, though, if growth moderates or slows, the market's tone could become more
upbeat and bonds could rally.
WITH THAT OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO GOING FORWARD?
Managing the maturity structure of the bonds in the portfolio, which helped
Arizona Intermediate-Term Municipal's returns during the period, will continue
to play a key role going forward. For now, that means keeping the portfolio more
highly concentrated in bonds maturing in the middle of the fund's maturity
spectrum--the three- to 10-year area, where supply is currently more plentiful
and prices more reasonable than for longer-maturity securities. That somewhat
bulleted or targeted stance tends to perform best when the yield curve is moving
from flat to steep (short-term rates are falling faster than long-term rates, or
long-term rates are rising faster than short-term rates.)
In addition, we plan to continue to carefully monitor the yield curve and
look for attractive municipals with the help of our credit team, while
conservatively adjusting the portfolio's duration in hopes of enhancing returns.
[right margin]
TOP FIVE SECTORS (AS OF 5/31/99)
% OF FUND INVESTMENTS
GO 51%
SALES TAX REVENUE 7%
COPS/LEASES 7%
HIGHER EDUCATION 6%
SPECIAL TAX REVENUE 6%
TOP FIVE SECTORS (AS OF 11/30/98)
% OF FUND INVESTMENTS
GO 54%
HOSPITAL REVENUE 7%
COPS/LEASES 7%
SPECIAL TAX REVENUE 6%
WATER AND SEWER REVENUE 5%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
AAA 63% 60%
AA 22% 26%
A 10% 9%
BBB 5% 5%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 18
for more information.
www.americancentury.com 7
Arizona Intermediate-Term--Sched. of Investments
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MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--98.9%
ARIZONA--93.5%
$1,000,000 Arizona Transportation Board
Highway Rev., Series 1993 A,
6.00%, 7/1/08 $ 1,110,470
655,000 Avondale Municipal Development
Corp. Rev., 4.60%, 7/1/10
(FGIC) 649,976
405,000 Avondale Municipal Development
Corp. Rev., 4.70%, 7/1/11
(FGIC) 402,145
900,000 Coconino & Yavapai Counties
Joint Unified School District
No. 9, Series 1994 C, (Sedona
Project of 1992), 5.60%,
7/1/06 (FGIC) 947,268
1,000,000 East Valley Institute of Technology
No. 401 GO, 5.00%, 7/1/03
(AMBAC) 1,038,700
545,000 Gilbert County GO, Series
1994 C, 6.00%, 7/1/02 (MBIA) 578,250
1,200,000 Glendale Industrial Development
Auth. Rev., Series 1998 A,
(Midwestern University), 5.375%,
5/15/28 1,173,264
1,370,000 Maricopa County COP, 5.625%,
6/1/00 1,384,330
500,000 Maricopa County GO, 6.25%,
7/1/03 (FGIC) 542,150
1,000,000 Maricopa County Hospital Rev.,
(Sun Health Corp.), 5.75%,
4/1/07 1,071,180
500,000 Maricopa County Industrial
Development Auth. Hospital
Facility Rev., (Samaritan Health
Services), 7.15%, 12/1/04
(MBIA) 569,600
1,000,000 Maricopa County Unified School
District No. 1 GO, (Phoenix
Elementary), 5.50%, 7/1/09
(MBIA) 1,067,360
1,000,000 Maricopa County Unified School
District No. 201 GO, Series
1992 E, (Phoenix), 7.10%,
7/1/04 1,134,290
575,000 Maricopa County School District
No. 21 GO, Series 1999 A,
(Murphy), 3.80%, 7/1/04 (MBIA) 566,996
500,000 Maricopa County School District
No. 28 GO, Series 1999 C,
(Kyrene Elementary Project of
1993), 4.40%, 7/1/08 (FGIC) 496,835
375,000 Maricopa County School District
No. 3 Elementary GO, Series
1998 C, (Tempe Project of
1997), 3.75%, 7/1/02 (MBIA) 374,179
Principal Amount Value
- --------------------------------------------------------------------------------
$ 800,000 Maricopa County Unified School
District No. 40 GO, Series
1994 C, (Glendale Project of
1994), 7.75%, 7/1/06 (FGIC) $ 959,384
1,000,000 Maricopa County Unified School
District No. 41 GO, Series
1988 F, (Gilbert Project of 1998), 6.20%, 7/1/02,
Prerefunded at 100% of Par
(FGIC)(1) 1,067,690
1,000,000 Maricopa County Unified School
District No. 48 GO, (Scottsdale),
6.60%, 7/1/12 1,175,010
500,000 Maricopa County Unified School
District No. 80 GO, (Chandler),
5.20%, 7/1/13 (MBIA) 516,915
1,000,000 Maricopa County Unified School
District No. 90 GO, (Ruth Fisher
Elementary), 5.375%, 7/1/00 1,018,960
1,000,000 Maricopa County Unified School
District No. 97 GO, Series
1996 A, (Deer Valley), 6.25%,
7/1/06 (MBIA) 1,115,800
1,000,000 Maricopa County Unified School
District No. 97 GO, Series
1999 G, (Deer Valley Project
of 1996), 5.60%, 7/1/00
(FSA)(2) 1,024,590
1,000,000 Maricopa County Unified School
District No. 97 GO, Series
1999 G, (Deer Valley Project
of 1996), 4.75%, 7/1/11
(FSA)(2) 997,680
500,000 Mesa Industrial Development Auth.
Rev., Series A-1, (Lutheran
Health Systems), 4.00%,
1/1/00 (MBIA) 502,095
1,000,000 Page Municipal Property Corp.
Excise Tax Rev., Series 1999 A,
5.00%, 7/1/15 (MBIA) 1,006,010
300,000 Phoenix Airport Rev., Series
1994 C, 5.50%, 7/1/01 (MBIA) 309,876
1,000,000 Phoenix Civic Improvement Corp.
Rev., (Senior Lien), 5.00%,
7/1/03 1,032,980
1,000,000 Phoenix Civic Improvement Corp.
Wastewater System Lease Rev.,
4.85%, 7/1/07 (MBIA) 1,026,810
550,000 Phoenix GO, 6.00%, 7/1/01 575,498
1,000,000 Phoenix GO, Series 1995 B,
5.00%, 7/1/09 1,035,800
1,000,000 Phoenix GO, Series 1999 A,
4.75%, 7/1/12 995,620
2,100,000 Phoenix Industrial Development
Auth. Single Family Mortgage
Rev., Series 1998 A, 6.60%,
12/1/29
(GNMA/FNMA/FHLMC) 2,284,842
See Notes to Financial Statements
8 1-800-345-2021
Arizona Intermediate-Term--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 500,000 Phoenix Street and Highway Rev.,
5.95%, 7/1/00 $ 514,050
1,000,000 Pima County Sewer Rev., 6.20%,
7/1/00 (FGIC) 1,030,560
1,000,000 Pima County Unified School
District No. 10 GO,
(Amphitheater), 5.75%, 7/1/04
(FGIC)(3) 1,075,330
1,000,000 Pima County Unified School
District No. 10 GO,
(Amphitheater), 7.00%, 7/1/05
(MBIA) 1,144,740
1,000,000 Pima County Unified School
District No. 12 GO, (Sunnyside),
5.50%, 7/1/09 (MBIA) 1,054,820
1,200,000 Pima County Unified School
District No. 16 GO, (Catalina
Foothills), 5.75%, 7/1/06
(MBIA) 1,304,184
440,000 Pinal County COP, 4.30%,
6/1/07 (MBIA) 436,559
1,000,000 Salt River Project Agricultural
Improvement and Power District
Rev., Series 1993 B, 6.50%,
1/1/04 1,098,380
480,000 Scottsdale GO, 7.50%, 7/1/02 530,213
1,000,000 Scottsdale Preservation Excise Tax
Auth. Rev., 4.50%, 7/1/24
(FGIC) 900,530
1,150,000 Sedona Wastewater Municipal
Property Corporate Excise Tax
Rev., 5.20%, 7/1/20 (MBIA)(4) 389,459
1,275,000 Tempe GO, 6.25%, 7/1/05(3) 1,413,057
525,000 Tucson COP, 5.70%, 7/1/02 525,672
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Tucson Street and Highway Rev.,
5.70%, 7/1/01 $ 1,039,020
1,000,000 University of Arizona Rev., 5.25%,
6/1/14 (FSA) 1,019,770
500,000 Yavapai County Unified School
District No. 28 GO, (Camp
Verde), 6.10%, 7/1/04 (FGIC) 546,110
-----------
43,775,007
-----------
PUERTO RICO--5.4%
1,000,000 Puerto Rico Commonwealth GO,
5.75%, 7/1/11 (MBIA) 1,099,360
1,000,000 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 892,440
500,000 Puerto Rico Commonwealth
Infrastructure Financing Auth.
Special Tax Rev., Series
1998 A, 5.50%, 7/1/08
(AMBAC) 541,020
-----------
2,532,820
-----------
TOTAL MUNICIPAL SECURITIES 46,307,827
-----------
(Cost $45,383,204)
SHORT-TERM MUNICIPAL SECURITIES--1.1%
500,000 Coconino County Pollution Control
Corp. Rev., Series 1994 A,
(Arizona Public Service-Navajo
Project), VRDN, 3.40%, 6/1/99
(LOC: Kredietbank N.V.) 500,000
-----------
(Cost $500,000)
TOTAL INVESTMENT SECURITIES--100.0% $46,807,827
===========
(Cost $45,883,204)
See Notes to Financial Statements
www.americancentury.com 9
Arizona Intermediate-Term--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificate of Participation
FGIC = Financial Guaranty Insurance Co.
FHLMC = Federal Home Loan Mortgage Corp.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
LOC = Letter of Credit
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, 1999.
(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 a when-issued security.
(4) Security is a zero-coupon municipal bond. The yield to maturity at purchase
is indicated. Zero-coupon bonds 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 dollar value of other short-term investments that are considered the same
as cash
* 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
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
MAY 31, 1999
ASSETS
Investment securities, at value
(identified cost of $45,883,204)
(Note 3) ................................................. $46,807,827
Interest receivable ........................................ 951,259
-----------
47,759,086
-----------
LIABILITIES
Disbursements in excess of
demand deposit cash ...................................... 288,405
Payable for investments purchased .......................... 2,019,143
Dividends payable .......................................... 22,287
Accrued management fees (Note 2) ........................... 19,441
Payable for trustees' fees and expenses .................... 171
-----------
2,349,447
-----------
Net Assets ................................................. $45,409,639
===========
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................................... 4,274,791
===========
Net Asset Value Per Share .................................. $ 10.62
===========
NET ASSETS CONSIST OF:
Capital paid in ............................................ $44,366,127
Accumulated undistributed net realized
gain on investment transactions .......................... 118,889
Net unrealized appreciation on
investments (Note 3) ..................................... 924,623
-----------
$45,409,639
===========
- --------------------------------------------------------------------------------
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 shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders (if any); 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 finally gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown 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, 1999
INVESTMENT INCOME
Income:
Interest ................................................. $ 2,071,713
-----------
Expenses (Note 2):
Management fees .......................................... 217,624
Trustees' fees and expenses .............................. 3,597
-----------
221,221
-----------
Net investment income .................................... 1,850,492
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized gain on investments ......................... 303,577
Change in net unrealized
appreciation on investments ............................ (307,941)
-----------
Net realized and unrealized
loss on investments .................................... (4,364)
-----------
Net Increase in Net Assets
Resulting from Operations .............................. $ 1,846,128
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down 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
12 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEARS ENDED MAY 31, 1999 AND MAY 31, 1998
Increase in Net Assets 1999 1998
OPERATIONS
Net investment income ........................ $ 1,850,492 $ 1,553,800
Net realized gain on investments ............. 303,577 247,543
Change in net unrealized appreciation
on investments ............................. (307,941) 622,539
------------ ------------
Net increase in net assets resulting
from operations ............................ 1,846,128 2,423,882
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (1,850,492) (1,553,800)
From net realized gains on
investment transactions .................... (268,298) (163,355)
------------ ------------
Decrease in net assets from distributions .... (2,118,790) (1,717,155)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................... 16,288,072 18,049,886
Proceeds from reinvestment
of distributions ........................... 1,608,799 1,285,629
Payments for shares redeemed ................. (12,261,906) (10,549,469)
------------ ------------
Net increase in net assets from
capital share transactions ................. 5,634,965 8,786,046
------------ ------------
Net increase in net assets ................... 5,362,303 9,492,773
NET ASSETS
Beginning of period .......................... 40,047,336 30,554,563
------------ ------------
End of period ................................ $ 45,409,639 $ 40,047,336
============ ============
TRANSACTIONS IN SHARES OF THE FUND
Sold ......................................... 1,512,103 1,695,769
Issued in reinvestment of distributions ...... 149,456 120,777
Redeemed ..................................... (1,140,362) (989,926)
------------ ------------
Net increase ................................. 521,197 826,620
============ ============
- --------------------------------------------------------------------------------
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
* capital 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 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
MAY 31, 1999
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. 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 are in accordance with generally
accepted accounting principles; these principles may require the use of
estimates by fund management.
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 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
gains are declared and paid annually. For the year ended May 31, 1999, 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 gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
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 is 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, 1999.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
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. The Agreement provides that all expenses of the funds, except 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, will be paid by
ACIM. The fee is calculated daily and paid monthly. It consists of an Investment
Category Fee based on the average net assets of the funds in a specific fund's
investment category and a Complex Fee based on the average net assets of all the
funds managed by ACIM. The rates for the Investment Category Fee range from
0.1625% to 0.2800% and the rates for the Complex Fee range from 0.2900% to
0.3100%. For the year ended May 31, 1999, the effective annual management fee
was 0.51%.
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 Corporation.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales for the period ended May 31, 1999 of municipal debt
obligations, excluding short-term investments, totaled $37,234,634 and
$30,049,777, respectively.
As of May 31, 1999, accumulated net unrealized appreciation was $924,623,
which consisted of unrealized appreciation of $1,053,121, and unrealized
depreciation of $128,498. The aggregate cost of investments for federal income
tax purposes was the same as the cost for financial reporting purposes.
- --------------------------------------------------------------------------------
4. BANK LOANS
Effective December 18, 1998, the fund, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The fund may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The fund did
not borrow from the line during the period December 18, 1998 through May 31,
1999.
- --------------------------------------------------------------------------------
5. FUND EVENTS
The following name change became effective March 1, 1999:
=====================================================================
NEW NAME FORMER NAME
=====================================================================
FUND: Arizona Intermediate-Term American Century - Benham Arizona
Municipal Fund Intermediate-Term Municipal Fund
www.americancentury.com 15
Arizona Intermediate-Term--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ................ $ 10.67 $ 10.44 $ 10.31 $ 10.35 $ 10.13
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............. 0.46 0.46 0.45 0.51 0.51
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. 0.01 0.28 0.13 (0.03) 0.22
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ... 0.47 0.74 0.58 0.48 0.73
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ......... (0.46) (0.46) (0.45) (0.51) (0.51)
From Net Realized Gains on
Investment Transactions ............ (0.06) (0.05) -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions ................ (0.52) (0.51) (0.45) (0.52) (0.51)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ....... $ 10.62 $ 10.67 $ 10.44 $ 10.31 $ 10.35
========== ========== ========== ========== ==========
Total Return(1) .................... 4.51% 7.19% 5.77% 4.65% 7.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets
(Before Expense Waiver) ............ 0.51% 0.60% 0.79% 0.82% 1.01%
Ratio of Operating Expenses
to Average Net Assets ................ 0.51% 0.54% 0.66% 0.14% --
Ratio of Net Investment Income to
Average Net Assets
(Before Expense Waiver) ............ 4.30% 4.27% 4.22% 4.17% 4.15%
Ratio of Net Investment Income
to Average Net Assets ................ 4.30% 4.33% 4.35% 4.85% 5.16%
Portfolio Turnover Rate .............. 70% 39% 81% 36% 33%
Net Assets, End of Period
(in thousands) ..................... $ 45,410 $ 40,047 $ 30,555 $ 25,789 $ 19,778
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provide 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
* portfolio turnover -- the percentage of the portfolio that was replaced during
the period
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 the 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 and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Arizona Intermediate-Term
Municipal Fund (formerly the American Century - Benham Arizona Intermediate-Term
Municipal Fund) (one of the eight funds in the American Century Municipal Trust,
hereafter referred to as the "Fund") at May 31, 1999, and the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for each of the two years in the period then ended, 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 audits. The
financial highlights for each of the three 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. 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 12, 1999
www.americancentury.com 17
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios 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 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 has 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 has an
average maturity of five years. The bonds are rated BBB or higher by Standard &
Poor's, with an average rating of AA.
The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of
investment-grade municipal bonds with maturities greater than 22 years.
LIPPER RANKINGS
LIPPER 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
KEN SALINGER
COLLEEN DENZLER
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.
www.americancentury.com 19
Glossary
- --------------------------------------------------------------------------------
(Continued)
* 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).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income,
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
20 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9907 Funds Distributor, Inc.
SH-ANN-17030 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 1999
ANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
- -----------------------
FLORIDA MUNICIPAL
MONEY MARKET
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and returned
to production. We have an ongoing commitment to testing our systems with our
vendors and business partners and within the industry throughout the rest of the
year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans will minimize the impact on our investors and help us
maintain operations in the event of any Y2K-related incidents. We will conduct
practice drills of contingency scenarios during the rest of 1999 and refine
those plans to respond quickly and effectively so that the date change is as
seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
FLORIDA MUNICIPAL MONEY MARKET
(BEFXX)
- ------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
AN IMPORTANT MESSAGE
On March 1, we reorganized our funds under the American Century name. Though
the venerable Benham name is gone, your funds will maintain their same
disciplined investment management approach.
James Benham's proven fixed-income investment philosophy, which provides
investors a "pure play" on a sector of the bond market, will remain. That
investment practice--now a hallmark of investing at American Century--has helped
our fixed-income funds deliver solid performance over the years.
In addition, we will continue to build our team of experienced fixed-income
portfolio managers, which has doubled in size since American Century was formed.
We look forward to continuing to meet your fixed-income investment needs in
the tradition you have come to expect.
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
We experienced several investment mood swings in the U.S. financial markets
during the year ended May 31, 1999. When we last addressed you in the semiannual
report for American Century Florida Municipal Money Market, money market yields
had plunged as investors rushed to the relative safety and liquidity of
short-term securities. Investors were spooked by global economic and financial
turmoil. The Federal Reserve (the U.S. central bank) cut short-term interest
rates to bolster a seemingly vulnerable U.S. economy and help stabilize markets
worldwide.
The Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was posting strong growth, and
investor confidence had rebounded. As a result, investors moved out of money
market securities in favor of stocks and higher-yielding bonds. Money market
yields returned to higher levels, though they remained significantly lower than
they were a year earlier.
Investors in American Century funds benefited from other noteworthy events.
In March, we consolidated all our funds under the American Century name. Though
we are proud of the venerable Twentieth Century and Benham names, we believe the
change makes it simpler for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we enhanced our Web site (www.americancentury.com). There
you'll find daily fund information -- including performance and price data --
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You can also sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, we continued to expand the American Century investment team, which
has doubled over the last three years. We're committed to building and
maintaining a talented management group.
As always, we appreciate your continued confidence in 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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Frequently Asked
Questions ........................................................... 2
FLORIDA MUNICIPAL MONEY MARKET
Performance Information ................................................ 3
Portfolio at a Glance .................................................. 3
Yields ................................................................. 3
Management Q&A ......................................................... 4
Portfolio Composition
by Credit Rating .................................................... 4
Portfolio Composition
by Security Type .................................................... 4
Schedule of Investments ................................................ 5
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 8
Statement of Operations ................................................ 9
Statements of Changes
in Net Assets ....................................................... 10
Notes to Financial
Statements .......................................................... 11
Financial Highlights ................................................... 12
Report of Independent
Accountants ......................................................... 13
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 14
Lipper Rankings ..................................................... 14
Credit Rating
Guidelines ....................................................... 14
Investment and Credit
Research Teams ................................................... 14
Glossary ............................................................... 15
www.americancentury.com 1
Money Market Funds--Frequently Asked Questions
- --------------------------------------------------------------------------------
Can I make direct deposits into my money market fund account?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, Treasury Direct interest payment, military allotment, or payments from
other government agencies. Give us a call, and we will send you the necessary
information to set it up.
What is the holding period on new deposits into my account?
Generally, there is an eight-business-day holding period for deposited
funds (initial investments in a new account are held for 15 calendar days).
There is a one-business-day holding period for U.S. Treasury checks, money
orders, and travelers' checks.
Is there a limit on the number of checks I can write on my money market account?
No. You can write as many checks as you like at no charge, as long as each
check is for $100 or more.
Is there an easy way to move money from my money market fund into a stock or
bond fund?
Yes. Moving money between funds is called an exchange, and there is no
limit on the number of exchanges you can make out of a money market fund
account. However, there is a limit of six exchanges per calendar year out of
stock and bond fund accounts.
Exchanges can be made by:
* visiting our Web site at www.americancentury.com*
* using our Automated Information Line (1-800-345-8765)*
* calling an Investor Relations Representative at 1-800-345-2021*
* writing us a letter
How do I decide whether a taxable money market fund or a tax-free money market
fund is right for me?
The most important factor to consider is your tax bracket. Tax-free money
market funds typically offer lower yields than taxable funds, but you pay no
federal income taxes on the income from a tax-free fund.
If you are in one of the higher federal income tax brackets, taxes will eat
up a big part of your income from a taxable money market fund, so a tax-free
investment may be better for you. If you're in a lower tax bracket, then you can
usually earn more in a taxable fund even after taxes are deducted.
We can help you figure it out. If you give us a call and tell us what tax
bracket you're in, we can tell you whether you're likely to earn more after-tax
income in a tax-free or a taxable money market fund.
If you have any questions about our money market funds, call us toll free at
1-800-345-2021 or e-mail us at our Web site, www.americancentury.com.
* Before an investor can make an exchange by calling an Investor Relations
Representative, using our Automated Information Line, or visiting our Web
site, the investor first must have provided us with written authorization to
do so.
[left margin]
A FASTER AND EASIER WAY TO DEPOSIT MUTUAL FUND DISTRIBUTIONS
If you prefer to have your fund dividend or capital gains distributions sent to
you instead of reinvesting them, there are a couple of ways to get access to
this money faster than waiting for a check in the mail:
* You can have distributions deposited directly into your money market
account. The money will be deposited the same day that the distributions are
paid.
* Distributions can be sent electronically to your bank account. The money
will be available in you bank account within three days.
Contact an Investor Relations Representative to set up either of these options.
2 1-800-345-2021
Florida Municipal Money Market--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1999
FLORIDA MUNICIPAL OTHER STATES TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
=============================================================================
6 MONTHS(1) ...... 1.37% 1.30% --
1 YEAR ........... 2.92% 2.80% 13 OUT OF 36
=============================================================================
AVERAGE ANNUAL
RETURNS
3 YEARS(3) ....... 3.26% 3.05% 6 OUT OF 33
5 YEARS(3) ....... 3.47% 3.15% 1 OUT OF 18
LIFE OF FUND(3) .. 3.45% 3.15%(4) 1 OUT OF 17(4)
The fund's inception date was 4/11/94.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Returns and rankings would have been lower if management fees had not been
waived from 4/11/94 to 12/31/96.
(4) Since 4/30/94, the date nearest the fund's inception for which return data
are available.
See pages 14-15 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
AS OF 5/31/99
NET ASSETS $87.5 MILLION
5/31/99 5/31/98
NUMBER OF SECURITIES 42 45
WEIGHTED AVERAGE
MATURITY 54 DAYS 54 DAYS
EXPENSE RATIO 0.50% 0.51%*
* 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, 1999
7-DAY CURRENT YIELD 2.92%
7-DAY EFFECTIVE YIELD 2.96%
7-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 4.06%
31.0% TAX BRACKET 4.23%
36.0% TAX BRACKET 4.56%
39.6% TAX BRACKET 4.83%
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund. The 7-day yield more closely reflects earnings of the fund than the total
return.
www.americancentury.com 3
Florida Municipal Money Market--Q&A
- --------------------------------------------------------------------------------
/photo of Bryan Karcher/
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, 1999?
The fund's fiscal-year return beat the average return of the 36 "Other
States Tax-Exempt Money Market Funds" tracked by Lipper Inc. (See the previous
page for fund returns and performance comparisons.) Its longer-term returns are
similarly strong.
THE FUND'S 7-DAY CURRENT YIELD CAME DOWN A LITTLE IN THE PAST YEAR (3.26% TO
2.92%). WHY?
It's partly because of the general drop in short-term interest rates in
1998. In response to increasing global market volatility, the Federal Reserve
lowered short-term rates three times between September and November.
Supply and demand factors in the Florida municipal market also had an
impact. Supply decreased dramatically--budget surpluses at many municipalities
reduced their borrowing needs. Meanwhile, demand for short-term municipal
securities surged. By February, tax-free money market yields were at their
lowest levels in nearly five years.
HOW DID YOU POSITION THE FUND IN THIS ENVIRONMENT?
Although we extended the fund's average maturity somewhat when the Fed was
cutting interest rates, we generally allowed the average maturity to drift lower
(as low as 18 days at the end of March). For much of the fiscal year,
longer-term securities weren't offering any extra yield over shorter-term notes,
so we didn't extend even though rates were declining.
However, we did lengthen the average maturity during tax season in April
and May, when investors withdraw money from their money market accounts to pay
income taxes. As funds sell securities to meet these redemptions, we often find
one-year securities with attractive yields.
This year was no exception--we bought one-year notes yielding 25 basis
points (0.25%--a basis point equals 0.01%) more than shorter-term securities. As
a result, we lengthened the fund's average maturity to about 54 days by the end
of May.
WHAT'S YOUR OUTLOOK FOR THE FLORIDA MUNICIPAL MONEY MARKET?
Municipal money market yields have risen in recent weeks in anticipation of
an interest rate increase by the Fed. As expected, the Fed raised short-term
rates in late June, expressing concern about the U.S. economy's strength. But
the Fed also suggested that it may not raise rates again for a while.
We took advantage of rising yields to lengthen the fund's average maturity
out to nearly 80 days in early June. However, we think that yields will be more
stable going forward, so we expect to bring the average maturity back down to a
neutral position in the coming months.
[left margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
SP1+ 94% 88%
SP1 6% 12%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 14
for more information.
[pie charts - data below]
PORTFOLIO COMPOSITION BY
SECURITY TYPE
AS OF MAY 31, 1999
VRDNs 81%
Bonds less than 1 Year 19%
AS OF NOVEMBER 30, 1998
VRDNs 81%
Put Bonds 9%
Bonds less than 1 Year 7%
Commercial Paper 3%
Security types are defined on page 15.
4 1-800-345-2021
Florida Muni. Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
$2,135,000 Broward County Industrial
Development Rev., (Fast Real
Estate Partners), VRDN, 3.35%,
6/2/99 (LOC: Suntrust Bank
South Florida, N.A.) (Acquired
3/10/97-3/20/98, Cost
$2,135,000)(1) $ 2,135,000
2,500,000 Broward County Industrial
Development Rev., (HEICO
Aerospace Corp.), VRDN,
3.35%, 6/2/99 (LOC: Suntrust
Bank South Florida, N.A.)
(Acquired 10/17/96, Cost
$2,500,000)(1)(2) 2,500,000
2,230,000 Broward County Industrial
Development Rev., (MDR
Fitness Corp.), VRDN, 3.35%,
6/2/99 (LOC: Suntrust Bank,
Miami, N.A.) (Acquired
2/28/96-3/3/97, Cost
$2,230,000)(1) 2,230,000
1,800,000 Broward County Industrial
Development Rev., (W.R. Bonsal
Co.), VRDN, 3.40%, 6/3/99
(LOC: NationsBank, N.A.)
(Acquired 3/18/98, Cost
$1,800,000)(1) 1,800,000
3,870,000 Coral Springs Industrial
Development Rev., (Royal
Plastics Group), VRDN, 3.35%,
6/2/99 (LOC: Suntrust Bank
South Florida, N.A.) (Acquired
4/1/96-12/9/98, Cost
$3,870,000)(1) 3,870,000
2,500,000 Dade County Aviation Rev.,
Series 1997 A, (Miami
International Airport), 4.60%,
10/1/99 (FSA) 2,512,043
1,000,000 Dade County Industrial
Development Auth. Rev.,
Series 1989 B, (Stephen M.
Green), VRDN, 3.35%, 6/2/99
(LOC: Suntrust Bank, Miami,
N.A.) (Acquired 4/28/94-
2/23/95, Cost $1,000,000)(1) 1,000,000
4,000,000 Dade County Special Obligation
Trust Receipts, Series 1998 C-2,
VRDN, 3.45%, 6/2/99 (LOC:
Bank of America NT&SA)
(Acquired 12/15/98-1/22/99,
Cost $4,000,000)(1) 4,000,000
4,320,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., VRDN, 3.39%,
6/3/99 (Liquidity: Merrill Lynch
& Co., Inc.) (Acquired 4/9/98,
Cost $4,320,000)(1) 4,320,000
Principal Amount Value
- --------------------------------------------------------------------------------
$1,530,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., VRDN, 3.39%,
6/3/99 (SBBPA: Merrill Lynch
& Co., Inc.) (Acquired 12/3/96,
Cost $1,530,000)(1) $ 1,530,000
6,485,000 Florida Housing Finance Agency
Rev., (Country Club), VRDN,
3.80%, 6/1/99 (LOC: Northern
Trust Company) 6,485,000
4,650,000 Florida Housing Finance Agency
Rev., Series 1989 J, (Ashley
Lake II), VRDN, 3.45%,
6/2/99 (LOC: Morgan
Guaranty Trust Co. of New York) 4,650,000
4,500,000 Florida Housing Finance Agency
Rev., Series 1996 F, (Caribbean
Key), VRDN, 3.35%, 6/2/99
(LOC: KeyBank, N.A.) 4,500,000
2,000,000 Florida Housing Finance Agency
Rev., Series 1996 P, (Tiffany
Club), VRDN, 3.35%, 6/2/99
(LOC: NationsBank, N.A.) 2,000,000
4,345,000 Florida Housing Finance Agency
Trust Receipts, VRDN, 3.45%,
6/2/99 (LOC: Bank of New
York) (Acquired 2/12/98, Cost
$4,345,000)(1) 4,345,000
3,900,000 Florida Housing Finance Corp.
Rev., Series 1998 E,
(Club at Vero Apartments),
VRDN, 3.45%, 6/2/99 (LOC:
NationsBank, N.A.) 3,900,000
1,795,000 Florida Municipal Loan Council
Rev., 3.20%, 4/1/00 (MBIA) 1,795,000
2,000,000 Florida State Board of Education
Capital Outlay GO, 6.75%,
6/1/00 2,069,373
1,000,000 Florida State Board of Education
Capital Outlay GO, 7.00%,
6/1/00, Prerefunded at 102%
of Par(3) 1,056,397
1,000,000 Florida State Board of Education
Capital Outlay GO, 7.00%,
6/1/00, Prerefunded at 102%
of Par(3) 1,056,404
2,095,000 Florida State Board of Education
Capital Outlay GO, Series
1989 A, 7.25%, 6/1/00,
Prerefunded at 102% of Par(3) 2,218,267
250,000 Florida State Board of Education
Capital Outlay GO, Series
1994 E, 5.10%, 6/1/00 253,881
500,000 Florida State Division Board of
Finance Department General
Services Rev., Series 1991 A,
(Preservation 2000), 6.20%,
7/1/99 (AMBAC) 501,199
See Notes to Financial Statements
www.americancentury.com 5
Florida Muni. Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$1,740,000 Florida State GO, (Department of
Transportation), 6.875%,
7/1/99 $ 1,745,201
500,000 Florida State GO, Series 1997 B,
(Department of Transportation),
5.00%, 7/1/99 500,689
1,815,000 Gulf Breeze Rev., Series 1985 B,
(Local Govt. Loan), VRDN,
3.25%, 6/3/99 (FGIC)
(SBBPA: Credit Local de
France) 1,815,000
800,000 Indian River County Industrial
Development Rev., (Florida
Convention Centers), VRDN,
4.05%, 6/1/99 (LOC:
Toronto-Dominion Bank) 800,000
1,000,000 Marion County Housing Finance
Auth. Multifamily Rev., Series
1985 F, (Paddock Place),
VRDN, 3.35%, 6/3/99 (LOC:
Suntrust Bank, Atlanta, GA) 1,000,000
945,000 Martin County Industrial
Development Auth. Rev.,
(Florida R.F. Labs Inc.), VRDN,
3.35%, 6/2/99 (LOC: Suntrust
Bank Central Florida, N.A.)
(Acquired 2/28/96-12/9/98,
Cost $945,000)(1) 945,000
500,000 Martin County Industrial
Development Auth. Rev.,
(Tampa Farm Service Inc.),
VRDN, 3.35%, 6/2/99 (LOC:
Suntrust Bank Central Florida,
N.A.) (Acquired 6/13/96-
12/9/98, Cost $500,000)(1) 500,000
2,800,000 Miami-Dade County Industrial
Development Auth. Rev., (Dutton
Press Inc.), VRDN, 3.35%,
6/2/99 (LOC: Suntrust Bank,
Miami, N.A.) (Acquired
2/27/98-2/17/99, Cost
$2,800,000)(1) 2,800,000
2,000,000 Miami-Dade County Industrial
Development Auth. Rev.,
Series 1999 A, (Edron Fixture
Corp.), VRDN, 3.35%, 6/2/99
(LOC: Suntrust Bank, Miami,
N.A.) (Acquired 3/23/99, Cost
$2,000,000)(1) 2,000,000
690,000 Miami-Dade County Stormwater
Utility Rev., 3.00%, 4/1/00
(AMBAC) 688,870
Principal Amount Value
- --------------------------------------------------------------------------------
$3,000,000 Orange County Health Facilities
Auth. Rev., VRDN, 3.25%,
6/17/99 (Liquidity: Merrill
Lynch & Co., Inc.) (Acquired
12/15/98, Cost $3,000,000)(1) $ 3,000,000
1,150,000 Orange County Housing Finance
Auth. Multifamily Guaranteed
Mortgage Rev., Series 1989 A,
(Sundown Association II),
VRDN, 3.45%, 6/2/99 (LOC:
Fleet Bank, N.A.) 1,150,000
1,850,000 Orange County Industrial
Development Auth. Rev.,
(Precision Meters Inc.), VRDN,
3.35%, 6/2/99 (LOC: Suntrust
Bank, Central Florida, N.A.)
(Acquired 3/24/99, Cost
$1,850,000)(1) 1,850,000
510,000 Osceola County Sales Tax Rev.,
3.25%, 4/1/00 (FSA)(4) 510,000
485,000 Pensacola Airport Rev., Series
1998 A, 6.00%, 10/1/99
(MBIA) 489,098
2,200,000 Pinellas County Industrial Council
Development Rev., (Better
Business Forms Inc.), VRDN,
3.35%, 6/2/99 (LOC: Suntrust
Bank, Tampa Bay) (Acquired
11/13/97-3/20/98, Cost
$2,200,000)(1) 2,200,000
2,100,000 Pinellas County Industrial Council
Development Rev., (Hunter
Douglas Inc.), VRDN, 3.35%,
6/2/99 (LOC: ABN Amro Bank
N.V.) (Acquired 3/17/97, Cost
$2,100,000)(1) 2,100,000
500,000 Pinellas County Sewer Rev.,
4.00%, 10/1/99 (FGIC) 501,384
1,670,000 Volusia County Industrial
Development Auth. Rev.,
(Daytona Plastix Inc.), VRDN,
3.35%, 6/2/99 (LOC: Suntrust
Bank, Central Florida, N.A.)
(Acquired 7/17/96-12/19/97,
Cost $1,670,000)(1) 1,670,000
-------------
TOTAL INVESTMENT SECURITIES--100.0% $86,992,806
=============
See Notes to Financial Statements
6 1-800-345-2021
Florida Muni. Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
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, 1999.
(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 these
securities at May 31, 1999, was $44,795,000, which represented 51.2% of net
assets. None of these securities are considered to be illiquid.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(3) Escrowed to maturity in U.S. government securities or state and local
government securities.
(4) 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 amortized cost of each investment
See Notes to Financial Statements
www.americancentury.com 7
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
MAY 31, 1999
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) ........................... $86,992,806
Cash ..................................................... 466,824
Interest receivable ...................................... 618,857
-----------
88,078,487
-----------
LIABILITIES
Payable for investments purchased ........................ 511,473
Dividends payable ........................................ 20,123
Accrued management fees (Note 2) ......................... 37,110
Payable for trustees' fees
and expenses ........................................... 324
-----------
569,030
-----------
Net Assets ............................................... $87,509,457
===========
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................................. 87,509,457
===========
Net Asset Value Per Share ................................ $ 1.00
===========
NET ASSETS CONSIST OF:
Capital paid in .......................................... $87,509,457
===========
- --------------------------------------------------------------------------------
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 shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders (if any); 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 breakdown 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
8 1-800-345-2021
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1999
INVESTMENT INCOME
Income:
Interest ................................................ $3,459,733
----------
Expenses (Note 2):
Management fees ......................................... 505,045
Trustees' fees and expenses ............................. 6,314
----------
511,359
----------
Net investment income ................................... $2,948,374
==========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down 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
See Notes to Financial Statements
www.americancentury.com 9
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEARS ENDED MAY 31, 1999 AND MAY 31, 1998
Decrease in Net Assets 1999 1998
OPERATIONS
Net investment income .................. $ 2,948,374 $ 3,755,691
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............. (2,948,374) (3,755,691)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .............. 136,641,148 282,351,887
Proceeds from reinvestment
of distributions ....................... 2,500,325 3,240,863
Payments for shares redeemed ........... (161,316,337) (288,037,630)
------------- -------------
Net decrease in net assets from
capital share transactions ............. (22,174,864) (2,444,880)
------------- -------------
Net decrease in net assets ............. (22,174,864) (2,444,880)
NET ASSETS
Beginning of period .................... 109,684,321 112,129,201
------------- -------------
End of period .......................... $ 87,509,457 $ 109,684,321
============= =============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ................................... 136,641,148 282,351,887
Issued in reinvestment of
distributions .......................... 2,500,325 3,240,863
Redeemed ............................... (161,316,337) (288,037,630)
------------- -------------
Net decrease ........................... (22,174,864) (2,444,880)
============= =============
- --------------------------------------------------------------------------------
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
* capital 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
10 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
MAY 31, 1999
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. 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 are in accordance with generally accepted
accounting principles; these principles may require the use of estimates by fund
management.
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 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, 1999, 100%
(unaudited) of the fund's distributions from net investment income have been
designated as exempt from federal income tax.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
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. The Agreement provides that all expenses of the funds, except 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, will be paid by
ACIM. The fee is calculated daily and paid monthly. It consists of an Investment
Category Fee based on the average net assets of the funds in a specific fund's
investment category and a Complex Fee based on the average net assets of all the
funds managed by ACIM. The rates for the Investment Category Fee range from
0.1570% to 0.2700% and the rates for the Complex Fee range from 0.2900% to
0.3100%. For the year ended May 31, 1999, the effective annual management fee
was 0.50%.
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 Corporation.
- --------------------------------------------------------------------------------
3. FUND EVENTS
The following name change became effective March 1, 1999:
=====================================================================
NEW NAME FORMER NAME
=====================================================================
FUND: Florida Municipal Money American Century - Benham Florida
Market Fund Municipal Money Market Fund
www.americancentury.com 11
Florida Muni. Money Market--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
1999 1998 1997 1996 1995
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 0.03 0.04 0.04
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ...... (0.03) (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(1) ................. 2.92% 3.31% 3.55% 3.86% 3.71%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets
(Before Expense Waiver) ......... 0.50% 0.53% 0.66% 0.71% 0.88%
Ratio of Operating Expenses
to Average Net Assets ........... 0.50% 0.51% 0.12% 0.01% --
Ratio of Net Investment Income
to Average Net Assets
(Before Expense Waiver) ......... 2.88% 3.23% 2.94% 3.05% 3.05%
Ratio of Net Investment Income
to Average Net Assets ........... 2.88% 3.25% 3.48% 3.75% 3.93%
Net Assets, End of Period
(in thousands) .................. $ 87,509 $ 109,684 $ 112,129 $ 99,993 $ 45,147
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provide 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
* income 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
12 1-800-345-2021
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees of the American Century Municipal Trust and
Shareholders of the 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 and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Florida Municipal Money Market
Fund (formerly the American Century - Benham Florida Municipal Money Market
Fund) (one of the eight funds in the American Century Municipal Trust, hereafter
referred to as the "Fund") at May 31, 1999, and the results of its operations
for the year then ended, the changes in its net assets and the financial
highlights for each of the two years in the period then ended, 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 audits. The financial
highlights for each of the three 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. 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, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 12, 1999
www.americancentury.com 13
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios 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 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 FDIC or any other government agency. Yields will fluctuate,
and although the fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the fund.
LIPPER RANKINGS
LIPPER 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 funds in Lipper's OTHER STATES TAX-EXEMPT MONEY MARKET FUNDS category
invest in high-quality municipal obligations with dollar-weighted average
maturities of less than 90 days.
CREDIT RATING GUIDELINES
Credit quality (the issuer's financial strength and the likelihood of
timely payment of interest and principal) is a key factor in fixed-income
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 the prices and yields of fixed-income securities--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
14 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 12.
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 equal one percentage point (or 1%).
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.
* PUT BONDS -- long-term securities that can be "put back" (i.e., sold at face
value) to a specified buyer at a prearranged date.
* 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 15
Glossary
- --------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income,
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
16 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9907 Funds Distributor, Inc.
SH-ANN-17027 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 1999
ANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
- --------------------------
FLORIDA INTERMEDIATE-TERM
MUNICIPAL
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and returned
to production. We have an ongoing commitment to testing our systems with our
vendors and business partners and within the industry throughout the rest of the
year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans will minimize the impact on our investors and help us
maintain operations in the event of any Y2K-related incidents. We will conduct
practice drills of contingency scenarios during the rest of 1999 and refine
those plans to respond quickly and effectively so that the date change is as
seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
FLORIDA INTERMEDIATE-TERM MUNICIPAL
(ACBFX)
- ------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
AN IMPORTANT MESSAGE
On March 1, we reorganized our funds under the American Century name. Though
the venerable Benham name is gone, your funds will maintain their same
disciplined investment management approach.
James Benham's proven fixed-income investment philosophy, which provides
investors a "pure play" on a sector of the bond market, will remain. That
investment practice--now a hallmark of investing at American Century--has helped
our fixed-income funds deliver solid performance over the years.
In addition, we will continue to build our team of experienced fixed-income
portfolio managers, which has doubled in size since American Century was formed.
We look forward to continuing to meet your fixed-income investment needs in
the tradition you have come to expect.
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
We experienced several investment mood swings in the U.S. financial markets
during the year ended May 31, 1999. When we last addressed you in the semiannual
report for American Century Florida Intermediate-Term Municipal, yields had
fallen as the U.S. bond market rallied. The bond gains were spurred by global
economic and financial turmoil. The Federal Reserve (the U.S. central bank) cut
short-term interest rates to bolster a seemingly vulnerable U.S. economy and
help stabilize markets worldwide.
The Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was posting strong growth, and
investor confidence had rebounded. As a result, stocks rallied and U.S. bond
yields generally returned to higher levels, though they remained lower than they
were a year earlier. Municipal bonds, which had underperformed Treasury bonds in
1998, outperformed Treasurys during the first five months of 1999.
Investors in American Century tax-free and municipal funds benefited from
other positive developments as 1999 unfolded. In March, we consolidated all our
funds under the American Century name. We believe the change makes it simpler
for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we enhanced our Web site (www.americancentury.com). There
you'll find daily fund information -- including performance and price data --
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You can also sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, we continued to expand the American Century investment team, which
has doubled over the last three years. We're committed to building and
maintaining a talented management group.
As always, we appreciate your continued confidence in 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 Vice Chairman of the Board and
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
Yields ..................................................................... 6
Portfolio at a Glance ...................................................... 6
Top Five Sectors ........................................................... 7
Portfolio Composition
by Credit Rating ........................................................... 7
Schedule of Investments .................................................... 8
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
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Municipal bonds posted positive returns overall during the year ended May
31, 1999, though most of their gains occurred in 1998 when interest rates
fell.
* At the beginning of last summer, municipal bonds languished as investors
worried that strong U.S. economic growth might ignite inflation.
* In 1999, better-than-expected U.S. economic growth and other indications
that higher inflation and interest rates might be ahead caused bond prices
to retrace much of the ground they gained in 1998.
* Despite that environment, municipal bonds benefited from decreased supply
and increased demand, helping them to regain considerable ground on their
Treasury counterparts.
FLORIDA MUNICIPAL CREDIT REVIEW
* Municipal credit quality remained solid in Florida during the year ended May
31, 1999.
* A growing jobs base, a burgeoning population, and personal income growth
continued to be the mainstays of the state's credit strength.
* Florida's employment growth rate remained among the highest in the nation
during 1998 and may continue that trend in 1999. Although the effects of
global economic crises and a recession in Latin America have led to
manufacturing layoffs, expansions in the business services and finance
sectors have more than offset those losses.
* Going forward, our overall outlook for the state's credit health remains
generally upbeat.
MANAGEMENT Q&A
* Florida Intermediate-Term Municipal finished at the top of its Lipper
category for the year, providing a favorable return in spite of the sharp
rise in interest rates in 1999. The fund's long-term returns are equally
impressive.
* We believe that careful yield-curve analysis and diligent credit research
remained key to the fund's success. Buying securities that we believe are
undervalued helps enhance the fund's total return prospects and yield.
* Managing duration--controlling the portfolio's sensitivity to interest rate
changes--remained an important element of our overall fund strategy.
* Looking ahead, we will probably keep the portfolio's sensitivity to interest
rate changes fairly neutral in light of the uncertain market environment. We
also plan to concentrate our holdings in bonds maturing in the middle of the
fund's maturity spectrum--the three- to 10-year area.
[left margin]
FLORIDA INTERMEDIATE-TERM
MUNICIPAL (ACBFX)
TOTAL RETURNS: AS OF 5/31/99
6 Months 0.74%*
1 Year 4.71%
30-DAY SEC YIELD: 3.95%
INCEPTION DATE: 4/11/94
NET ASSETS: $44.4 million
* Not annualized.
Investment terms are defined in the Glossary on pages 19-20.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- --------------------------------------------------------------------------------
/photo of Randall W. Merk/
Randall W. Merk, chief investment officer of fixed income
MUNICIPAL BOND PERFORMANCE
Municipal bonds posted positive returns overall during the year ended May
31, 1999, though most of their gains occurred in 1998 when interest rates fell.
In the first five months of 1999, tax-free bond prices generally declined and
yields rose because of strong economic growth and inflation concerns.
Short- and intermediate-term municipal bonds outperformed long-term
municipals, which are more sensitive to interest rate changes (see the
accompanying bond index returns table). Also, lower-quality municipal bonds
(those rated BBB or lower) generally outperformed higher-rated (A to AAA) bonds
as strong economic conditions caused the yield gap between lower- and
higher-rated bonds to narrow.
ECONOMIC ENGINE SPUTTERS BUT REGAINS POWER
At the beginning of last summer, municipal bonds languished as investors
worried that strong U.S. economic growth might ignite inflation. That view
changed radically in July 1998, when protracted economic and financial problems
in Asia and Latin America threatened to weaken global economic growth. Bonds
rallied as recessionary expectations increased. To stem overseas problems and
boost the U.S. economy, the Federal Reserve (the Fed) lowered short-term U.S.
interest rates three times last fall.
Winter brought another shift. The Fed's actions seemed to achieve their
intended result--U.S. economic growth accelerated, while parts of Asia and Latin
America showed signs of stabilizing. Better-than-expected U.S. economic growth
and other indications that higher inflation might be ahead caused bond yields to
rise and prices to retrace much of the ground they gained in 1998. May brought
word that the Fed was leaning toward raising interest rates, which further
dampened bond investors' moods.
TREASURYS FALTER AS MUNICIPALS GAIN GROUND
In 1998, despite falling interest rates, municipals were hamstrung by
unfavorable supply and demand conditions and lagged Treasury securities as a
result. By October, the difference between municipal and Treasury yields was as
small as it had been in a decade, indicating that Treasury bonds were relatively
expensive and municipal bonds were comparatively undervalued.
So far in 1999, however, municipal bonds benefited from decreased supply
and increased demand, helping them to regain considerable ground on their
Treasury counterparts. Even after outperforming Treasurys in recent months,
municipal bonds continue to offer attractive yields on a tax-equivalent basis.
As of May 31, 1999, an investor in the highest federal tax bracket could earn a
tax-adjusted yield of nearly 7.4% on a 10-year AAA-rated municipal bond, well
above the 5.6% yield on a 10-Year U.S. Treasury bond.
[right margin]
"BETTER-THAN-EXPECTED U.S. ECONOMIC GROWTH AND OTHER INDICATIONS THAT HIGHER
INFLATION MIGHT BE AHEAD CAUSED BOND YIELDS TO RISE AND PRICES TO RETRACE MUCH
OF THE GROUND THEY GAINED IN 1998."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED MAY 31, 1999
MERRILL LYNCH 0- TO 3-YEAR
MUNICIPAL INDEX 4.58%
LEHMAN BROS. 5-YEAR
MUNICIPAL GO INDEX 4.90%
LEHMAN BROS. LONG-TERM
MUNICIPAL BOND INDEX 4.35%
Source: Bloomberg Financial Markets
[line graph - data below]
SHIFTING MUNICIPAL YIELD CURVES
YEARS TO
MATURITY 5/31/98 11/30/98 5/31/99
1 3.80% 3.19% 3.36%
2 3.95% 3.49% 3.59%
3 4.06% 3.64% 3.80%
4 4.15% 3.76% 3.98%
5 4.20% 3.86% 4.12%
6 4.27% 3.96% 4.22%
7 4.34% 4.05% 4.31%
8 4.41% 4.13% 4.38%
9 4.48% 4.21% 4.46%
10 4.55% 4.29% 4.54%
11 4.62% 4.38% 4.62%
12 4.69% 4.47% 4.70%
13 4.77% 4.56% 4.78%
14 4.84% 4.65% 4.86%
15 4.92% 4.73% 4.95%
16 4.95% 4.77% 4.98%
17 4.98% 4.80% 5.01%
18 5.00% 4.84% 5.04%
19 5.03% 4.87% 5.08%
20 5.05% 4.91% 5.12%
21 5.05% 4.91% 5.12%
22 5.05% 4.91% 5.13%
23 5.05% 4.92% 5.14%
24 5.06% 4.92% 5.15%
25 5.06% 4.93% 5.16%
26 5.06% 4.93% 5.16%
27 5.06% 4.93% 5.16%
28 5.07% 4.94% 5.17%
29 5.07% 4.94% 5.17%
30 5.08% 4.95% 5.18%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Municipal Credit Review
- --------------------------------------------------------------------------------
CREDIT SNAPSHOT
Municipal credit quality remained solid in Florida during the year ended
May 31, 1999. A growing jobs base, a burgeoning population, and personal income
growth continued to be the mainstays of the state's credit strength.
EMPLOYMENT GROWTH CONTINUED . . .
Florida's employment growth rate remained among the highest in the nation
during 1998 and may continue that trend in 1999. The state posted a robust 4.1%
increase in new jobs last year as Florida's economy continued to evolve from one
narrowly based on agriculture and tourism to one based more on services and
foreign trade. Banking, exports, and insurance providers are now vibrant parts
of the transformed economy.
Although the effects of global economic crises and a recession in Latin
America have led to manufacturing layoffs, expansions in the business services
and finance sectors have more than offset those losses. In 1999, overall job
growth is on track to slow but should remain well above the national average.
This should allow Florida to remain one of the fastest-growing employment
markets in the nation.
. . . WHILE FLORIDA'S POPULATION CONTINUED TO SWELL
The state's favorable climate and affordable housing prices attracted a net
239,000 new residents in 1998, and that figure is on track to be comparably high
in 1999. Despite the swelling population, Florida's unemployment rate of 4.3%
remained close to national levels and fell from 4.8% in 1997. The downside of
such rapid population growth, however, has been pressure for additional roads,
schools, and water systems in what has become the fourth-largest state in the
nation. Personal incomes also continued to rise--income jumped 5.4% in 1998 and
may remain above 4% in 1999.
LOOKING FORWARD
The state's heavy reliance on sales tax revenues, combined with spending
pressures from growing school-age and elderly populations, leaves its finances
particularly vulnerable to an economic slowdown. Nevertheless, our outlook for
the state's prospects remains generally upbeat. By continuing to follow
conservative fiscal practices, the state's government is helping to ensure its
future will remain bright going forward. Florida's low business costs and
relatively relaxed regulatory environment should also continue to make it
attractive to companies looking to expand their operations.
ON THE LEGISLATIVE FRONT
Earlier this year, the state enacted legislation that slightly reduced the
Florida intangibles tax on residents. Though this development may have mildly
reduced the attractiveness of the state's municipal securities to some
residents, there has been little discernable impact from a credit standpoint.
[left margin]
"BY CONTINUING TO FOLLOW GENERALLY CONSERVATIVE FISCAL PRACTICES, THE STATE'S
GOVERNMENT IS HELPING TO ENSURE ITS PROSPECTS WILL REMAIN BRIGHT GOING FORWARD.
MUNICIPAL CREDIT
RESEARCH TEAM
MANAGER
STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
4 1-800-345-2021
Florida Intermediate-Term Municipal--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF MAY 31, 1999
FLORIDA
INTERMEDIATE- 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) 0.74% 1.42% 0.39% --
1 YEAR 4.71% 4.90% 3.45% 1 OUT OF 15
=====================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS(3) 6.50% 5.97% 5.33% 1 OUT OF 11
5 YEARS(3) 6.23% 5.91% 5.28% 1 OUT OF 10
LIFE OF FUND(3) 6.42% 5.92% 5.35%(4) 1 OUT OF 10(4)
</TABLE>
The fund's inception date was 4/11/94.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Returns and rankings would have been lower if management fees had not been
waived.
(4) 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 graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 5/31/99
Florida Intermediate-Term
Municipal $13,651
Lehman 5-Year GO Index $13,348
Florida Intermediate- Lehman 5-Year
Term Municipal GO Index
DATE VALUE VALUE
4/30/94 $10,000 $10,000
6/30/94 $10,054 $9,996
9/30/94 $10,173 $10,077
12/31/94 $10,031 $10,044
3/31/95 $10,539 $10,450
6/30/95 $10,811 $10,717
9/30/95 $11,068 $11,010
12/31/95 $11,396 $11,211
3/31/96 $11,338 $11,246
6/30/96 $11,361 $11,295
9/30/96 $11,561 $11,479
12/31/96 $11,812 $11,730
3/31/97 $11,830 $11,711
6/30/97 $12,205 $12,002
9/30/97 $12,514 $12,264
12/31/97 $12,784 $12,490
3/31/98 $12,918 $12,636
6/30/98 $13,094 $12,764
9/30/98 $13,496 $13,115
12/31/98 $13,613 $13,218
3/31/99 $13,699 $13,354
5/31/99 $13,651 $13,348
$10,000 investment made 4/30/94
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Lehman 5-Year GO Index is provided for comparison in each graph. Florida
Intermediate-Term Municipal's total returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
returns of the index do not. 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 graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MAY 31)
Florida Intermediate- Lehman 5-Year
Term Municipal GO Index
DATE RETURN RETURN
5/31/94* 0.93% 0.56%
5/31/95 7.31% 6.89%
5/31/96 4.34% 4.74%
5/31/97 6.63% 6.08%
5/31/98 8.20% 6.95%
5/31/99 4.71% 4.90%
* From 4/30/94 (the date nearest the fund's inception for which index data are
available) to 5/31/94.
www.americancentury.com 5
Florida Intermediate-Term Municipal--Q&A
- --------------------------------------------------------------------------------
/photo of Ken Salinger/
An interview with Ken Salinger, a portfolio manager on the Florida
Intermediate-Term Municipal investment team.
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED MAY 31, 1999?
Florida Intermediate-Term Municipal finished at the top of its Lipper
category for the year, providing a favorable return in spite of the sharp rise
in interest rates in 1999. The fund returned 4.71%, solidly outpacing the 3.45%
average return of the 15 funds in Lipper Inc.'s Florida Intermediate Municipal
Debt Funds category.
Florida Intermediate-Term Municipal's three-year, five-year, and
life-of-fund returns are also the highest in its Lipper group. The fund's return
fell just short of its benchmark; the Lehman 5-Year GO Index returned 4.90%.
(See page 5 for fund performance comparisons.)
In addition to an impressive total return compared with its Lipper peers,
Florida Intermediate-Term Municipal's 30-day SEC yield of 3.95% on May 31, 1999,
compared favorably with the 3.57% average SEC yield of Lipper's Florida
intermediate municipal debt fund.
WHY DID FLORIDA INTERMEDIATE-TERM MUNICIPAL CONTINUE TO OUTPACE ITS PEERS?
We believe that careful yield-curve analysis and diligent credit research
remained key to the fund's success. Our careful analysis of the municipal yield
curve--a graphic representation of the relationship between bond yields and
maturities (see page 3 for an example)--helped us target maturity areas of the
municipal market that seemed to offer the most attractive relative value. With
the help of our seasoned municipal credit team, we then looked for undervalued
securities within that maturity range.
HOW DID THAT TRANSLATE TO BETTER PERFORMANCE?
Buying securities that we believe are undervalued helps enhance the fund's
total return potential and yield. For example, we've recently increased the
portfolio's BBB holdings by adding some hospital bonds. This has added a slight
amount of credit risk to the overall portfolio, but we think the potential gains
make the additional risk worthwhile.
WHY WERE THOSE SECURITIES SO ATTRACTIVELY PRICED?
Hospitals and nursing homes across the nation have come under competitive
pressure to reduce their costs because of lower Medicare reimbursements that
resulted from the Balanced Budget Act. This has kept bond insurance companies
from backing hospital bonds-- a sharp reversal from early 1998, when the outlook
was brighter and easy-to-get insurance made AAA ratings readily available.
Overall municipal issuance has tapered off this year because of rising interest
[left margin]
"FLORIDA INTERMEDIATE-TERM MUNICIPAL FINISHED AT THE TOP OF ITS LIPPER CATEGORY
FOR THE YEAR, PROVIDING A FAVORABLE RETURN IN SPITE OF THE SHARP RISE IN
INTEREST RATES IN 1999."
YIELDS AS OF MAY 31, 1999
30-DAY SEC YIELD 3.95%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.49%
31.0% TAX BRACKET 5.72%
36.0% TAX BRACKET 6.17%
39.6% TAX BRACKET 6.54%
PORTFOLIO AT A GLANCE
5/31/99 5/31/98
NUMBER OF SECURITIES 59 45
WEIGHTED AVERAGE
MATURITY 9.1 YRS 8.5 YRS
AVERAGE DURATION 5.6 YRS 5.6 YRS
EXPENSE RATIO 0.51% 0.54%
Investment terms are defined in the Glossary on pages 19-20.
6 1-800-345-2021
Florida Intermediate-Term Municipal--Q&A
- --------------------------------------------------------------------------------
(Continued)
rates; however, because most of the hospital bonds that were issued carried
lower credit ratings, the available pool of these particular types of municipals
grew. That, in turn, has driven yields on these types of securities sharply
higher.
So we've taken advantage of the opportunity. With the help of our credit
research team, we've been able to add a few hidden gems that were backed by
solid credit stories, yet offered high yields due to their low credit rating.
These securities have enhanced the fund's yield and total return prospects.
WHAT ROLE DID DURATION MANAGEMENT PLAY IN FLORIDA INTERMEDIATE-TERM MUNICIPAL'S
SOLID PERFORMANCE?
Managing duration--controlling the portfolio's sensitivity to interest rate
changes--remained an important element of our overall fund strategy. During much
of 1998, we maintained a slightly long duration compared with the fund's Lipper
peers. That enhanced returns toward year-end as bond yields fell.
We've been a bit more conservative in 1999, however. We've kept duration
neutral to slightly long compared with the average Florida intermediate
municipal debt fund by selling some of the portfolio's longer-maturity bonds
when the market has rallied. That also helped us shift the portfolio to a more
bulleted structure, meaning that the fund's holdings are concentrated in three-
to 10-year municipals.
DO YOU EXPECT TO MAINTAIN THE PORTFOLIO'S SOMEWHAT CONSERVATIVE DURATION IN THE
NEAR FUTURE?
That depends on whether the outlook remains clouded by uncertainty. A
recent rise in consumer prices fanned the inflation spark and prompted the
Federal Reserve to raise its short-term interest rate target by 25 basis points
(0.25%--a basis point equals 0.01%) in June to slow economic growth to a
more-sustainable, non-inflationary pace.
The bond market viewed the Fed's rate increase as a positive and rallied
slightly on the news. The announcement fueled expectations that the Fed will
remain vigilant on the inflation front. The Fed's switch to a neutral stance
toward rates in the wake of that tightening, rather than their previous bias
toward a rate increase, was also behind the rally.
Despite that positive event, we've continued to see a wave of strength in
the latest economic reports. The big question on which the municipal market is
balancing right now is whether economic growth will remain overly strong and
spark additional Fed tightenings, or whether those concerns are too bearish. If
economic growth remains robust, the municipal market may be in store for more of
the kinds of disappointing returns that we've seen so far this year. By the same
token, though, if growth moderates or slows, the market's tone could become more
upbeat and bonds could rally.
WITH THAT OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO GOING FORWARD?
We currently plan to use the same strategies that have paid off in the
past: looking for attractive maturity ranges based on risk and return, then
working with our credit research team to locate undervalued securities within
those ranges. In addition, we'll continue to make strategic adjustments to the
portfolio's duration and maturity structure.
[right margin]
TOP FIVE SECTORS (AS OF 5/31/99)
% OF FUND INVESTMENTS
TRANSPORTATION REVENUE 20%
GO 19%
HOUSING REVENUE 10%
ELECTRIC REVENUE 9%
SALES TAX REVENUE 8%
TOP FIVE SECTORS (AS OF 11/30/98)
% OF FUND INVESTMENTS
TRANSPORTATION REVENUE 30%
SALES TAX REVENUE 10%
HOUSING REVENUE 9%
GO 8%
ELECTRIC REVENUE 7%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
AAA 67% 81%
AA 21% 13%
A 5% 3%
BBB 7% 3%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 18
for more information.
www.americancentury.com 7
Florida Intermediate-Term--Sched. of Investments
- --------------------------------------------------------------------------------
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--95.1%
FLORIDA--92.0%
$ 300,000 Boca Raton Water and Sewer
Rev., 6.40%, 10/1/99,
Prerefunded at 101% of Par(1) $ 306,123
300,000 Broward County School District
GO, 6.75%, 2/15/00 306,849
500,000 Dade County Aviation Rev.,
Series 1995 E, 5.50%,
10/1/10 (AMBAC) 529,255
1,000,000 Dade County Aviation Rev.,
Series 1997 A, (Miami
International Airport), 5.50%,
10/1/02 (FSA) 1,045,630
500,000 Duval County School District GO,
6.25%, 8/1/05 (AMBAC) 533,880
500,000 East County Water Control District
Rev., 5.375%, 11/1/01 (Asset
Guaranty) 517,455
250,000 Escambia County Housing Finance
Auth. Single Family Mortgage
Rev., 6.00%, 4/1/02
(GNMA/FNMA) 258,298
220,000 Escambia County Housing Finance
Auth. Single Family Mortgage
Rev., Series 1998 A, 4.80%,
4/1/06 (GNMA/FNMA) 221,991
350,000 Escambia County Housing Finance
Auth. Single Family Mortgage
Rev., Series 1998 A, 4.85%,
4/1/07 (GNMA/FNMA) 352,818
350,000 Florida Housing Finance Agency
Multifamily Housing Rev., 5.35%,
6/1/00 (GTEED) 352,177
450,000 Florida Housing Finance Agency
Rev., (Williamsburg Village
Apartments), 5.60%, 12/1/07
(AMBAC) 482,040
500,000 Florida Housing Finance Agency
Rev., (Windwood), 5.65%,
12/1/07 (AXA) 527,800
1,500,000 Florida Housing Finance Corp.
Rev., Series 1999-2,
(Homeowner Mortgage), 4.60%,
1/1/21 (FSA) 1,500,750
1,110,000 Florida Municipal Loan Council
Rev., 3.60%, 4/1/02 (MBIA) 1,104,539
1,000,000 Florida State Board of Education
Capital Outlay GO, 4.50%,
6/1/24 (MBIA) 893,030
1,500,000 Florida State Board of Education
Capital Outlay GO, Series
1997 A, 5.25%, 6/1/17 1,512,315
1,400,000 Florida State Board of Education
Capital Outlay GO, Series
1998 A, 5.25%, 6/1/13 1,440,068
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Florida State Board of Education
Capital Outlay GO, Series
1998 A, 4.75%, 6/1/28 $ 918,280
1,000,000 Florida State Board of Education
Capital Outlay GO, Series
1999 A, 5.00%, 6/1/12 1,013,100
1,000,000 Florida State Board Regent
University System Improvement
Rev., 4.50%, 7/1/23 (AMBAC) 894,950
1,205,000 Florida Turnpike Auth. Rev.,
(Department of Transportation),
Series 1993 A, 5.00%, 7/1/13
(FGIC) 1,210,278
350,000 Gainesville Utilities System Rev.,
Series 1996 A, 5.75%,
10/1/09 385,991
1,260,000 Hillsborough County Industrial
Development Auth. Rev., Series
1999 A, (University Community
Hospital), 4.90%, 8/15/07(2) 1,252,755
400,000 Hillsborough County Port District
Special Rev., 6.50%, 6/1/04
(FSA) 440,120
750,000 Indian Trace Community
Development District Water
Management Special Benefit
Assessment, 5.00%, 5/1/10
(MBIA) 768,555
400,000 Indian Trace Community
Development District Water
Management Special Benefit
Assessment, Series 1995 A,
5.25%, 5/1/03 (MBIA) 419,092
1,250,000 Jacksonville Electric Auth. Rev.,
Series 1991-4-1-A, (Bulk
Power Supply-Scherer), 6.75%,
10/1/00, Prerefunded at
101.5% of Par(1) 1,323,163
500,000 Jacksonville Electric Auth. Rev.,
Series 1995 6-C, (St. John's
River Power), 6.50%, 10/1/01(3) 525,305
1,250,000 Jacksonville Excise Tax Rev.,
5.20%, 10/1/04 (FGIC) 1,288,725
1,050,000 Jacksonville Sales Tax Rev., (River
City Renaissance), 6.00%,
10/1/02 (FGIC) 1,120,938
550,000 Lee County Industrial
Development Health Care
Facilities Auth. Rev., Series
1999 A, (Shell Point Village),
5.50%, 11/15/09 567,116
865,000 Lee County Passenger Facility
Charge Rev., 4.50%, 10/1/05
(AMBAC) 873,754
1,000,000 Lee County Rev., Series 1997 A,
5.75%, 10/1/11 (MBIA)(3) 1,094,960
650,000 Miami Parking Facilities Rev.,
5.25%, 10/1/15 (MBIA) 672,737
See Notes to Financial Statements
8 1-800-345-2021
Florida Intermediate-Term--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Miami-Dade County Aviation Rev.,
Series 1998 A, 5.00%,
10/1/06 (FGIC) $ 1,032,490
1,000,000 Miami-Dade County Aviation Rev.,
Series 1998 A, 5.25%,
10/1/07 (FGIC) 1,046,310
1,015,000 Northern Palm Beach County
Improvement District Special
Assessment, (Unit Development
18), 4.90%, 8/1/13 (MBIA) 1,021,648
550,000 Orange County Health Facilities
Auth. Rev., Series 1996 A,
6.00%, 10/1/04 (MBIA) 598,131
1,000,000 Orlando and Orange County
Expressway Auth. Rev., 5.10%,
7/1/04 (FGIC) 1,045,270
450,000 Orlando and Orange County
Expressway Auth. Rev., 6.50%,
7/1/11 (FGIC) 522,914
1,050,000 Orlando Utilities Commission
Water & Electric Rev., Series
1994 A, 5.00%, 10/1/11 1,065,068
500,000 Orlando Utilities Commission
Water & Electric Rev., 5.70%,
10/1/04 539,365
1,500,000 Palm Beach County Criminal
Justice Facilities Rev., 5.375%,
6/1/07 (FGIC) 1,600,410
700,000 Pembroke Pines Capital
Improvement Rev., 4.625%,
12/1/13 (AMBAC) 681,590
500,000 Pensacola Airport Rev., Series
1997 B, 5.40%, 10/1/07
(MBIA) 529,300
300,000 Pensacola Airport Rev., Series
1998 A, 6.00%, 10/1/01
(MBIA) 314,430
360,000 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.45%, 10/1/01 362,408
430,000 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.75%, 10/1/05 431,376
450,000 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.85%, 10/1/06 451,629
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of
Florida Inc.), 4.45%, 12/1/04 299,346
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of Florida
Inc.), 4.55%, 12/1/05 299,415
Principal Amount Value
- --------------------------------------------------------------------------------
$ 300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of Florida
Inc.), 4.70%, 12/1/07 $ 298,191
1,000,000 Polk County Housing Finance
Auth. Multi-Family Housing Rev.,
Series 1997 A, (Winter Oaks
Apartments), 5.25%, 7/1/07
(FNMA)(3) 1,041,370
300,000 Reedy Creek Improvement District
Utility Rev., Series 1991-1,
6.25%, 10/1/01, Prerefunded
at 101% of Par (MBIA)(1) 319,989
400,000 St. Cloud Utility Rev., 6.40%,
8/1/06 (MBIA) 428,423
500,000 Volusia County School District GO,
6.20%, 8/1/03 (FGIC) 533,460
-----------
41,117,370
-----------
PUERTO RICO--3.1%
1,350,000 Puerto Rico Commonwealth GO,
5.00%, 7/1/04 1,401,812
-----------
TOTAL MUNICIPAL SECURITIES 42,519,182
-----------
(Cost $42,012,088)
SHORT-TERM MUNICIPAL SECURITIES--4.9%
900,000 Martin County Pollution Control
Rev., (Florida Power & Light Co.),
VRDN, 3.30%, 6/1/99 900,000
1,300,000 Pinellas County Health Facilities
Auth. Rev., (Pooled Hospital
Loan Program), VRDN, 3.40%,
6/1/99 1,300,000
-----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 2,200,000
-----------
(Cost $2,200,000)
TOTAL INVESTMENT SECURITIES--100.0% $44,719,182
===========
(Cost $44,212,088)
FUTURES CONTRACTS
Underlying Face
Purchased Expiration Date Amount at Value Unrealized Gain
- ----------------------------------------------------------------------------
8 U.S. Treasury September
10 Year 1999
Note Futures $892,250 $190
=============== =================
www.americancentury.com 9
Florida Intermediate-Term--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
AXA = AXA Insurance Co.
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
GTEED = Connecticut General Life Guaranty Agreement
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, 1999.
(1) Escrowed to maturity in U.S. government securities or state and local
securities.
(2) When-issued security.
(3) Security, or a portion thereof, has been segregated at the custodian bank or
broker for a when-issued security and futures contracts.
- --------------------------------------------------------------------------------
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
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
MAY 31, 1999
ASSETS
Investment securities, at value
(identified cost of $44,212,088)
(Note 3) ................................................... $44,719,182
Investment in affiliated money
market fund (Note 2) ....................................... 12,103
Receivable for investments sold ............................ 1,003,000
Receivable for variation margin
on futures contracts ....................................... 190
Interest receivable ........................................ 636,673
-----------
46,371,148
-----------
LIABILITIES
Disbursements in excess
of demand deposit cash ..................................... 698,837
Payable for investments purchased .......................... 1,257,866
Dividends payable .......................................... 17,034
Accrued management fees (Note 2) ........................... 18,700
Payable for trustees' fees and expenses .................... 119
-----------
1,992,556
-----------
Net Assets ................................................. $44,378,592
===========
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ...................................... 4,225,221
===========
Net Asset Value Per Share .................................. $ 10.50
===========
NET ASSETS CONSIST OF:
Capital paid in ............................................ $43,829,816
Accumulated undistributed net
realized gain on investments ............................... 41,492
Net unrealized appreciation
on investments (Note 3) .................................... 507,284
-----------
$44,378,592
===========
- --------------------------------------------------------------------------------
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 shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by 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); and finally
gains or losses on securities still owned by the fund (known as unrealized
appreciation or depreciation). This breakdown 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, 1999
INVESTMENT INCOME
Income:
Interest ................................................. $ 1,637,704
-----------
Expenses (Note 2):
Management fees .......................................... 177,067
Trustees' fees and expenses .............................. 3,339
-----------
180,406
-----------
Net investment income .................................... 1,457,298
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized gain on investments ......................... 290,688
Change in net unrealized
appreciation on investments .............................. (239,507)
-----------
Net realized and unrealized
gain on investments ...................................... 51,181
-----------
Net Increase in Net Assets
Resulting from Operations ................................ $ 1,508,479
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down 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
12 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEARS ENDED MAY 31, 1999 AND MAY 31, 1998
Increase in Net Assets 1999 1998
OPERATIONS
Net investment income .................... $ 1,457,298 $ 1,042,897
Net realized gain on investments ......... 290,688 397,759
Change in net unrealized
appreciation on investments .............. (239,507) 439,483
------------ ------------
Net increase in net assets
resulting from operations ................ 1,508,479 1,880,139
------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ............... (1,457,298) (1,042,897)
From net realized gains on
investment transactions .................. (381,472) (316,935)
------------ ------------
Decrease in net assets from
distributions to shareholders ............ (1,838,770) (1,359,832)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................ 36,435,233 28,435,575
Proceeds from reinvestment
of distributions ......................... 1,056,236 976,870
Payments for shares redeemed ............. (22,387,798) (16,840,155)
------------ ------------
Net increase in net assets
from capital share transactions .......... 15,103,671 12,572,290
------------ ------------
Net increase in net assets ............... 14,773,380 13,092,597
NET ASSETS
Beginning of period ...................... 29,605,212 16,512,615
------------ ------------
End of period ............................ $ 44,378,592 $ 29,605,212
============ ============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ..................................... 3,423,113 2,709,826
Issued in reinvestment
of distributions ......................... 99,204 92,680
Redeemed ................................. (2,100,988) (1,596,282)
------------ ------------
Net increase ............................. 1,421,329 1,206,224
============ ============
- --------------------------------------------------------------------------------
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
* capital 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 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
MAY 31, 1999
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. 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 are in accordance with generally accepted
accounting principles; these principles may require the use of estimates by fund
management.
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 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
gains are declared and paid annually. For the year ended May 31, 1999, 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 gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
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.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
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. The Agreement provides that all expenses of the fund, except for 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, will be paid by
ACIM. The fee is calculated daily and paid monthly. It consists of an Investment
Category Fee based on the average net assets of the funds in a specific fund's
investment category and a Complex Fee based on the average net assets of all the
funds managed by ACIM. The rates for the Investment Category Fee range from
0.1625% to 0.2800% and the rates for the Complex Fee range from 0.2900% to
0.3100%. For the year ended May 31, 1999, the effective annual management fee
was 0.51%.
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 Corporation.
As of May 31, 1999, the fund had invested $12,103 in shares of Florida
Municipal Money Market Fund (Money Market Fund), which is also managed by ACIM.
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.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of municipal debt obligations, excluding short-term
investments, totaled $66,440,658 and $53,521,904, respectively.
As of May 31, 1999, accumulated net unrealized appreciation for the fund was
$507,284, which consisted of unrealized appreciation of $634,768 and unrealized
depreciation of $127,484. The aggregate cost of investments for federal income
tax purposes was the same as the cost for financial reporting purposes.
- --------------------------------------------------------------------------------
4. BANK LOANS
Effective December 18, 1998, the fund, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The fund may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The fund did
not borrow from the line during the period December 18, 1998 through May 31,
1999.
- --------------------------------------------------------------------------------
5. FUND EVENTS
The following name change became effective March 1, 1999:
=====================================================================
NEW NAME FORMER NAME
=====================================================================
FUND: Florida Intermediate-Term American Century - Benham Florida
Municipal Fund Intermediate-Term Municipal Fund
www.americancentury.com 15
Florida Intermediate-Term--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 10.56 $ 10.34 $ 10.18 $ 10.30 $ 10.11
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .................. 0.44 0.45 0.46 0.52 0.52
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ...... 0.05 0.38 0.20 (0.08) 0.19
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ....... 0.49 0.83 0.66 0.44 0.71
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ............. (0.44) (0.45) (0.46) (0.52) (0.52)
From Net Realized Capital Gains ........ (0.11) (0.16) (0.04) (0.04) --
---------- ---------- ---------- ---------- ----------
Total Distributions .................... (0.55) (0.61) (0.50) (0.56) (0.52)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......... $ 10.50 $ 10.56 $ 10.34 $ 10.18 $ 10.30
========== ========== ========== ========== ==========
Total Return(1) ........................ 4.71% 8.20% 6.63% 4.34% 7.31%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.51% 0.54% 0.65% 0.13% --
Ratio of Operating Expenses
to Average Net Assets
(Before Expense Waiver) ................ 0.51% 0.58% 0.86% 0.88% 1.09%
Ratio of Net Investment Income
to Average Net Assets .................. 4.13% 4.28% 4.42% 5.05% 5.23%
Ratio of Net Investment Income to
Average Net Assets
(Before Expense Waiver) ................ 4.13% 4.24% 4.21% 4.30% 4.14%
Portfolio Turnover Rate ................ 154% 154% 82% 66% 37%
Net Assets, End of Period
(in thousands) ......................... $ 44,379 $ 29,605 $ 16,513 $ 10,319 $ 9,532
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provide 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
* income 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 rate -- the percentage of the portfolio that was replaced
during the period
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 the 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 and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Florida Intermediate-Term
Municipal Fund (formerly the American Century - Benham Florida Intermediate-Term
Municipal Fund) (one of the eight funds in the American Century Municipal Trust,
hereafter referred to as the "Fund") at May 31, 1999, and the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for each of the two years in the period then ended, 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 audits. The
financial highlights for each of the three 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. 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 12, 1999
www.americancentury.com 17
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios 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:
FLORIDA INTERMEDIATE-TERM MUNICIPAL 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 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 has 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 has an
average maturity of five years. The bonds are rated BBB or higher by Standard &
Poor's, with an average rating of AA.
The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of
investment-grade municipal bonds with maturities greater than 22 years.
LIPPER RANKINGS
LIPPER 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 funds in Lipper's FLORIDA INTERMEDIATE MUNICIPAL DEBT FUNDS category
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
KEN SALINGER
DAVE MACEWEN
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 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 equal 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.
www.americancentury.com 19
Glossary
- --------------------------------------------------------------------------------
(Continued)
* 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).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income,
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
20 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9907 Funds Distributor, Inc.
SH-ANN-17029 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 1999
ANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
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TAX-FREE MONEY MARKET
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and returned
to production. We have an ongoing commitment to testing our systems with our
vendors and business partners and within the industry throughout the rest of the
year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans will minimize the impact on our investors and help us
maintain operations in the event of any Y2K-related incidents. We will conduct
practice drills of contingency scenarios during the rest of 1999 and refine
those plans to respond quickly and effectively so that the date change is as
seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
TAX-FREE MONEY MARKET
(BNTXX)
- ------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
AN IMPORTANT MESSAGE
On March 1, we reorganized our funds under the American Century name. Though
the venerable Benham name is gone, your funds will maintain their same
disciplined investment management approach.
James Benham's proven fixed-income investment philosophy, which provides
investors a "pure play" on a sector of the bond market, will remain. That
investment practice--now a hallmark of investing at American Century--has helped
our fixed-income funds deliver solid performance over the years.
In addition, we will continue to build our team of experienced fixed-income
portfolio managers, which has doubled in size since American Century was formed.
We look forward to continuing to meet your fixed-income investment needs in
the tradition you have come to expect.
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
We experienced several investment mood swings in the U.S. financial markets
during the year ended May 31, 1999. When we last addressed you in the semiannual
report for American Century Tax-Free Money Market, money market yields had
plunged as investors rushed to the relative safety and liquidity of short-term
securities. Investors were spooked by global economic and financial turmoil. The
Federal Reserve (the U.S. central bank) cut short-term interest rates to bolster
a seemingly vulnerable U.S. economy and help stabilize markets worldwide.
The Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was posting strong growth, and
investor confidence had rebounded. As a result, investors moved out of money
market securities in favor of stocks and higher-yielding bonds. Money market
yields returned to higher levels, though they remained significantly lower than
they were a year earlier.
Investors in American Century funds benefited from other noteworthy events.
In March, we consolidated all our funds under the American Century name. Though
we are proud of the venerable Twentieth Century and Benham names, we believe the
change makes it simpler for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we enhanced our Web site (www.americancentury.com). There
you'll find daily fund information -- including performance and price data --
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You can also sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, we continued to expand the American Century investment team, which
has doubled over the last three years. We're committed to building and
maintaining a talented management group.
As always, we appreciate your continued confidence in 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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Frequently Asked
Questions ................................................................... 2
TAX-FREE MONEY MARKET
Performance Information ..................................................... 3
Portfolio at a Glance ....................................................... 3
Yields ...................................................................... 3
Management Q&A .............................................................. 4
Portfolio Composition
by Credit Rating ............................................................ 4
Portfolio Composition
by Security Type ............................................................ 4
Schedule of Investments ..................................................... 5
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ................................................................. 9
Statement of Operations ..................................................... 10
Statements of Changes
in Net Assets ............................................................... 11
Notes to Financial
Statements .................................................................. 12
Financial Highlights ........................................................ 13
Report of Independent
Accountants ................................................................. 14
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ................................................................ 15
Lipper Rankings ............................................................. 15
Credit Rating
Guidelines .................................................................. 15
Investment and Credit
Research Teams .............................................................. 15
Glossary .................................................................... 16
www.americancentury.com 1
Money Market Funds--Frequently Asked Questions
- --------------------------------------------------------------------------------
Can I make direct deposits into my money market fund account?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, Treasury Direct interest payment, military allotment, or payments from
other government agencies. Give us a call, and we will send you the necessary
information to set it up.
What is the holding period on new deposits into my account?
Generally, there is an eight-business-day holding period for deposited
funds (initial investments in a new account are held for 15 calendar days).
There is a one-business-day holding period for U.S. Treasury checks, money
orders, and travelers' checks.
Is there a limit on the number of checks I can write on my money market account?
No. You can write as many checks as you like at no charge, as long as each
check is for $100 or more.
Is there an easy way to move money from my money market fund into a stock or
bond fund?
Yes. Moving money between funds is called an exchange, and there is no
limit on the number of exchanges you can make out of a money market fund
account. However, there is a limit of six exchanges per calendar year out of
stock and bond fund accounts.
Exchanges can be made by:
* visiting our Web site at www.americancentury.com*
* using our Automated Information Line (1-800-345-8765)*
* calling an Investor Relations Representative at 1-800-345-2021*
* writing us a letter
How do I decide whether a taxable money market fund or a tax-free money market
fund is right for me?
The most important factor to consider is your tax bracket. Tax-free money
market funds typically offer lower yields than taxable funds, but you pay no
federal income taxes on the income from a tax-free fund.
If you are in one of the higher federal income tax brackets, taxes will eat
up a big part of your income from a taxable money market fund, so a tax-free
investment may be better for you. If you're in a lower tax bracket, then you can
usually earn more in a taxable fund even after taxes are deducted.
We can help you figure it out. If you give us a call and tell us what tax
bracket you're in, we can tell you whether you're likely to earn more after-tax
income in a tax-free or a taxable money market fund.
If you have any questions about our money market funds, call us toll free at
1-800-345-2021 or e-mail us at our Web site, www.americancentury.com.
* Before an investor can make an exchange by calling an Investor Relations
Representative, using our Automated Information Line, or visiting our Web
site, the investor first must have provided us with written authorization to
do so.
[left margin]
A FASTER AND EASIER WAY TO DEPOSIT MUTUAL FUND DISTRIBUTIONS
If you prefer to have your fund dividend or capital gains distributions sent to
you instead of reinvesting them, there are a couple of ways to get access to
this money faster than waiting for a check in the mail:
* YOU CAN HAVE DISTRIBUTIONS DEPOSITED DIRECTLY INTO YOUR MONEY MARKET
ACCOUNT. The money will be deposited the same day that the distributions
are paid.
* DISTRIBUTIONS CAN BE SENT ELECTRONICALLY TO YOUR BANK ACCOUNT. The money
will be available in your bank account within three days.
Contact an Investor Relations Representative to set up either of these options.
2 1-800-345-2021
Tax-Free Money Market--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 1999
TAX-FREE TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
=============================================================================
6 MONTHS(1) 1.40% 1.27% --
1 YEAR 3.10% 2.72% 5 OUT OF 127
=============================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 3.26% 2.93% 7 OUT OF 119
5 YEARS 3.18% 3.00% 14 OUT OF 104
10 YEARS 3.42% 3.34% 16 OUT OF 67
The fund's inception date was 7/31/84.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 15-16 for more information about returns and Lipper fund rankings.
Returns and rankings would have been lower if management fees had not been
waived.*
PORTFOLIO AT A GLANCE
AS OF 5/31/99
NET ASSETS $283.0 MILLION
5/31/99 5/31/98
NUMBER OF SECURITIES 71 103
WEIGHTED AVERAGE
MATURITY 49 DAYS 55 DAYS
EXPENSE RATIO 0.31%* 0.04%*
YIELDS AS OF MAY 31, 1999
7-DAY CURRENT YIELD 3.03%
7-DAY EFFECTIVE YIELD 3.08%
7-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 4.21%
31.0% TAX BRACKET 4.39%
36.0% TAX BRACKET 4.73%
39.6% TAX BRACKET 5.02%
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund. The 7-day yield more closely reflects earnings of the fund than the total
return.
* American Century Investment Management, Inc. (ACIM) voluntarily waived its
management fee from August 1, 1997, through July 31, 1998. Effective August 1,
1998, ACIM began decreasing the waiver by 0.10% of fund net assets on a
monthly basis until the waiver expired in December 1998. In absence of the
waiver, the fund's expense ratio would have been 0.50% for the year ended May
31, 1999, and 0.52% for the year ended May 31, 1998.
www.americancentury.com 3
Tax-Free Money Market--Q&A
- --------------------------------------------------------------------------------
/photo of Bryan Karcher/
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, 1999?
The fund's fiscal-year return ranked it in the top 5% of the 127
"Tax-Exempt Money Market Funds" tracked by Lipper Inc. (See the previous page
for fund returns and performance comparisons.) It's important to note, however,
that all or part of the fund's management fees were waived throughout 1998.
The fund's 7-day current yield came down quite a bit in the past year (3.90% to
3.03%). Why?
It's partly because of the general drop in short-term interest rates in
1998. In response to increasing global market volatility, the Federal Reserve
lowered short-term rates three times between September and November.
Supply and demand factors in the municipal market also had an impact.
Supply decreased dramatically--budget surpluses at many municipalities reduced
their borrowing needs. Meanwhile, demand for short-term municipal securities
surged. By February, tax-free money market yields were at their lowest levels in
nearly five years.
How did you position the fund in this environment?
Although we extended the fund's average maturity somewhat when the Fed was
cutting interest rates, we generally allowed the average maturity to drift lower
(as low as 20 days in March). For much of the fiscal year, longer-term
securities weren't offering any extra yield over shorter-term notes, so we
didn't extend even though rates were declining.
However, we did lengthen the average maturity during tax season in April
and May, when investors withdraw money from their money market accounts to pay
income taxes. As funds sell securities to meet these redemptions, we often find
one-year securities with attractive yields.
This year was no exception--we bought one-year notes yielding 25 basis
points more than shorter-term securities. As a result, we lengthened the fund's
average maturity to about 50 days by the end of May.
What's your outlook for the municipal money market?
Municipal money market yields have risen in recent weeks in anticipation of
an interest rate increase by the Fed. As expected, the Fed raised short-term
rates in late June, expressing concern about the U.S. economy's strength. But
the Fed also suggested that it may not raise rates again for a while.
We took advantage of rising yields to lengthen the fund's average maturity
further in early June. However, we think that yields will be more stable in the
coming months, so we expect to maintain a neutral average maturity going
forward.
[left margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
SP1+ 75% 82%
SP1 18% 18%
SP2 7% --
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 15
for more information.
[pie charts - data below]
PORTFOLIO COMPOSITION BY
SECURITY TYPE
AS OF MAY 31, 1999
VRDNs 79%
Bonds less than
1 Year 12%
Put Bonds 9%
AS OF NOVEMBER 30, 1998
VRDNs 82%
Bonds less than
1 Year 7%
Put Bonds 9%
Municipal Notes 2%
Security types are defined on page 16.
4 1-800-345-2021
Tax-Free Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES--100.0%
ARIZONA--0.7%
$ 1,600,000 Pinal County Industrial
Development Auth. Pollution
Control Rev., Series 1984 A,
(Newmont), VRDN, 3.40%,
6/1/99 (LOC: National
Westminster Bank PLC) $ 1,600,000
400,000 Prescott Valley Water District Rev.,
3.50%, 1/1/00 (MBIA) 400,664
------------
2,000,664
------------
ARKANSAS--1.5%
4,100,000 Pine Bluff Industrial Development
Rev., (Camden Wire Co., Inc.),
VRDN, 3.35%, 6/3/99 (LOC:
Chase Bank of Texas, N.A.)
(Acquired 7/31/97-9/2/98,
Cost $4,100,000)(1) 4,100,000
------------
CALIFORNIA--3.4%
5,500,000 California Higher Education Loan
Auth. Student Loan Rev.,
Series 1995 E-5, VRDN, 3.80%,
6/1/99 (LOC: Student Loan
Marketing Association) 5,500,000
4,000,000 Rialto Public Financing Auth. Tax
Allocation, Series 1998 A, (Agua Mansa &
Industrial), VRDN, 3.60%, 6/3/99 (LOC:
Union Bank of California N.A.) 4,000,000
------------
9,500,000
------------
COLORADO--4.6%
2,000,000 Arapahoe County Industrial
Development Rev., (Denver
Jetcenter), VRDN, 3.75%,
6/1/99 (LOC: U.S. Bank, N.A.) 2,000,000
5,700,000 Colorado Health Facilities Auth.
Rev., Series 1986 A, (Porter
Memorial Hospital), 7.40%,
2/1/00, Prerefunded at 100%
of Par(2) 5,856,515
3,500,000 Denver Multifamily Housing Rev.,
Series 1989 A, (Cottonwood
Creek), VRDN, 3.50%, 6/1/99
(LOC: General Electric Capital
Corp.) 3,500,000
1,555,000 SBC Metropolitan GO, 3.65%,
12/1/99 (LOC: U.S. Bank, N.A.) 1,555,000
------------
12,911,515
------------
FLORIDA--21.3%
1,000,000 Broward County Housing Finance
Auth. Multifamily Housing Rev.,
(Margate Investments), VRDN,
3.35%, 6/2/99 (LOC: Bank
One Texas, N.A.) 1,000,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 8,460,000 Broward County Housing Finance
Auth. Multifamily Housing Rev.,
Series 1990 A, (Palm
Aire-Oxford), VRDN, 3.40%,
6/2/99 (Guaranteed:
Continental Casualty Co.) $ 8,460,000
4,010,000 Dade County Special Obligation
Trust Receipts, Series 1998 C-2,
VRDN, 3.45%, 6/2/99 (LOC:
Bank of America NT&SA)
(Acquired 1/5/99-5/28/99,
Cost $4,010,000)(1) 4,010,000
9,020,000 Florida Housing Finance Agency
Multifamily Rev., (Country Club),
VRDN, 3.80%, 6/1/99 (LOC:
Bank of New York) 9,020,000
8,000,000 Florida Housing Finance
Agency Multifamily Rev.,
(Woodlands), VRDN, 3.45%, 6/2/99 (LOC:
Northern Trust Company) 8,000,000
7,965,000 Florida Housing Finance Agency
Multifamily Rev., Series 1990 B,
(Beville-Oxford), VRDN, 3.40%,
6/2/99 (Guaranteed:
Continental Casualty Co.) 7,965,000
1,000,000 Jacksonville Electric Auth. Rev.,
VRDN, 3.33%, 6/2/99
(SBBPA: Societe Generale)
(Acquired 4/24/98, Cost
$1,000,000)(1) 1,000,000
700,000 Marion County Housing Finance
Auth. Multifamily Rev.,
Series 1985 D, (Summer Trace
Apartments), VRDN, 3.35%,
6/3/99 (LOC: Suntrust Bank,
Atlanta GA) 700,000
1,500,000 Miami-Dade County Educational
Facilities Auth. Rev., (Florida
Memorial College), VRDN,
3.30%, 6/3/99 (LOC:
NationsBank, N.A.) (Acquired
2/4/99, Cost $1,500,000)(1) 1,500,000
5,000,000 Orange County Educational
Facilities Auth. Rev., (Rollins
College), VRDN, 3.30%,
6/2/99 (LOC: NationsBank,
N.A.) 5,000,000
2,500,000 Orange County Health Facilities
Auth. Rev., (Presbyterian
Retirement), VRDN, 3.30%,
6/3/99 (LOC: NationsBank,
N.A.) (Acquired 2/4/99, Cost
$2,500,000)(1) 2,500,000
5,500,000 Palm Beach County Health
Facilities Auth. Rev., Series
1999 B, (Hospital Improvement),
VRDN, 3.35%, 6/2/99
(Guaranteed: Boca Raton
Community Hosp. & Foundation) 5,500,000
See Notes to Financial Statements
www.americancentury.com 5
Tax-Free Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,690,000 Tallahassee-Leon County Civic
Center Auth. Capital
Improvement Rev., Series
1998 A, VRDN, 3.30%,
6/2/99 (LOC:Suntrust Bank,
Central Florida, N.A.) $ 4,690,000
------------
59,345,000
------------
GEORGIA--6.9%
7,750,000 Clayton County Hospital Auth.
Rev. Anticipation Certificates,
Series 1998 B, (Southern
Regional Medical Center),
VRDN, 3.30%, 6/2/99 (LOC:
Suntrust Bank, Atlanta GA) 7,750,000
1,800,000 Cobb County Multifamily Housing
Rev., (Terrell Mill), VRDN, 3.45%,
6/2/99 (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, 3.30%, 6/2/99 (LOC:
Suntrust Bank, Atlanta GA)
(Acquired 2/9/98-2/25/98,
Cost $3,500,000)(1) 3,500,000
1,000,000 Municipal Electric Auth. Rev.,
Series 1997 B, (Project One),
5.00%, 1/1/00 (AMBAC) 1,009,379
5,300,000 Thomasville Hospital Auth. Rev.
Anticipation Certificates,
(J.D. Archbold), VRDN, 3.30%,
6/2/99 (LOC: Suntrust Bank,
Atlanta GA) (Acquired
12/11/97-5/28/99,
Cost $5,300,000)(1) 5,300,000
------------
19,359,379
------------
HAWAII--3.7%
10,200,000 Hawaii Housing Finance and
Development Corp. Rev.,
Series 1993 A, (Affordable
Rental Housing), VRDN, 3.30%,
6/2/99 (LOC: Banque
Nationale de Paris S.A.)(3) 10,200,000
------------
ILLINOIS--3.5%
1,625,000 Bartlett Multifamily Housing Rev.,
Series 1995 A, (Bartlett Square
Apartments), VRDN, 3.25%,
6/3/99 (LOC: LaSalle National
Bank) 1,625,000
2,000,000 Chicago Park District GO, 5.50%,
1/1/00 (FGIC) 2,023,290
4,140,000 Illinois Sports Facilities Auth. Rev.,
Series 1999 A, 4.00%,
6/15/00 (MBIA)(4) 4,166,579
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,000,000 McCook Rev., Series 1996 B,
(St. Andrew Society), VRDN,
3.35%, 6/3/99 (LOC: Northern
Trust Company) $ 2,000,000
------------
9,814,869
------------
INDIANA--1.9%
1,385,000 Center Grove High School
Building Corp., 4.00%, 7/5/99
(FSA) 1,385,914
855,000 Center Grove High School
Building Corp., 3.25%, 1/5/00
(FSA) 855,000
510,000 Eagle-Union Community School
Building Corp. Industrial Rev.,
3.15%, 7/5/99 (FSA) 510,000
450,000 Eagle-Union Community School
Building Corp. Industrial Rev.,
3.25%, 1/5/00 (FSA) 450,000
1,000,000 Gary Industrial Development Rev.,
(Tinplate Partners International,
Inc.), VRDN, 3.50%, 6/3/99
(LOC: LaSalle National Bank) 1,000,000
1,045,000 Lake County GO, 4.125%,
1/15/00 (FSA) 1,050,866
------------
5,251,780
------------
KANSAS--3.6%
10,000,000 Burlington Pollution Control
Floating Rate Trust Receipts,
Series A7, 3.40%, 6/2/99
(MBIA) (SBBPA: Bank of
New York) 10,000,000
------------
KENTUCKY--8.8%
12,000,000 Kentucky Economic Development
Finance Auth. Rev., (Pooled
Hospital Loan Program), VRDN,
3.40%, 6/2/99 (Capital
Reinsurance Company)(SBBPA:
Chase Manhattan Bank) 12,000,000
10,000,000 Kentucky Turnpike Auth. Resource
Recovery Road Floating Rate
Trust Receipts, Series 1997-17,
3.40%, 6/2/99 (FSA)(SBBPA:
Commerzbank AG) (Acquired
10/8/97-12/12/97, Cost
$10,000,000)(1) 10,000,000
2,400,000 Mayfield Multi-City Lease Rev.,
VRDN, 3.40%, 6/2/99 (LOC:
PNC Bank NA) 2,400,000
------------
24,400,000
------------
LOUISIANA--0.9%
1,500,000 Jefferson Parish Home Mortgage
Rev., Series 1998 C-2,
(Mortgage-Backed Securities),
3.625%, 9/1/99 (GIC:
Westdeutsche Landesbank
Girozentral) 1,500,000
See Notes to Financial Statements
6 1-800-345-2021
Tax-Free Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,065,000 Orleans Parish School Board GO,
6.625%, 3/1/00 (AMBAC) $ 1,091,869
------------
2,591,869
------------
MARYLAND--0.5%
1,345,000 Prince Georges County COP,
Series 1998 A, (Equipment
Acquisition Program), 3.50%,
11/1/99 (MBIA) 1,346,374
------------
MISSOURI--4.3%
2,350,000 Fenton Industrial Development
Auth. Rev., (Clayton
Corp.), VRDN, 3.65%, 6/3/99
(LOC: Commerce Bank, N.A.
(Missouri)) 2,350,000
2,090,000 Missouri Development Finance
Board Industrial Development
Rev., (J & J Enterprises), VRDN,
3.60%, 6/2/99 (LOC:
Commerce Bank, N.A.
(Missouri)) 2,090,000
6,000,000 Missouri Health and Educational
Facilities Auth. Rev., (Pembroke
Hill School), VRDN, 3.35%,
6/3/99 (LOC: Commerce Bank,
N.A. (Missouri)) 6,000,000
1,500,000 Phelps County Hospital Rev.,
(Phelps County Regional
Medical Center), 8.30%,
3/1/00, Prerefunded at 102%
of Par(2) 1,584,712
------------
12,024,712
------------
NEVADA--2.2%
6,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-1,
VRDN, 3.39%, 6/2/99 (MBIA)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 6/3/98, Cost
$6,000,000)(1) 6,000,000
------------
NEW YORK--1.3%
3,700,000 New York GO, Series 1992 B,
VRDN, 3.30%, 6/1/99 (FGIC)
(SBBPA: General Electric
Capital Corp.) 3,700,000
------------
NORTH DAKOTA--3.5%
1,655,000 Hebron Industrial Development
Rev., (Dacco Inc.), VRDN,
3.50%, 6/3/99 (LOC: U.S.
Bank, N.A.) (Acquired 2/26/98,
Cost $1,655,000)(1) 1,655,000
8,000,000 North Dakota State Housing
Finance Agency Rev., Series
1999 C, (Housing Finance
Program), 3.20%, 4/1/00 8,000,000
------------
9,655,000
------------
Principal Amount Value
- --------------------------------------------------------------------------------
OHIO--1.5%
$ 3,260,000 Butler County Healthcare Facilities
Rev., (Knolls of Oxford), VRDN,
3.30%, 6/3/99 (LOC: Firstar
Bank N.A.) $ 3,260,000
1,000,000 Toledo Waterworks Rev., 3.20%,
11/15/99 (FGIC) 1,000,000
------------
4,260,000
------------
OREGON--2.5%
4,000,000 Oregon Health, Housing,
Educational and Cultural
Facilities Auth. Rev., (Quatama
Crossing), VRDN, 3.25%,
6/3/99 (LOC: U.S. Bank, N.A.) 4,000,000
3,000,000 Oregon State Housing and
Community Services
Department Mortgage Rev.,
Series 1999 C, (Single Family
Mortgage), 3.15%, 4/13/00
(Acquired 4/5/99, Cost
$3,000,000)(1) 3,000,000
------------
7,000,000
------------
PENNSYLVANIA--1.4%
3,000,000 Dauphin County General Auth.
Rev., Series 1997 A,
VRDN, 3.35%, 6/2/99 (FSA) (SBBPA:
Credit Suisse First Boston) 3,000,000
1,000,000 Pennsylvania State Turnpike
Commission Rev., Series
1989 K, 7.50%, 12/1/99,
Prerefunded at 102% of Par(2) 1,040,448
------------
4,040,448
------------
SOUTH DAKOTA--1.6%
1,500,000 South Dakota Health &
Educational Facilities Auth. Rev.,
(Avera McKennan Issue), 4.00%,
7/1/99 (MBIA) 1,500,356
3,000,000 South Dakota Housing
Development Auth. Rev., Series
1998 C, (Homeownership
Mortgage), 3.75%, 8/5/99 3,000,000
------------
4,500,356
------------
TENNESSEE--2.0%
5,140,000 Maury County Health and
Educational Facilities Board Rev.,
Series 1990 E, (Southern
Healthcare), 10.50%, 3/1/00,
Prerefunded at 102% of Par(2) 5,513,187
------------
TEXAS--6.8%
2,277,000 ABN Amro Munitops Certificates
Trust, Series 1998-22, VRDN,
3.20%, 6/2/99 (FSA) (SBBPA:
ABN Amro Bank N.V.) (Acquired
12/3/98, Cost $2,277,000)(1) 2,277,000
See Notes to Financial Statements
www.americancentury.com 7
Tax-Free Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,500,000 Gulf Coast Industrial Development
Auth. Rev., (Petrounited Term
Inc.), VRDN, 3.32%, 6/3/99
(LOC: NationsBank, N.A.) $ 5,500,000
4,495,000 Midland County Hospital District
Rev., VRDN, 3.32%, 6/3/99
(AMBAC)(Liquidity: Merrill
Lynch & Co., Inc.) (Acquired
11/20/97, Cost $4,495,000)(1) 4,495,000
6,750,000 Tarrant County Health Facilities
Development Corporate Rev.,
(Carter Blood Care), VRDN,
3.40%, 6/3/99 (LOC: Chase
Bank of Texas, N.A.) 6,750,000
------------
19,022,000
------------
VIRGINIA--2.3%
6,500,000 Halifax County Industrial
Development Auth. Rev.,
(O'Sullivan Industries), VRDN,
3.60%, 6/3/99 (LOC:
NationsBank, N.A.) (Acquired
2/1/99, Cost $6,500,000)(1) 6,500,000
------------
Principal Amount Value
- --------------------------------------------------------------------------------
WASHINGTON--3.7%
$ 1,710,000 Pierce County Economic
Development Corporate Rev.,
(K & M Holdings II), VRDN,
3.45%, 6/2/99 (LOC: Wells
Fargo Bank, N.A.) (Acquired
11/17/97, Cost $1,710,000)(1) $ 1,710,000
2,010,000 Washington Health Care Facilities
Auth. Rev., (Multicare Health
System), 4.00%, 8/15/99
(MBIA) 2,011,230
6,600,000 Washington State Housing
Finance Commission Multifamily
Mortgage Rev., (Mill Plain
Crossing), VRDN, 3.35%,
6/1/99 (LOC: Harris Trust &
Savings Bank) 6,600,000
------------
10,321,230
------------
WISCONSIN--5.6%
15,500,000 Ladysmith Solid Waste Disposal
Facility Rev., (City Forest Corp.),
VRDN, 3.80%, 6/2/99 (LOC:
Union Bank of California N.A.) 15,500,000
------------
TOTAL INVESTMENT SECURITIES--100.0% $278,858,383
============
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
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, 1999.
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of these securities at May 31, 1999, was $59,347,000, which
represented 21.0% of net assets. None of these securities are considered to
be illiquid.
(2) Escrowed to maturity in U.S. government securities, or state and local
government securities.
(3) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(4) 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 amortized cost of each investment
* the percentage of investments in each state
See Notes to Financial Statements
8 1-800-345-2021
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
MAY 31, 1999
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) ............................... $278,858,383
Cash ....................................................... 1,485,151
Receivable for investments sold ............................ 5,400,000
Interest receivable ........................................ 1,662,481
------------
287,406,015
------------
LIABILITIES
Payable for investments purchased .......................... 4,170,719
Dividends payable .......................................... 66,182
Accrued management fees (Note 2) ........................... 122,202
Payable for trustees' fees and expenses .................... 1,067
------------
4,360,170
------------
Net Assets ................................................. $283,045,845
============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ...................................... 283,003,220
============
Net Asset Value Per Share .................................. $ 1.00
============
NET ASSETS CONSIST OF:
Capital paid in ............................................ $283,003,220
Undistributed net investment income ........................ 19,650
Accumulated undistributed net
realized gain on investments ............................... 22,975
------------
$283,045,845
============
- --------------------------------------------------------------------------------
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 shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders (if any); 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 breakdown 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 9
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1999
INVESTMENT INCOME
Income:
Interest ................................................. $ 13,729,550
------------
Expenses (Note 2):
Management fees .......................................... 1,990,313
Trustees' fees and expenses .............................. 15,621
------------
Total expenses ........................................... 2,005,934
Amount waived ............................................ (772,955)
------------
Net expenses ............................................. 1,232,979
------------
Net investment income .................................... 12,496,571
------------
NET REALIZED GAIN
ON INVESTMENTS
Net realized gain on investments ......................... 22,974
------------
Net Increase in Net Assets
Resulting from Operations ................................ $ 12,519,545
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down 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)
See Notes to Financial Statements
10 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEARS ENDED MAY 31, 1999 AND MAY 31, 1998
Increase (Decrease) in Net Assets 1999 1998
OPERATIONS
Net investment income ........................ $ 12,496,571 $ 8,931,358
Net realized gain on investments ............. 22,974 19,651
------------- -------------
Net increase in net assets
resulting from operations .................... 12,519,545 8,951,009
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (12,496,571) (8,931,358)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................... 564,457,327 786,813,923
Proceeds from reinvestment
of distributions ............................. 11,355,619 8,415,885
Payments for shares redeemed ................. (737,066,946) (436,702,980)
------------- -------------
Net increase (decrease) in net assets
from capital share transactions .............. (161,254,000) 358,526,828
------------- -------------
Net increase (decrease) in net assets ........ (161,231,026) 358,546,479
NET ASSETS
Beginning of period .......................... 444,276,871 85,730,392
------------- -------------
End of period ................................ $ 283,045,845 $ 444,276,871
============= =============
Undistributed net investment income .......... $ 19,650 --
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold ......................................... 564,457,327 786,813,923
Issued in reinvestment of distributions ...... 11,355,619 8,415,885
Redeemed ..................................... (737,066,946) (436,702,980)
------------- -------------
Net increase (decrease) ...................... (161,254,000) 358,526,828
============= =============
- --------------------------------------------------------------------------------
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
* capital 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 11
Notes to Financial Statements
- --------------------------------------------------------------------------------
MAY 31, 1999
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. 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 are
in accordance with generally accepted accounting principles; these principles
may require the use of estimates by fund management.
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 fund's policy to distribute all net
investment income and net realized 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, 1999, 100%
(unaudited) of the funds' distributions from net investment income have been
designated as exempt from federal income tax.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
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. The Agreement provides that all expenses of the fund, except 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, will be paid by
ACIM. The fee is calculated daily and paid monthly. It consists of an Investment
Category Fee based on the average net assets of the funds in a specific fund's
investment category and a Complex Fee based on the average net assets of all the
funds managed by ACIM. The rates for the Investment Category Fee range from
0.1570% to 0.2700% and the rates for the Complex Fee range from 0.2900% to
0.3100%. For the year ended May 31, 1999, the effective annual management fee
excluding the waiver was 0.50%.
ACIM waived all expenses through July 31, 1998. Effective August 1, 1998,
ACIM began decreasing the waiver by 0.10% of the fund's net assets on a monthly
basis. The gradual expiration of the waiver continued until December 1998.
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 Corporation.
- --------------------------------------------------------------------------------
3. FUND EVENTS
The following name change became effective March 1, 1999:
=====================================================================
NEW NAME FORMER NAME
=====================================================================
FUND: Tax-Free Money Market Fund American Century - Benham Tax-Free
Money Market Fund
12 1-800-345-2021
Tax-Free Money Market--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended May 31
1999 1998 1997 1996 1995
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 0.04 0.03 0.03 0.03
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ...... (0.03) (0.04) (0.03) (0.03) (0.03)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(1) ................. 3.10% 3.70% 2.98% 3.19% 2.95%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........... 0.31%(2) 0.04%(2) 0.67% 0.65% 0.66%
Ratio of Net Investment Income
to Average Net Assets ........... 3.10%(2) 3.68%(2) 2.93% 3.12% 2.88%
Net Assets, End of Period
(in thousands) .................. $ 283,046 $ 444,277 $ 85,730 $ 91,118 $ 92,034
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) ACIM voluntarily waived its management fee from August 1, 1997 through July
31, 1998. Effective August 1, 1998, ACIM began decreasing the waiver by
0.10% of the fund's net assets on a monthly basis, until the waiver expired
in December 1998. In absence of the waiver, the ratio of operating expenses
to average net assets and the ratio of net investment income to average net
assets would have been 0.50% and 2.91% for 1999, and 0.52% and 3.20% for
1998, respectively.
- --------------------------------------------------------------------------------
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
* income 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 13
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees of the American Century Municipal Trust and
Shareholders of the 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 and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Tax Free Money Market Fund
(formerly the American Century - Benham Tax Free Money Market Fund) (one of the
eight funds in the American Century Municipal Trust, hereafter referred to as
the "Fund") at May 31, 1999, and the results of its operations for the year then
ended, the changes in its net assets and the financial highlights for each of
the two years in the period then ended, 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 audits. The financial highlights for each of
the three 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. 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, 1999 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 12, 1999
14 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios 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 FDIC or any other government agency. Yields will fluctuate, and although the
fund seeks to preserve the value of your investment at $1 per share, it is
possible to lose money by investing in the fund.
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 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 funds in Lipper's TAX-EXEMPT MONEY MARKET FUNDS category 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 GUIDELINES
Credit quality (the issuer's financial strength and the likelihood of
timely payment of interest and principal) is a key factor in fixed-income
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 the prices and yields of fixed-income securities--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 15
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 13.
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%).
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.
* PUT BONDS -- long-term securities that can be "put back" (i.e., sold at face
value) to a specified buyer at a prearranged date.
* VARIABLE-RATE DEMAND NOTES (VRDNS) -- securities that track market interest
rates and stabilize their market values using periodic (daily or weekly)
interest rate adjustments.
16 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- Offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- Offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- Offers funds that emphasize both growth and income,
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- Offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 17
Notes
- --------------------------------------------------------------------------------
18 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 19
Notes
- --------------------------------------------------------------------------------
20 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9907 Funds Distributor, Inc.
SH-ANN-17026 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 1999
ANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
- --------------------------
LIMITED-TERM TAX-FREE
INTERMEDIATE-TERM TAX-FREE
LONG-TERM TAX FREE
HIGH-YIELD MUNICIPAL
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and returned
to production. We have an ongoing commitment to testing our systems with our
vendors and business partners and within the industry throughout the rest of the
year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans will minimize the impact on our investors and help us
maintain operations in the event of any Y2K-related incidents. We will conduct
practice drills of contingency scenarios during the rest of 1999 and refine
those plans to respond quickly and effectively so that the date change is as
seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
LIMITED-TERM TAX-FREE
(TWTSX)
- ------------------------------------
INTERMEDIATE-TERM TAX-FREE
(TWTIX)
- ------------------------------------
LONG-TERM TAX-FREE
(TWTLX)
- ------------------------------------
HIGH-YIELD MUNICIPAL
(ABHYX)
- ------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
AN IMPORTANT MESSAGE
On March 1, we reorganized our funds under the American Century name. Though
the venerable Benham name is gone, your funds will maintain their same
disciplined investment management approach.
James Benham's proven fixed-income investment philosophy, which provides
investors a "pure play" on a sector of the bond market, will remain. That
investment practice--now a hallmark of investing at American Century--has helped
our fixed-income funds deliver solid performance over the years.
In addition, we will continue to build our team of experienced fixed-income
portfolio managers, which has doubled in size since American Century was formed.
We look forward to continuing to meet your fixed-income investment needs in
the tradition you have come to expect.
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
We experienced several investment mood swings in the U.S. financial markets
during the year ended May 31, 1999. When we last addressed you in the semiannual
report for American Century High-Yield Municipal and the American Century
Limited-, Intermediate-, and Long-Term Tax-Free funds, yields had fallen as the
U.S. bond market rallied. The bond gains were spurred by global economic and
financial turmoil, which motivated the Federal Reserve (the U.S. central bank)
to cut short-term interest rates to bolster a seemingly vulnerable U.S. economy
and help stabilize markets worldwide.
The Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was posting strong growth, and
investor confidence had rebounded. As a result, stocks rallied and U.S. bond
yields generally returned to higher levels, though they remained lower than they
were a year earlier. Municipal bonds, which underperformed Treasury bonds in
1998, outperformed Treasurys during the first five months of 1999.
Investors in American Century tax-free and municipal funds benefited from
other positive developments as 1999 unfolded. We continued to focus on making
our services as easy to use as possible and helping investors reach their
financial goals. In March, we consolidated all our funds under the American
Century name. Though we are proud of the venerable Twentieth Century and Benham
names, we believe the change makes it simpler for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we enhanced our Web site (www.americancentury.com). There
you'll find daily fund information -- including performance and price data --
market and national news, and a Forms Center with access to the most-requested
investor forms and applications. You can also sign up to receive fund
prospectuses and shareholder reports electronically.
Finally, we continued to expand the American Century investment team, which
has doubled over the last three years. We're committed to building and
maintaining a talented management group.
As always, we appreciate your continued confidence in 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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights .......................................................... 2
Market Perspective ......................................................... 4
Municipal Credit Review .................................................... 5
LIMITED-TERM TAX-FREE
Performance Information .................................................... 6
Management Q&A ............................................................. 7
Schedule of Investments .................................................... 9
INTERMEDIATE-TERM TAX-FREE
Performance Information .................................................... 12
Management Q&A ............................................................. 13
Schedule of Investments .................................................... 15
LONG-TERM TAX-FREE
Performance Information .................................................... 20
Management Q&A ............................................................. 21
Schedule of Investments .................................................... 23
HIGH-YIELD MUNICIPAL
Performance Information .................................................... 27
Management Q&A ............................................................. 28
Schedule of Investments .................................................... 30
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ................................................................ 33
Statements of Operations ................................................... 34
Statements of Changes
in Net Assets .............................................................. 35
Notes to Financial
Statements ................................................................. 37
Financial Highlights ....................................................... 40
Report of Independent
Accountants ................................................................ 44
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ............................................................... 45
Comparative Indices ........................................................ 45
Lipper Rankings ............................................................ 45
Investment and Credit
Research Teams ............................................................. 45
Glossary ................................................................... 46
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Municipal bonds generally posted positive returns during the fiscal year
ended May 31, 1999.
* Most of the gains, however, occurred in 1998 when a global economic slump
loomed and interest rates fell.
* During the first five months of 1999, interest rates rebounded and bond
prices fell as the U.S. economic growth engine roared ahead and emerging
market economies showed signs of recovery.
* For the fiscal year, short- and intermediate-term municipal bonds generally
outperformed long-term municipals, which are more sensitive to interest rate
changes.
* Municipal bonds underperformed Treasury bonds in 1998, but outperformed
Treasurys during the first five months of 1999.
* The yield difference (spread) between high-quality AAA bonds and
lower-quality BBB bonds narrowed as economic conditions improved and
lower-rated bonds were perceived as less risky.
* Municipal yields still look attractive relative to Treasury yields on an
after-tax basis.
MUNICIPAL CREDIT REVIEW
* Continued strong economic growth created a very positive credit environment
in most areas of the continental U.S.
* Tax receipts have risen substantially across most of the country.
* Relatively low inflation and interest rates have helped municipalities
control expenses.
* Alaska and Hawaii were the only states showing signs of credit weakness.
Alaska took a hit from low oil prices in 1998, while reduced spending by
Asian tourists has slowed Hawaii's economy.
* Health care was practically the only industry sector with eroding
fundamentals. Hospitals experienced reduced Medicare and Medicaid
reimbursements.
LIMITED-TERM TAX-FREE
* Limited-Term Tax-Free's one-year return ranked in the top 20% of the fund's
Lipper peer group.
* Fund performance benefited from a neutral stance in 1999 in terms of
interest rate sensitivity. Funds that underperformed tended to be more
aggressive, and were hurt when interest rates rose instead of falling as
expected.
* Limited-Term Tax-Free also benefited from credit upgrades in New York City
and Detroit. The fund owned bonds issued by those cities.
* The portfolio's BBB position was reduced because the narrowing spread
between AAA and BBB bonds made owning BBB securities less rewarding.
* We will likely maintain the fund's neutral stance in the near term due to
interest rate and economic uncertainties.
INTERMEDIATE-TERM TAX-FREE
* Intermediate-Term Tax-Free's one-year return ranked in the top 30% of the
fund's Lipper peer group.
* The fund's 30-day SEC yield as of May 31 was also significantly higher than
the average of its Lipper peers.
[left margin]
LIMITED-TERM TAX-FREE
(TWTSX)
TOTAL RETURNS: AS OF 5/31/99
6 Months 1.22%*
1 Year 4.15%
30-DAY SEC YIELD: 3.42%
INCEPTION DATE: 3/1/93
NET ASSETS: $41.1 million
INTERMEDIATE-TERM TAX-FREE
(TWTIX)
TOTAL RETURNS: AS OF 5/31/99
6 Months 0.50%*
1 Year 4.07%
30-DAY SEC YIELD: 3.91%
INCEPTION DATE: 3/2/87
NET ASSETS: $149.7 million
* Not annualized.
Investment terms are defined in the Glossary on pages 46-47.
2 1-800-345-2021
Report Highlights
- --------------------------------------------------------------------------------
(Continued)
* Fund performance benefited from a neutral stance in 1999 in terms of
interest rate sensitivity. Funds that underperformed tended to be more
aggressive, and were hurt when interest rates rose instead of falling as
expected.
* We improved the portfolio's overall credit quality by increasing its
position in insured AAA bonds. The narrowing spread between AAA and
lower-rated bonds helped make insured bonds attractive.
* We will likely maintain the fund's neutral stance in the near term due to
interest rate and economic uncertainties.
LONG-TERM TAX-FREE
* Long-Term Tax-Free's one-year return outpaced the average total return of
the fund's Lipper peer group.
* The fund's 30-day SEC yield as of May 31 was also higher than the average
yield of the Lipper peer group.
* Long-Term Tax-Free had a longer duration (more interest rate sensitivity)
than the average of its peer group. That caused the portfolio to outperform
when interest rates fell but underperform when rates rose.
* The investment team used discount bonds to help the portfolio achieve its
longer duration.
* We improved the portfolio's overall credit quality by increasing its
position in AAA bonds. The narrowing spread between AAA and lower-rated
bonds helped make the higher-quality bonds attractive.
* The portfolio remains positioned with a slightly long duration, based on
expectations for stable or possibly lower yields for long-term municipal
bonds.
HIGH-YIELD MUNICIPAL
* High-Yield Municipal's one-year return ranked first in the fund's Lipper
peer group.
* The fund's 30-day SEC yield as of May 31 was also significantly higher than
the average yield of the Lipper peer group.
* A fee waiver, which helped the portfolio compete with older, more
established funds, was one key reason why the fund performed so well.
* The fee waiver expired on April 30. However, High-Yield Municipal's expense
ratio of approximately 0.64% remains well below the average for its Lipper
peer group, which was 1.23% as of May 31.
* Timely adjustments to duration (a measure of interest rate sensitivity) also
helped fund performance. The portfolio was more sensitive (had a longer
duration) when rates were falling and less so (had a shorter duration) when
rates rose.
* Strong credit analysis also helped the fund avoid problem sectors and
securities, and locate good values among lower-rated and unrated bonds.
* We're likely to maintain a shorter duration in the near term because of the
risk of higher interest rates. But most of our emphasis will continue to be
on finding good values and avoiding credit traps.
[right margin]
LONG-TERM TAX-FREE
(TWTLX)
TOTAL RETURNS: AS OF 5/31/99
6 Months -0.61%*
1 Year 3.44%
30-DAY SEC YIELD: 4.37%
INCEPTION DATE: 3/2/87
NET ASSETS: $117.6 million
HIGH-YIELD MUNICIPAL
(ABHYX)
TOTAL RETURNS: AS OF 5/31/99
6 Months 1.90%*
1 Year 6.18%
30-DAY SEC YIELD: 5.31%
INCEPTION DATE: 3/31/98
NET ASSETS: $42.1 million
* Not annualized.
Investment terms are defined in the Glossary on pages 46-47.
www.americancentury.com 3
Market Perspective from Randall W. Merk
- --------------------------------------------------------------------------------
/photo of Randall W. Merk/
Randall W. Merk, chief investment officer of fixed income
MUNICIPAL BOND PERFORMANCE
Municipal bonds generally posted positive returns during the year ended May
31, 1999, though most of their gains occurred in 1998 when interest rates fell.
In the first five months of 1999, tax-free bond prices mostly declined due to
strong economic growth, inflation concerns, and rising interest rates.
Short- and intermediate-term municipal bonds outperformed long-term
municipals, which are more sensitive to interest rate changes (see the
accompanying bond index returns table). Also, lower-quality municipal bonds
(those rated BBB or lower) generally outperformed higher-rated (A to AAA) bonds
as strong economic conditions have caused the yield gap between lower- and
higher-rated bonds to narrow.
ECONOMIC ENGINE SPUTTERS BUT REGAINS POWER
At the beginning of last summer, municipal bonds languished as investors
worried that strong U.S. economic growth might ignite inflation. That view
changed radically in July when protracted economic and financial problems in
Asia and Latin America threatened to dampen global economic growth. Bonds
rallied as recessionary expectations increased. To stem overseas problems and
boost the U.S. economy, the Federal Reserve (the Fed) lowered short-term U.S.
interest rates three times last fall.
Winter brought another shift. The Fed's actions seemed to achieve their
intended result--U.S. economic growth accelerated while parts of Asia and Latin
America showed signs of stabilizing. Better-than-expected U.S. economic growth
and other indications that higher inflation might be ahead caused bond yields to
retrace much of the ground they'd covered in 1998 (see the acompanying yield
curve graph). May brought word that the Fed was leaning toward raising interest
rates, which further dampened bond investors' moods.
TREASURYS FALTER AS MUNICIPALS GAIN GROUND
In 1998, despite falling interest rates, municipals were hamstrung by
unfavorable supply and demand conditions and lagged Treasury securities. By
October, the difference (spread) between municipal and Treasury yields was as
small as it had been in a decade, indicating that Treasury bonds were relatively
expensive and municipal bonds were comparatively undervalued.
As 1999 unfolded, however, municipal bonds benefited from decreased supply
and increased demand, helping them to regain considerable ground on Treasurys.
Even after outperforming Treasurys in recent months, municipal bonds continue to
offer attractive yields on a tax-equivalent basis. As of May 31, an investor in
the highest federal tax bracket (39.6%) could earn a tax-adjusted yield of
nearly 7.4% on a 10-year AAA-rated municipal bond, well above the 5.6% yield on
a 10-year U.S. Treasury bond.
[left margin]
"MUNICIPAL BONDS GENERALLY POSTED POSITIVE RETURNS DURING THE YEAR ENDED MAY 31,
1999."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED MAY 31, 1999
MERRILL LYNCH 0- TO 3-YEAR
MUNICIPAL INDEX 4.58%
LEHMAN BROS. 5-YEAR
MUNICIPAL GO INDEX 4.90%
LEHMAN BROS. LONG-TERM
MUNICIPAL BOND INDEX 4.35%
Source: Lipper Inc. and Russell/Mellon Analytical Services
[line graph - data below]
SHIFTING MUNICIPAL YIELD CURVES
YEARS TO
MATURITY 5/31/98 11/30/98 5/31/99
1 3.80% 3.19% 3.36%
2 3.95% 3.49% 3.59%
3 4.06% 3.64% 3.80%
4 4.15% 3.76% 3.98%
5 4.20% 3.86% 4.12%
6 4.27% 3.96% 4.22%
7 4.34% 4.05% 4.31%
8 4.41% 4.13% 4.38%
9 4.48% 4.21% 4.46%
10 4.55% 4.29% 4.54%
11 4.62% 4.38% 4.62%
12 4.69% 4.47% 4.70%
13 4.77% 4.56% 4.78%
14 4.84% 4.65% 4.86%
15 4.92% 4.73% 4.95%
16 4.95% 4.77% 4.98%
17 4.98% 4.80% 5.01%
18 5.00% 4.84% 5.04%
19 5.03% 4.87% 5.08%
20 5.05% 4.91% 5.12%
21 5.05% 4.91% 5.12%
22 5.05% 4.91% 5.13%
23 5.05% 4.92% 5.14%
24 5.06% 4.92% 5.15%
25 5.06% 4.93% 5.16%
26 5.06% 4.93% 5.16%
27 5.06% 4.93% 5.16%
28 5.07% 4.94% 5.17%
29 5.07% 4.94% 5.17%
30 5.08% 4.95% 5.18%
Source: Bloomberg Financial Markets
4 1-800-345-2021
Municipal Credit Review
- --------------------------------------------------------------------------------
FAVORABLE CREDIT TRENDS
U.S. economic growth translated into positive municipal credit trends
during the year ended May 31, 1999. The economy's strength was evident during
the first quarter of 1999, when it grew at an annual rate of 4.3% after
increasing at a 3.9% clip in 1998. Unemployment hovered near 30-year lows,
falling to 4.2% in May. In response, tax receipts -- from sales, corporate,
personal income, capital gains, and property taxes -- rose substantially across
most of the country.
The first quarter of 1999 also marked the fourteenth consecutive quarter
when municipal credit rating upgrades outpaced downgrades. Overall, there were
nearly two municipal credit upgrades for every downgrade during the last 12
months. The generally positive municipal credit environment is reflected in the
accompanying map, which shows each state's credit rating as of May 31.
SECTOR ANALYSIS
Bonds backed by tax collections continued to benefit from the nationwide
economic expansion. Low interest and inflation rates also helped many municipal
issuers control expenses, boosting their financial health and credit ratings.
Bonds backed by the revenue from specific municipal projects or entities -- such
as toll roads -- generally also improved their financial backing.
However, there was one sector that struggled. Health care bonds were
afflicted with a growing list of ailments, most importantly the recent
reductions in Medicare and Medicaid reimbursements due to the Balanced Budget
Act of 1997. Those challenges, coupled with increased managed care pressures
within the industry and growing losses from physician group practices, prompted
several downgrades in the health care sector.
REGIONAL PERFORMANCE
Most states continued to enjoy stable-to-improving credit quality.
California was one of the year's biggest success stories, thanks in large part
to strength in its high-tech, entertainment, multi-media, and tourism
industries. Nevada remained one of the fastest growing states as Las Vegas
attracted more tourism dollars. Population growth and economic expansion helped
Nevada's neighbors, including Arizona and Utah. The strength of the stock market
and Wall Street benefited New York and New Jersey, while record auto sales and
strong manufacturing activity boosted the credit quality of upper midwestern
states, including Michigan and Ohio.
Alaska and Hawaii were the lone exceptions to all the good news. Alaska was
hurt by low oil prices in 1998, while Hawaii's credit quality downgrade in 1998
was followed by Honolulu's in 1999. Continued economic weakness in Japan caused
a significant reduction in the amount of money spent in Hawaii by Japanese
tourists.
[map chart - data below]
NATIONAL CREDIT QUALITY AS OF MAY 31, 1999
STATE S&P RATING
Alabama AA
Alaska AA
Arizona AA
Arkansas AA
California AA
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
CREDIT 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; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY.
* AAA, AA, A, AND BBB 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.
* BBB--GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BB--LESS VULNERABLE TO DEFAULT THAN OTHER LOWER-QUALITY ISSUES BUT DO
NOT QUITE MEET INVESTMENT-GRADE STANDARDS.
www.americancentury.com 5
Limited-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF MAY 31, 1999
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) ............. 1.22% 1.75% 0.94% --
1 YEAR .................. 4.15% 4.58% 3.68% 7 OUT OF 38
================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS ................. 4.81% 4.54% 4.61% 13 OUT OF 29
5 YEARS ................. 4.75% 4.51% 4.68% 11 OUT OF 18
LIFE OF FUND ............ 4.44% 4.28% 4.41%(3) 8 OUT OF 14(3)
</TABLE>
The fund's inception date was 3/1/93.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., 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 45-46 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 5/31/99
Limited-Term Tax-Free $13,122
Merrill-Lynch 0- to 3-Year
Muni Index $12,999
Merrill-Lynch
Limited-Term 0- to 3-Year
Tax-Free Muni Index
DATE VALUE VALUE
3/1/93 $10,000 $10,000
3/31/93 $10,014 $9,991
6/30/93 $10,132 $10,110
9/30/93 $10,227 $10,149
12/31/93 $10,337 $10,322
3/31/94 $10,322 $10,319
6/30/94 $10,426 $10,396
9/30/94 $10,524 $10,499
12/31/94 $10,591 $10,458
3/31/95 $10,790 $10,693
6/30/95 $10,964 $10,904
9/30/95 $11,110 $11,064
12/31/95 $11,305 $11,213
3/31/96 $11,364 $11,325
6/30/96 $11,434 $11,403
9/30/96 $11,564 $11,535
12/31/96 $11,721 $11,672
3/31/97 $11,768 $11,728
6/30/97 $12,007 $11,907
9/30/97 $12,204 $12,073
12/31/97 $12,378 $12,222
3/31/98 $12,501 $12,356
6/30/98 $12,627 $12,476
9/30/98 $12,892 $12,680
12/31/98 $13,012 $12,834
3/31/99 $13,112 $12,952
5/31/99 $13,122 $12,999
$10,000 investment made 3/1/93
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Merrill Lynch 0- to 3-Year Municipal Index is provided for comparison in each
graph. Limited-Term Tax-Free's total returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
returns of the index do not. 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 graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING MAY 31)
Merrill-Lynch
Limited-Term 0- to 3-Year
Tax-Free Muni Index
DATE RETURN RETURN
5/31/93* 0.76% 0.23%
5/31/94 3.26% 4.02%
5/31/95 5.00% 4.31%
5/31/96 4.32% 4.62%
5/31/97 4.49% 4.08%
5/31/98 5.79% 4.96%
5/31/99 4.15% 4.58%
* From 3/1/93 (the fund's inception date) to 5/31/93.
6 1-800-345-2021
Limited-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
/photo of Bryan Karcher/
An interview with Bryan Karcher (pictured above) and Dave MacEwen (pictured
on page 21), portfolio managers on the Limited-Term Tax-Free fund investment
team.
HOW DID THE FUND PERFORM DURING ITS FISCAL YEAR ENDED MAY 31, 1999?
Limited-Term Tax-Free performed well. For the 12 months ended May 31, the
fund returned 4.15%, compared with the 3.68% average return of the 38
"Short/Intermediate Municipal Debt Funds" tracked by Lipper Inc. Based on those
returns, Limited-Term Tax-Free ranked in the top 20% of its Lipper peers.
WHAT HELPED LIMITED-TERM TAX-FREE PERFORM BETTER THAN THE AVERAGE OF ITS
COMPETITORS?
As we entered 1999, many of the fund managers in the Lipper group -- as
well as other market participants -- expected a global recession, a weaker U.S.
economy, and more interest rate cuts by the Federal Reserve. Believers in this
outlook tended to increase the duration and average maturity of their
portfolios, heightening the interest rate sensitivity of their funds to capture
more potential gains if interest rates fell.
For our part, we took a contrarian approach, maintaining a neutral, less
aggressive stance. We did so because we thought that the strength indicated in
the economic data from the last quarter of 1998 would continue into the
beginning of 1999 and cause a reversal of market sentiment. That's exactly what
happened. U.S. economic growth remained strong, and interest rates rose in
anticipation of Fed action to raise rates to slow growth and head off inflation.
HOW DID YOU MAINTAIN THE PORTFOLIO'S NEUTRAL POSITION?
The municipal bond market experienced a great deal of fluctuation during
the first and second quarters of 1999. When the market sold off and buying
opportunities presented themselves at the longer end of our maturity range, we
extended duration a bit. Then we sold some of those positions to return duration
to a neutral position when the market rallied.
WHAT OTHER MOVES DID YOU MAKE DURING THE SECOND HALF OF THE FUND'S FISCAL YEAR?
We reduced Limited-Term Tax-Free's holdings in BBB securities. These bonds
tend to offer more yield than higher-rated securities to reward investors for
the additional credit risk.
We started to reduce our position in lower-rated bonds toward the end of
1998 because we felt these issues did not offer enough of a yield advantage over
higher-rated securities with comparable maturities. As a result, the fund's
investments in BBB securities dropped to about 11% of the portfolio by the end
of May.
We reallocated the proceeds from the BBB assets into securities that we
believed had less credit risk but still offered attractive yields. These
included AAA callable securities -- which can be redeemed by the issuer before
[right margin]
YIELDS AS OF MAY 31, 1999
30-DAY SEC YIELD 3.42%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 4.75%
31.0% TAX BRACKET 4.96%
36.0% TAX BRACKET 5.34%
39.6% TAX BRACKET 5.66%
PORTFOLIO AT A GLANCE
5/31/99 5/31/98
NUMBER OF SECURITIES 40 36
WEIGHTED AVERAGE
MATURITY 3.5 YRS 3.6 YRS
AVERAGE DURATION 3.0 YRS 2.9 YRS
EXPENSE RATIO 0.51% 0.52%*
* Annualized.
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
AAA 62% 57%
AA 21% 21%
A 6% 6%
BBB 11% 16%
Ratings provided by Standard & Poor's. See Credit Rating Definitions on page 5
for more information.
Investment terms are defined in the Glossary on pages 46-47.
www.americancentury.com 7
Limited-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
the bond's maturity date -- and AA-rated bonds with unique structures. For
example, we were able to pick up additional yield by investing in AA bonds with
mandatory "puts" -- they provided the right to sell to a specified buyer at a
specified time and price.
WAS THE FUND'S PERFORMANCE HELPED BY ANY CREDIT UPGRADES?
Yes, it was. For example, New York City and Detroit were upgraded from BBB
to A. New York City, in particular, was helped by the strength of the financial
markets.
On the heels of this credit improvement, we decided to sell most of the
fund's New York City bonds to take profits. Another reason we decided to reduce
this position was our concern that the liquidity crunch suffered by the
financial markets in 1998 could continue to adversely affect Wall Street.
ONE WAY OF DETERMINING THE RELATIVE VALUE OF MUNICIPAL SECURITIES IS COMPARING
THEIR YIELDS WITH TREASURY YIELDS. HOW DO MUNICIPAL AND TREASURY YIELDS COMPARE
THESE DAYS?
Treasury securities have slumped quite a bit in 1999 and their yields have
spiked upward. As a result, municipal bonds are no longer as comparatively
undervalued as they were at the end of 1998. That's a significant change,
because six to eight months ago municipal yields equaled comparable maturity
Treasury yields. In other words, any taxable investor would have earned a higher
tax-adjusted yield from a municipal bond than from a comparable maturity
Treasury bond. As Randy Merk mentions on the bottom of page 4, the
tax-equivalent yields for municipal bonds are still attractive for high
tax-bracket investors relative to Treasury yields, but not as attractive as they
were at the end of 1998.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
From an interest rate standpoint, that's a tough call. The Fed has already
tightened once this year, and it's unclear if it will have to tighten again.
That's causing some market uncertainty.
From a supply and demand standpoint, the picture is a bit more clear. We
believe that new issuance will remain low, unless interest rates drop
dramatically. That should help the municipal market's performance.
GIVEN THAT OUTLOOK, HOW DO YOU PLAN TO POSITION LIMITED-TERM TAX-FREE OVER THE
NEXT FEW MONTHS?
We intend to pursue a neutral course, closely watching the economy for
changes that could affect market conditions. As always, we'll look for
opportunities to increase the fund's yield, buying securities that offer a good
balance of risk and return.
[left margin]
"WE BELIEVE THAT NEW ISSUANCE WILL CONTINUE TO BE LOW, UNLESS INTEREST RATES
DROP DRAMATICALLY. THAT SHOULD HELP THE MUNICIPAL MARKET'S PERFORMANCE."
TOP FIVE STATES (AS OF 5/31/99)
% OF FUND INVESTMENTS
MICHIGAN 10.6%
OHIO 9.9%
ARIZONA 9.9%
TEXAS 6.6%
MISSOURI 6.4%
TOP FIVE STATES (AS OF 11/30/98)
% OF FUND INVESTMENTS
OHIO 10.6%
MICHIGAN 9.7%
NEW YORK 9.5%
CALIFORNIA 7.1%
MISSOURI 6.9%
8 1-800-345-2021
Limited-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--97.4%
ALASKA--4.4%
$ 850 Alaska Industrial Development &
Export Auth. Power Rev.,
Series 1998-1, (Snettisham
Hydroelectric), 4.50%, 1/1/00 $ 856
1,000 Alaska Industrial Development &
Export Auth. Rev., Series
1998 A, 4.50%, 4/1/01 (MBIA) 1,010
---------
1,866
---------
ARIZONA--9.9%
1,500 Arizona Transportation Board
Excise Tax Rev., (Maricopa
County), 5.60%, 7/1/02
(AMBAC) 1,575
1,025 Maricopa County COP, 5.625%,
6/1/00 1,036
1,000 Maricopa County Unified School
District No. 97 GO, Series
1999 G, (Deer Valley Project of
1996), 5.60%, 7/1/00 (FSA)(1) 1,025
555 Pinal County COP, 4.25%,
12/1/05 (MBIA) 556
---------
4,192
---------
CALIFORNIA--3.0%
1,225 Garden Grove Agency Community
Development Tax Allocation,
(Garden Grove Community),
5.20%, 10/1/01 1,260
---------
COLORADO--4.9%
1,000 Denver Colorado City & County
Airport Rev., Series 1996 B,
5.25%, 11/15/02 (MBIA) 1,038
1,000 Highlands Ranch Metropolitan
District #2 GO, 6.00%,
6/15/02 (FSA) 1,060
---------
2,098
---------
FLORIDA--4.5%
210 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.70%,
10/1/05 (GNMA/FNMA) 212
1,550 Jacksonville Electric Auth. Rev.,
(St. John's River), 6.00%,
10/1/04(2) 1,690
---------
1,902
---------
ILLINOIS--2.5%
1,000 Illinois Civic Center Rev., 5.00%,
12/15/05 (AMBAC) 1,039
---------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
INDIANA--2.5%
$1,000 Central High School Building Corp.
Rev., 5.25%, 2/1/04 (AMBAC) $ 1,044
---------
KENTUCKY--2.3%
1,000 Carrollton & Henderson Public
Energy Auth. Gas Rev., Series
1998 B, 4.20%, 1/1/06 (FSA) 988
---------
MICHIGAN--10.6%
1,000 Detroit Downtown Development
Auth. Tax Increment Rev., Series
1998 C, (Development Area
No. 1), 4.10%, 7/1/03 (MBIA) 1,000
880 Detroit GO, Series 1995 A,
5.40%, 5/1/00 895
500 Detroit GO, Series 1995 B,
6.50%, 4/1/02 531
1,045 Michigan Hospital Financing Auth.
Rev., Series 1999 A, (Charity
Obligation Group), 4.25%,
11/1/06 1,024
1,000 Michigan Municipal Board Auth.
Rev., 5.00%, 12/1/05 1,044
---------
4,494
---------
MISSOURI--6.4%
1,675 North Kansas City School District
GO, 5.00%, 3/1/00 1,698
1,000 Springfield State Highway
Improvement Corp. Rev., 5.05%,
8/1/03 (AMBAC) 1,039
---------
2,737
---------
MONTANA--2.4%
1,000 Forsyth Pollution Control Rev.,
Series 1998 B, 4.75%, 5/1/33 1,014
---------
NEBRASKA--2.4%
1,000 American Public Energy Agency
Nebraska Gas Supply Rev.,
Series 1999 A, (Nebraska
Public Gas Agency), 3.35%,
6/1/00 (AMBAC) 1,000
---------
NEW JERSEY--5.5%
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) 1,831
---------
2,336
---------
NEW YORK --6.4%
2,145 New York City Municipal
Assistance Corp. Rev., Series
1997 I, 5.25%, 7/1/02 2,229
See Notes to Financial Statements
www.americancentury.com 9
Limited-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 500 New York State Dormitory Auth.
Rev., Series 1998 I, (New York
Downtown Hospital), 4.80%,
2/15/06 $ 506
---------
2,735
---------
OHIO--9.9%
2,070 Ohio Building Auth. Rev., Series
1997 A, (Highway Safety
Building), 5.00%, 10/1/03
(AMBAC) 2,154
500 Ohio Public Facilities Commission
Rev., Series 1998 A, 4.50%,
12/1/04 510
1,500 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
5.00%, 6/1/04 (MBIA) 1,560
---------
4,224
---------
RHODE ISLAND--1.4%
570 Rhode Island Economic
Development Corp. Airport Rev.,
Series 1998 A, 5.00%, 7/1/03
(FSA) 589
---------
SOUTH CAROLINA--4.5%
855 Piedmont Municipal Power
Agency Rev., Series 1991 A,
6.00%, 1/1/02 (FGIC) 897
1,000 South Carolina Public Service
Auth. Rev., Series 1998 A,
5.00%, 1/1/02 1,025
---------
1,922
---------
TENNESSEE--4.9%
1,050 Jackson Hospital Rev., (Madison
County General Hospital), 4.50%,
4/1/00 (AMBAC) 1,061
1,000 Tennergy Corp. Gas Rev., 4.50%,
6/1/04 (MBIA) 1,015
---------
2,076
---------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
TEXAS--6.6%
$1,000 Colorado River Municipal Water
District Rev., Series 1991 A,
8.50%, 1/1/01, Prerefunded at
100% of Par (AMBAC)(3) $ 1,074
685 Denison Hospital Auth. Rev.,
(Texoma Medical Center), 5.00%,
8/15/00 691
1,000 Houston Water & Sewer System
Rev., Series 1999 A, 5.25%,
12/1/05 (FSA) 1,057
---------
2,822
---------
WISCONSIN--2.4%
1,000 Wisconsin Rural Water
Construction Loan Program
Community Rev., 4.25%,
9/15/00 (GIC: FGIC) 1,010
---------
TOTAL MUNICIPAL SECURITIES 41,348
---------
(Cost $40,828)
SHORT-TERM MUNICIPAL SECURITIES--2.6%
NEW YORK
1,100 New York GO, Series 1992 B,
VRDN, 3.30%, 6/1/99 (FGIC)
(SBBPA: General Electric
Capital Corp.) 1,100
---------
(Cost $1,100)
TOTAL INVESTMENT SECURITIES--100.0% $42,448
=========
(Cost $41,928)
See Notes to Financial Statements
10 1-800-345-2021
Limited-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GIC = Guaranteed Investment Contract
GNMA = Government National Mortgage Association
GO = General Obligation
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, 1999.
(1) When-issued security.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(3) Escrowed to maturity in U.S. government securities and 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
* 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
Intermediate-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF MAY 31, 1999
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) .......... 0.50% 1.42% 0.50% --
1 YEAR ............... 4.07% 4.90% 3.72% 34 OUT OF 134
==========================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS .............. 5.98% 5.97% 5.85% 46 OUT OF 114
5 YEARS .............. 5.82% 5.91% 5.81% 40 OUT OF 88
10 YEARS ............. 6.35% 6.74% 6.58% 17 OUT OF 24
</TABLE>
The fund's inception date was 3/2/87.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 45-46 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 5/31/99
Intermediate-Term Tax-Free $18,516
Lehman 5-Year GO Index $19,201
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
DATE VALUE VALUE
5/31/89 $10,000 $10,000
5/31/90 $10,583 $10,738
5/31/91 $11,551 $11,740
5/31/92 $12,504 $12,778
5/31/93 $13,588 $13,977
5/31/94 $13,958 $14,411
5/31/95 $14,941 $15,404
5/31/96 $15,556 $16,134
5/31/97 $16,535 $17,115
5/31/98 $17,791 $18,304
5/31/99 $18,516 $19,201
$10,000 investment made
The graph at left shows the growth of a $10,000 investment over 10 years, while
the graph below shows the fund's year-by-year performance. The Lehman 5-Year GO
Index is provided for comparison in each graph. Intermediate-Term Tax-Free's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the index do
not. 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 graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDING MAY 31)
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
DATE RETURN RETURN
5/31/90 5.83% 7.38%
5/31/91 9.15% 9.33%
5/31/92 8.25% 8.84%
5/31/93 8.67% 9.39%
5/31/94 2.72% 3.10%
5/31/95 7.04% 6.89%
5/31/96 4.12% 4.74%
5/31/97 6.29% 6.08%
5/31/98 7.60% 6.95%
5/31/99 4.07% 4.90%
12 1-800-345-2021
Intermediate-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
/photo of Ken Salinger/
An interview with Ken Salinger, a portfolio manager on the
Intermediate-Term Tax-Free fund investment team.
HOW DID THE FUND PERFORM DURING ITS FISCAL YEAR ENDED MAY 31, 1999?
Intermediate-Term Tax-Free performed well. For the 12 months ended May 31,
the fund returned 4.07%, compared with the 3.72% average return of the 134
"Intermediate Municipal Debt Funds" tracked by Lipper Inc. Based on these
returns, Intermediate-Term Tax-Free ranked in the top 30% of its Lipper peers.
Furthermore, the fund's 30-day SEC yield was 3.91% compared with the 3.68%
average of the Lipper group.
WHAT HELPED INTERMEDIATE-TERM TAX-FREE PERFORM BETTER THAN THE AVERAGE OF ITS
COMPETITORS?
We took a more neutral, less aggressive stance with the portfolio than many
other fund managers did. This contrarian view was based on our belief that the
economic strength apparent at the end of 1998 would continue into 1999 and cause
a reversal of market sentiment. That's exactly what happened.
Even though economic indicators such as home and retail sales were strong
at the end of 1998, many market observers expected a global recession, a weaker
U.S. economy, and continued interest rate cuts by the Federal Reserve in 1999.
Instead, U.S. economic growth continued to be strong, and interest rates rose in
anticipation of Fed action to raise rates to slow growth and head off inflation.
HOW DID YOU MAINTAIN THE PORTFOLIO'S NEUTRAL POSITION?
The municipal market fluctuated a great deal during the first and second
quarters of 1999. When the market sold off and buying opportunities presented
themselves at the longer end of our maturity range, we extended the fund's
maturity a bit. When the market rallied, we sold some of these positions to
return the fund's duration to a neutral position.
HOW DID YOU STRUCTURE THE PORTFOLIO IN TERMS OF MATURITY?
As bond market sentiment shifted from bullish to bearish, we structured the
fund in a bulleted fashion. That is, we concentrated the fund's investments
around the average maturity of the fund, between eight and nine years. This
strategy paid off because it reduced our holdings in longer-term bonds, which
were hurt most by rising interest rates.
During the last three months of the period, however, we spread the fund's
investments more broadly across the maturity spectrum.
HOW DID YOU MANAGE THE PORTFOLIO'S CREDIT QUALITY?
As 1998 came to a close, it became apparent that lower-rated securities did
not offer a significant yield advantage over AAA securities. Therefore, we sold
some lower-rated bonds and moved the assets into insured bonds with AAA ratings.
[right margin]
YIELDS AS OF MAY 31, 1999
30-DAY SEC YIELD
3.91%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.43%
31.0% TAX BRACKET 5.67%
36.0% TAX BRACKET 6.11%
39.6% TAX BRACKET 6.47%
PORTFOLIO AT A GLANCE
5/31/99 5/31/98
NUMBER OF SECURITIES 109 101
WEIGHTED AVERAGE
MATURITY 8.7 YRS 7.9 YRS
AVERAGE DURATION 5.5 YRS 5.4 YRS
EXPENSE RATIO 0.51% 0.51%*
* Annualized.
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
AAA 79% 73%
AA 10% 12%
A 8% 11%
BBB 3% 4%
Ratings provided by Standard & Poor's. See Credit Rating Definitions on page 5
for more information.
Investment terms are defined in the Glossary on pages 46-47.
www.americancentury.com 13
Intermediate-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHY DO YOU END UP INVESTING IN CERTAIN STATES AND NOT OTHERS?
Among the key factors are supply and demand. Our strategy has been to try
to purchase securities from states where issuance is high or demand is
relatively low (resulting in higher yields and lower prices) and sell bonds from
states where there is some combination of lower supply or higher demand that
drives up prices (and pushes down yields). The fund's largest stakes at the end
of the period were in New York, Texas, and Washington (see the table at left).
We should also add that municipal bond issuance has decreased significantly
so far in 1999 because so many municipalities took advantage of declining
interest rates to refinance their debt in 1998. The decreased supply this year
has helped the performance of municipal bonds.
IN THE FUND'S LAST REPORT, THE RELATIVE VALUE OF MUNICIPAL SECURITIES COMPARED
FAVORABLY WITH TREASURY BONDS. HOW DO MUNICIPAL AND TREASURY YIELDS COMPARE
THESE DAYS?
So far in 1999, Treasury securities have slumped quite a bit and their
yields have spiked upward. As a result, municipal bonds are no longer as
undervalued compared with Treasurys as they were at the end of 1998. This is a
significant change; six to eight months ago municipal yields were equivalent to
comparable maturity Treasury yields. That means any taxable investor would have
earned a higher tax-adjusted yield from a municipal bond than from a comparable
maturity Treasury bond. The tax-equivalent yields for municipal bonds are still
attractive for high tax-bracket investors relative to Treasury yields, but not
as attractive as they were at the end of 1998.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
Inflation concerns prompted the Federal Reserve to raise its short-term
interest rate target at the end of June in an effort to slow economic growth to
a more-sustainable, non-inflationary pace. The bond market took a positive view
of the Fed's action and rallied slightly on the news. Bond yields fell because
the rate hike indicated to many observers that the Fed remains vigilant on the
inflation front.
However, because there's still strength in the latest economic figures,
municipal bond yields have continued to reflect expectations that the Fed could
raise short-term interest rates again before the end of 1999. The big question
is whether economic growth will remain overly strong and spark additional Fed
interest rate hikes, or whether those concerns are unnecessarily bearish.
GIVEN THAT OUTLOOK, HOW DO YOU PLAN TO POSITION INTERMEDIATE-TERM TAX-FREE OVER
THE NEXT FEW MONTHS?
We expect to continue with a neutral stance, closely watching the economy
for signs of changing market conditions. In addition, since neither short- nor
longer-term municipal securities look as if they will offer particularly
intriguing opportunities, we'll aim to concentrate the portfolio's holdings on
securities with maturities near its average maturity, around eight years.
[left margin]
"OUR STRATEGY HAS BEEN TO TRY TO PURCHASE SECURITIES FROM STATES WHERE ISSUANCE
IS HIGH OR DEMAND IS RELATIVELY LOW."
TOP FIVE STATES (AS OF 5/31/99)
% OF FUND INVESTMENTS
NEW YORK 13.1%
TEXAS 13.1%
WASHINGTON 11.9%
MASSACHUSETTS 7.7%
PENNSYLVANIA 5.6%
TOP FIVE STATES (AS OF 11/30/98)
% OF FUND INVESTMENTS
NEW YORK 14.6%
TEXAS 14.2%
WASHINGTON 13.6%
MASSACHUSETTS 7.6%
CALIFORNIA 5.9%
14 1-800-345-2021
Intermediate-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--99.8%
ALABAMA--1.1%
$1,535 Russell County Rev., Series
1999 B, 5.375%, 12/1/13
(AMBAC) $ 1,576
----------
ALASKA--1.1%
1,130 Alaska Industrial Development &
Export Auth. Power Rev.,
(Snettisham Hydroelectric),
5.25%, 1/1/04 (AMBAC) 1,173
500 Anchorage Hospital Rev., (Sisters
of Providence), 6.50%, 10/1/99 505
----------
1,678
----------
ARIZONA--0.7%
1,000 Phoenix Industrial Development
Auth. Single Family Mortgage
Rev., Series 1998 A, 6.60%,
12/1/29
(GNMA/FNMA/FHLMC) 1,088
----------
CALIFORNIA--3.0%
2,000 California Housing Finance Agency
Rev., 5.60%, 8/1/09 (MBIA) 2,118
1,100 California Public Works Board
Lease Rev. COP, Series 1994 A,
(Various University of California
Projects), 6.15%, 11/1/04,
Prerefunded at 102% of Par(1) 1,235
1,100 Sacramento Regional
Transportation COP, Series
1992 A, 6.20%, 3/1/00 1,124
----------
4,477
----------
COLORADO--2.8%
2,000 Denver City & County School
District No. 1 GO, 5.25%,
12/1/16 (FGIC) 2,025
1,000 Denver Sales Tax Rev., Series
1991 A, (Major League
Baseball Stadium District),
6.10%, 10/1/01 (FGIC) 1,052
1,040 Douglas County School District
No. 1 GO, 5.25%, 12/15/12
(FGIC) 1,073
----------
4,150
----------
DISTRICT OF COLUMBIA--1.7%
1,000 District of Columbia Hospital Rev.,
Series 1993 A, (Medlantic
Health Care Group), 5.25%,
8/15/02 (MBIA)(1) 1,039
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$1,275 Metropolitan Washington D.C.
Airports Auth. Rev., Series
1992 A, 6.30%, 10/1/03
(MBIA) $ 1,381
----------
2,420
----------
FLORIDA--4.3%
700 Broward County School District
GO, 6.75%, 2/15/00 716
245 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.85%,
10/1/07 (GNMA/FNMA) 247
360 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.90%,
4/1/08 (GNMA/FNMA) 362
1,300 Florida State Board Regent
University System Improvement
Rev., 4.50%, 7/1/23 (AMBAC) 1,163
1,775 Lakeland Electric and Water Rev.
Refunding, Series 1999 C,
6.05%, 10/1/09 (FGIC) 1,988
1,520 Miami-Dade County Public
Service Tax Rev., 5.25%,
10/1/16 (FSA) 1,544
345 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.35%, 10/1/00 348
----------
6,368
----------
GEORGIA--4.1%
1,000 Atlanta Airport Facilities Rev.,
7.00%, 1/1/01 1,047
1,000 Atlanta Water and Sewer Rev.,
(Second Lien), 6.00%, 1/1/05
(FGIC)(1) 1,089
2,495 Fulton County Water and Sewer
Rev. Refunding, 6.25%, 1/1/09
(FGIC) 2,821
1,000 Metropolitan Atlanta Rapid Transit
Auth. Sales Tax Rev., Series
1991 M, 6.05%, 7/1/01 1,045
----------
6,002
----------
HAWAII--0.7%
1,000 Hawaii State GO, Series
1997 CN, 5.25%, 3/1/13
(FGIC) 1,019
----------
ILLINOIS--1.6%
2,250 Illinois GO, 6.00%, 10/1/01 2,361
30 Metropolitan Pier and Exposition
Auth. Rev., (McCormick Place),
5.20%, 6/15/99(1) 30
----------
2,391
----------
See Notes to Financial Statements
www.americancentury.com 15
Intermediate-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
INDIANA--2.1%
$1,000 Center Grove High School
Building Corp. Rev., 3.90%,
1/5/03 (FSA) $ 994
2,000 Indiana Health Facility Financing
Auth. Rev., (Holy Cross Health
System Corp.), 5.375%,
12/1/12 (MBIA) 2,050
----------
3,044
----------
MASSACHUSETTS--7.7%
2,605 Massachusetts Bay Transportation
Auth. Rev., Series 1992 C,
5.40%, 3/1/00 2,648
1,000 Massachusetts Educational
Financing Auth. Education Loan
Rev., Series 1998 A, (Issue G),
4.55%, 12/1/06 (MBIA) 1,001
1,000 Massachusetts Health &
Educational Facilities Auth. Rev.,
Series 1998 A, (Harvard Pilgrim
Health), 5.25%, 7/1/12 (FSA) 1,017
2,500 Massachusetts Water Resource
Auth. Rev., Series 1998 B,
4.50%, 8/1/22 (FSA) 2,224
3,000 Massachusetts Water Resource
Auth. Rev., Series 1998 A,
4.75%, 8/1/27 (FSA) 2,750
1,650 Springfield GO, 5.25%, 11/15/14
(FSA) 1,679
----------
11,319
----------
MICHIGAN--2.5%
1,000 Detroit City School District,
Series 1998 B, 5.375%,
5/1/14 (FGIC) 1,027
1,000 Detroit Downtown Development
Auth. Tax Increment Rev.,
Series 1998 A, (Development
Area No. 1), 5.25%, 7/1/12
(MBIA) 1,016
1,500 Detroit Water Supply System Rev.,
Series 1995 A, 5.30%, 7/1/09
(MBIA) 1,583
----------
3,626
----------
MISSISSIPPI--2.4%
1,000 Harrison County GO, 5.00%,
7/1/12 (MBIA) 1,017
2,500 Mississippi Development Special
Obligation Rev., (Natural Gas),
4.125%, 1/1/06 (MBIA) 2,456
----------
3,473
----------
MISSOURI--0.7%
1,000 Missouri Board of Public Buildings
State Office Buildings Special
Obligation Rev., 6.30%, 12/1/05 1,056
----------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
NEVADA--0.7%
$1,000 Clark County Airport Rev., Series
1998 A, 5.50%, 7/1/07 (MBIA) $ 1,070
----------
NEW JERSEY--3.7%
1,030 Atlantic City Board of Education
GO, 6.00%, 12/1/02,
Prerefunded at 102% of Par
(AMBAC)(1) 1,121
1,410 New Jersey Educational Facility
Auth. Rev., Series 1994 A, (New
Jersey Institute of Technology),
5.90%, 7/1/08 (MBIA) 1,540
1,000 New Jersey Health Care Facilities
Financing Auth. Rev., (Atlantic
City Medical Center), 6.15%,
7/1/99 1,003
1,800 New Jersey Health Care Facilities
Financing Auth. Rev., (Rahway
Hospital Obligation Group),
5.00%, 7/1/05 (ACA) 1,839
----------
5,503
----------
NEW YORK--13.1%
1,950 City University of New York COP,
(John Jay College), 5.00%,
8/15/09 (AMBAC) 2,007
2,500 Nassau County GO, Series
1996 T, 5.20%, 9/1/05 (FGIC) 2,634
1,500 New York State Dormitory Auth.
Rev., Series 1995 A, (State
University Educational Facilities),
6.50%, 5/15/04 1,646
1,000 New York State Dormitory Auth.
Rev., Series 1995 A, (State
University Educational Facilities),
6.50%, 5/15/06 1,117
1,000 New York State Dormitory Auth.
Rev., Series 1996 E, (Mental
Health Service Facility), 6.00%,
8/15/04 (AMBAC) 1,085
635 New York State Dormitory Auth.
Rev., Series 1998 I, (New York
Downtown Hospital), 4.80%,
2/15/06 643
1,175 New York State GO, Series
1997 D, 5.25%, 8/1/03 1,225
1,000 New York State GO, Series
1997 D, 5.25%, 8/1/06 (FGIC) 1,053
1,500 New York State Local Government
Assistance Corp. Rev., Series
1997 B, 5.25%, 4/1/04 (MBIA) 1,576
850 New York State Medical Care
Facilities Finance Agency Rev.,
(Hospital and Nursing Home),
5.95%, 8/15/09 (FHA) 892
1,000 New York State Thruway Auth.
Service Contract Rev., 5.30%,
4/1/04 1,043
See Notes to Financial Statements
16 1-800-345-2021
Intermediate-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$1,000 New York State Thruway Auth.
Service Contract Rev., 5.50%,
4/1/04 $ 1,051
1,160 New York State Thruway Auth.
Service Contract Rev., 5.50%,
4/1/06 1,224
1,000 New York State Urban
Development Corp. Rev., Series
1996 A, 6.25%, 4/1/05 (MBIA) 1,102
1,000 Niagara Falls Bridge Commission
Toll Rev., Series
1993 B, 5.25%, 10/1/15 (FGIC) 1,040
----------
19,338
----------
NORTH CAROLINA--1.5%
2,000 North Carolina Eastern Municipal
Power Agency System Rev.,
Series 1993 B, 6.00%, 1/1/06
(FSA) 2,181
----------
OHIO--4.1%
1,200 Ohio Higher Educational Facility
Commission Rev., (University of
Dayton), 5.55%, 12/1/07
(FGIC) 1,284
3,320 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
6.00%, 12/1/05 (MBIA) 3,656
1,000 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
5.625%, 12/1/06 (MBIA) 1,076
----------
6,016
----------
OKLAHOMA--1.9%
2,500 Oklahoma Industrial Auth. Health
System Rev., Series 1995 C,
7.00%, 8/15/04 (AMBAC) 2,810
----------
OREGON--1.4%
1,805 Lane County School District
No. 19 GO, (Springfield),
6.375%, 10/15/04,
Prerefunded at 101% of Par
(MBIA)(1) 2,020
----------
PENNSYLVANIA--5.6%
1,500 Pennsylvania Turnpike Commission
Rev., Series 1991 L, 6.25%,
6/1/01 (AMBAC) 1,572
2,000 Philadelphia Gas Works Rev.,
14th Series, 5.70%, 7/1/00
(FSA) 2,049
1,000 Philadelphia Parking Auth. Rev.,
5.50%, 9/1/04 (AMBAC) 1,060
1,500 Philadelphia School District GO,
Series 1998 A, 5.25%, 4/1/14
(MBIA) 1,522
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$2,000 Philadelphia Water and Wastewater
Rev., 5.15%, 6/15/04 (FGIC) $ 2,095
----------
8,298
----------
TEXAS--13.1%
1,000 Austin Rev., (Sub-Lien), 5.25%,
5/15/12 (MBIA) 1,042
1,000 Austin Utility System Rev., 5.125%,
11/15/16 (FSA) 993
1,875 Brownsville Utility System Rev.,
6.00%, 9/1/08 (AMBAC) 2,075
1,000 Dallas-Fort Worth Regional Airport
Rev., Series 1994 A, 5.90%,
11/1/08 (MBIA) 1,077
1,000 Denison Hospital Auth. Rev.,
(Texoma Medical Center),
5.90%, 8/15/07 (ACA) 1,066
1,740 Harris County Health Facilities
Development Corp. Rev., Series
1999 A, (Baylor College
Medical), 5.375%, 11/15/15
(AMBAC) 1,771
1,000 North East Independent School
District Texas GO, 4.50%,
2/1/16 (Guaranteed:
Permanent School Fund) 928
500 North Texas Higher Education
Student Loan Rev., 6.875%,
4/1/02 (AMBAC) 520
1,345 San Antonio GO, Series 1998 A,
5.125%, 2/1/14 1,356
1,325 Spring Independent School District
GO, Series 1998 A, 4.60%,
8/15/13 (Guaranteed:
Permanent School Fund) 1,292
1,000 Tarrant County Health Facility
Development Corporation
Health System Rev., (Harris
Methodist Health System),
5.00%, 9/1/07 (AMBAC)(1) 1,040
2,000 Texas Municipal Power Agency
Rev., 5.75%, 9/1/02 (MBIA) 2,113
1,000 Texas Municipal Power Agency
Rev., 5.25%, 9/1/09 (MBIA) 1,053
1,500 Texas Public Finance Auth.
Building Rev., (Technical
College), 6.25%, 8/1/09 (MBIA) 1,686
1,240 Upper Trinity Regional Water
District Rev., (Treated Water
Supply System), 5.25%, 8/1/12
(MBIA) 1,263
----------
19,275
----------
UTAH--2.8%
1,000 Intermountain Power Agency
Power Supply Rev., Series
1993 A, 5.40%, 7/1/08 (MBIA) 1,047
See Notes to Financial Statements
www.americancentury.com 17
Intermediate-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$1,000 Salt Lake County Municipal
Building Auth. Lease Rev.,
Series 1994 A, 6.00%,
10/1/07 (MBIA) $ 1,086
860 Utah Housing Finance Agency
Single Family Mortgage Rev.,
5.65%, 7/1/06 903
1,000 Utah Municipal Finance Co-op
Local Government Rev.,
(University of Utah/University
Hospital), 6.60%, 5/15/00(1) 1,031
----------
4,067
----------
WASHINGTON--11.9%
1,005 King County Library System
Facilities Foundation Lease Rev.,
(Library System Service Center),
4.45%, 12/1/08 (AMBAC) 998
1,000 Pierce County School District
No. 320 GO, 5.75%, 12/1/02 1,055
1,000 Port Seattle Passenger Facility
Charge Rev., Series 1998 B,
5.00%, 12/1/05 (AMBAC) 1,034
1,000 Port Seattle Rev., Series 1997 B,
5.10%, 10/1/03 (FGIC) 1,037
1,385 Port Tacoma Rev., 4.70%,
12/1/04 (AMBAC) 1,414
2,000 Snohomish County Public Utility
District Rev., 5.625%, 1/1/05
(FGIC) 2,123
1,000 Snohomish County School District
No. 15 GO, 6.125%, 12/1/03 1,053
1,000 Spokane County School District
No. 356 GO, 6.00%, 12/1/06
(FGIC) 1,104
1,730 Tacoma Electric System Rev.,
6.00%, 1/1/07 (AMBAC) 1,900
1,000 Tacoma Electric System Rev.,
6.10%, 1/1/07 (FGIC) 1,091
1,000 Washington Health Care Facilities
Auth. Rev., (Harrison Memorial
Hospital), 5.25%, 8/15/14
(AMBAC) 1,012
1,000 Washington Public Power Supply
System Rev., Series 1990 B,
(Nuclear Project No. 1), 7.10%,
7/1/01 (FGIC) 1,054
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$1,000 Washington Public Power Supply
System Rev., Series 1990 C,
(Nuclear Project No. 2), 7.30%,
7/1/00 $ 1,040
500 Washington Public Power Supply
System Rev., Series 1990 C,
(Nuclear Project No. 2), 7.00%,
7/1/01 (FGIC) 531
1,000 Washington Public Power Supply
System Rev., Series 1993 A,
(Nuclear Project No. 1), 5.50%,
7/1/04 1,056
----------
17,502
----------
WEST VIRGINIA--0.8%
1,090 West Virginia GO, Series 1996 D,
5.00%, 11/1/10 (FGIC) 1,113
----------
WISCONSIN--2.7%
2,590 Wisconsin Health and Educational
Facility Rev., (Aurora Medical
Group), 6.00%, 11/15/10 (FSA) 2,894
1,060 Wisconsin Health and Educational
Facility Rev., Series 1991 B,
(Wausau Hospital), 6.30%,
8/15/00 (AMBAC) 1,095
----------
3,989
----------
TOTAL MUNICIPAL SECURITIES 146,869
----------
(Cost $142,864)
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% $147,102
==========
(Cost $143,097)
See Notes to Financial Statements
18 1-800-345-2021
Intermediate-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHA = Federal Housing Authority
FHLMC = Federal Home Loan Mortgage Corporation
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.
- --------------------------------------------------------------------------------
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
* 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 19
Long-Term Tax-Free --Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF MAY 31, 1999
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) -0.61% 0.24% 0.10% --
1 YEAR 3.44% 4.35% 3.26% 122 OUT OF 260
======================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 7.15% 8.63% 6.68% 50 OUT OF 202
5 YEARS 6.79% 8.25% 6.42% 49 OUT OF 153
10 YEARS 7.14% 8.49% 7.17% 39 OUT OF 76
</TABLE>
The fund's inception date was 3/2/87.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 45-46 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 5/31/99
Long-Term Tax-Free $19,927
Lehman Long-Term
Muni Bond Index $22,597
Long-Term Lehman Long-Term
Tax-Free Muni Bond Index
DATE VALUE VALUE
5/31/89 $10,000 $10,000
5/31/90 $10,505 $10,714
5/31/91 $11,504 $11,861
5/31/92 $12,685 $13,171
5/31/93 $14,030 $15,066
5/31/94 $14,350 $15,200
5/31/95 $15,561 $16,883
5/31/96 $16,199 $17,628
5/31/97 $17,583 $19,392
5/31/98 $19,267 $21,655
5/31/99 $19,927 $22,597
$10,000 investment made 5/31/89
The graph at left shows the growth of a $10,000 investment over 10 years, while
the graph below shows the fund's year-by-year performance. The Lehman Long-Term
Municipal Bond Index is provided for comparison in each graph. Long-Term
Tax-Free's total returns include operating expenses (such as transaction costs
and management fees) that reduce returns, while the total returns of the index
do not. 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 graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDING MAY 31)
Long-Term Lehman Long-Term
Tax-Free Muni Bond Index
DATE RETURN RETURN
5/31/90 5.05% 7.14%
5/31/91 9.51% 10.71%
5/31/92 10.27% 11.04%
5/31/93 10.60% 14.39%
5/31/94 2.28% 0.89%
5/31/95 8.44% 11.07%
5/31/96 4.10% 4.41%
5/31/97 8.54% 10.01%
5/31/98 9.58% 11.67%
5/31/99 3.44% 4.35%
20 1-800-345-2021
Long-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
/photo of Dave MacEwen/
An interview with Dave MacEwen, a portfolio manager on the Long-Term
Tax-Free fund investment team.
HOW DID THE FUND PERFORM DURING ITS FISCAL YEAR ENDED MAY 31, 1999?
Long-Term Tax-Free posted a total return of 3.44%, which outpaced the 3.26%
average total return of the 260 "General Municipal Debt Funds" tracked by Lipper
Inc.
The fund also produced more income than its peers. The fund's 30-day SEC
yield as of May 31 was 4.37%, compared with the 3.97% yield of the average
municipal bond fund, according to Lipper. That 4.37% yield translates to a
tax-equivalent yield of approximately 7.24% for investors in the highest (39.6%)
federal tax bracket.
WHAT WAS YOUR INVESTMENT APPROACH?
From June 1998 through March 1999, we kept Long-Term Tax-Free's duration --
a measure of its interest rate sensitivity -- at about 9.3 years, a bit longer
than the average general municipal debt fund. (The longer a fund's duration, the
more its share price will rise or fall in response to interest rate changes.)
That positioning was based on our view that interest rates would decline in
response to global economic weakness. A neutral position for us would have been
about 8.2 years.
The fund's long duration was a direct result of our emphasis on discount
bonds. These bonds trade below face value (par) -- at a "discount" -- because
their interest coupons are lower than prevailing market interest rates. Discount
bonds are attractive in falling interest rate environments because they provide
good protection against inopportune refinancings or "calls."
Like homeowners, municipal bond issuers often "call" bonds when they can
refinance at lower interest rates. In the same way that home mortgage
refinancing shortens the life of a mortgage, a call feature effectively shortens
a municipal bond's duration. But because discount bonds have interest rates
below prevailing rates, there is less incentive for issuers to refinance them,
so they have some call protection. Since they are less likely to be called, the
durations of discount bonds remain long.
HOW DID ITS LONG DURATION AFFECT THE FUND'S PERFORMANCE?
The increased interest rate sensitivity was a plus for the fund's
performance during periods when rates declined, as they did last autumn and in
January of this year. On the other hand, the fund's long duration detracted from
performance when rates were on the upswing, as they were from about February of
this year through the end of May.
DID YOU ALTER YOUR APPROACH IN RESPONSE TO STRONGER-THAN-EXPECTED ECONOMIC
GROWTH?
Yes, we reduced our stake in discount bonds. By doing so, we shortened the
fund's duration to 8.6 years by the end of May. Although we make small
adjustments to duration based on our interest rate expectations, we generally
[right margin]
YIELDS AS OF MAY 31, 1999
30-DAY SEC YIELD 4.37%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 6.07%
31.0% TAX BRACKET 6.33%
36.0% TAX BRACKET 6.83%
39.6% TAX BRACKET 7.24%
PORTFOLIO AT A GLANCE
5/31/99 5/31/98
NUMBER OF SECURITIES 76 71
WEIGHTED AVERAGE
MATURITY 17.7 YRS 18.2 YRS
AVERAGE DURATION 8.6 YRS 9.0 YRS
EXPENSE RATIO 0.51% 0.51%*
* Annualized.
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
AAA 69% 64%
AA 23% 28%
A 7% 7%
BBB 1% 1%
Ratings provided by Standard & Poor's. See Credit Rating Definitions on page 5
for more information.
Investment terms are defined in the Glossary on pages 46-47.
www.americancentury.com 21
Long-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
keep the fund's duration within a year of the duration of Long-Term Tax-Free's
benchmark.
WHY DID YOU INCREASE THE FUND'S HOLDINGS OF AAA BONDS?
For the most part, lower-quality bonds didn't really offer enough
additional yield over AAA securities to compensate for their added credit risk
(the risk that an issuer will fail to make timely interest and principal
payments).
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We believe that interest rates may be close to topping out. Bond yields
during the second quarter of 1999 reflected fears that the Federal Reserve would
raise interest rates two, perhaps three times over the next nine months or so.
We think those fears are overstated.
While it's true that first quarter economic growth was a surprising 4.3% on
an annualized basis, a lot of the credit goes to robust consumer spending, which
accounts for roughly two-thirds of the nation's economic growth. The spending
surge was spurred by a number of factors, including federal tax refunds that
were up 24% over 1998. In addition, extra money from home loan refinancings and
the wealth created by stock market gains put consumers in a spending mood.
In our view, however, a lot of the momentum behind consumer spending will
prove to be short-lived. Most of the tax refunds have already been spent or
saved and higher interest rates will likely curtail home loan refinancings. From
here on out, we believe that spending and economic trends will look more tepid
relative to the first quarter of 1999. Lacking robust consumer spending, we
think the economy will slow a bit and take the edge off any brewing inflationary
pressures and higher interest rates.
WHAT DOES THAT OUTLOOK MEAN FOR THE MUNICIPAL MARKET?
Continued low inflation and declining interest rates would certainly help
boost the municipal market. But supply and demand will also influence the
performance of municipal bonds. Municipals underperformed Treasurys during much
of 1998, mainly because of the surge in demand for Treasuries from overseas
investors. Municipals, meanwhile, languished from too much supply. So far in
1999, however, the supply of municipals has tapered off and demand has firmed,
which we believe could set the stage for lower municipal yields.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR LONG-TERM TAX-FREE?
We will probably keep the portfolio's duration a bit longer than the
average municipal fund as long as we believe long-term interest rates will
remain stable or move lower. That should be positive for fund returns if
municipal bond yields decline, as we expect they will.
[left margin]
"THE SUPPLY OF MUNICIPALS HAS TAPERED OFF AND DEMAND HAS FIRMED, WHICH WE
BELIEVE COULD SET THE STAGE FOR LOWER MUNICIPAL YIELDS."
TOP FIVE STATES (AS OF 5/31/99)
% OF FUND INVESTMENTS
TEXAS 16.4%
NEW YORK 13.9%
MASSACHUSETTS 11.7%
ILLINOIS 10.3%
FLORIDA 7.8%
TOP FIVE STATES (AS OF 11/30/98)
% OF FUND INVESTMENTS
TEXAS 14.5%
WASHINGTON 9.7%
ILLINOIS 9.4%
FLORIDA 8.1%
NEW YORK 8.1%
22 1-800-345-2021
Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--100.0%
CALIFORNIA--6.4%
$1,000 California Public Works Lease Rev.,
Series 1994 A, (University
Project), 6.20%, 10/1/08 $ 1,098
1,500 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 1,671
1,500 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1993 A, 5.75%,
7/1/21 1,631
1,850 Northern California Power Agency
Rev., Series 1992 A,
(Hydroelectric Project #1),
6.25%, 7/1/12 (MBIA) 2,003
1,000 San Jose Redevelopment Agency
Tax Allocation, Series 1993 D,
(Merged Area Redevelopment),
5.75%, 8/1/24 1,044
----------
7,447
----------
CONNECTICUT--2.7%
1,880 Connecticut Development Auth.
Rev., Series 1994 A, 6.375%,
10/15/24 2,072
1,000 Connecticut GO, Series 1993 E,
6.00%, 3/15/12 1,119
----------
3,191
----------
DISTRICT OF COLUMBIA--3.6%
1,000 District of Columbia Metropolitan
Area Transportation Auth. Rev.,
6.00%, 7/1/10 (FGIC) 1,112
3,000 District of Columbia Water and
Sewer Auth. Public Utility Rev.,
5.50%, 10/1/23 (FSA) 3,121
----------
4,233
----------
FLORIDA--7.8%
780 Broward County Resource
Recovery Facility Rev., (South),
7.95%, 12/1/08 818
1,000 Florida State Board of Education
Capital Outlay GO, Series
1998 D, 4.50%, 6/1/24 889
2,585 Florida State Board Regent
University System Improvement
Rev., 4.50%, 7/1/23 (AMBAC) 2,313
1,270 Miami-Dade County Public Service
Tax Rev., 5.25%, 10/1/17 (FSA) 1,284
1,000 Orlando Utility Commission
Water and Electric
Rev., Series 1989 D, 6.75%, 10/1/17 1,196
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$1,000 St. Petersburg Health Auth. Rev.,
(Allegany Health), 7.00%,
12/1/01, Prerefunded at 102%
of Par (MBIA)(1) $ 1,094
1,350 Tampa Sports Auth. Sales Tax Rev.,
(Tampa Bay Arena), 5.75%,
10/1/25 (MBIA) 1,469
----------
9,063
----------
GEORGIA--1.0%
745 Georgia Municipal Electric Power
Auth. Rev., Series 1991 V,
6.50%, 1/1/12 (MBIA) 860
255 Georgia Municipal Electric Power
Auth. Rev., Series 1991 V,
6.50%, 1/1/12 (MBIA)(1) 297
----------
1,157
----------
ILLINOIS--10.3%
1,000 Chicago Gas Supply Rev., Series
1985 B, (Peoples Gas), 7.50%,
3/1/15 1,045
1,000 Cook County GO, 7.00%,
11/1/00, Prerefunded at 102%
of Par (MBIA)(1) 1,069
2,000 Illinois Dedicated Tax Rev., (Civic
Center), 6.25%, 12/15/20
(AMBAC) 2,269
1,500 Illinois Development Finance Auth.
Pollution Control Rev., Series
1990 A, (Central Illinois Public
Service), 7.60%, 3/1/14 1,565
1,000 Illinois Development Finance Auth.
Waste Disposal Rev., (Armstrong
World Industries), 5.95%,
12/1/24 1,078
1,500 Illinois GO, 6.25%, 10/1/06 1,625
1,140 Illinois Health Facilities Auth. Rev.,
Series 1992 C, (Evangelical
Hospital), 6.75%, 4/15/12(1) 1,323
700 Illinois Health Facilities Auth. Rev.,
Series 1992 C, (Evangelical
Hospital), 6.75%, 4/15/02,
Prerefunded at 102% of Par(1) 766
1,000 Illinois Regional Transportation
Auth. Rev., Series 1990 A,
7.20%, 11/1/20 (AMBAC) 1,256
----------
11,996
----------
INDIANA--1.9%
1,000 Indiana Municipal Power Agency
Rev., Series 1990
A, 7.10%, 1/1/00, Prerefunded at 102%
of Par (AMBAC)(1) 1,042
1,000 Indiana Transportation Financing
Auth. Highway Rev., Series
1990 A, 7.25%, 6/1/15 1,233
----------
2,275
----------
See Notes to Financial Statements
www.americancentury.com 23
Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
KANSAS--1.0%
$ 325 Kansas City Utility System Rev.,
6.375%, 9/1/04, Prerefunded
at 102% of Par (FGIC)(1) $ 365
675 Kansas City Utility System Rev.,
6.375%, 9/1/23 (FGIC) 746
----------
1,111
----------
KENTUCKY--1.0%
1,000 Carroll County Pollution Control
Rev., Series 1992 A, (Kentucky
Utilities Company), 7.45%,
9/15/16 1,112
----------
MASSACHUSETTS--11.7%
1,000 Massachusetts Health and
Education Auth. Rev., Series
1992 F, 6.25%, 7/1/12
(AMBAC) 1,142
1,690 Massachusetts Housing Finance
Agency Rev., Series 1993 H,
6.75%, 11/15/12 (FNMA) 1,811
2,000 Massachusetts Water Pollution
Abatement Rev., Series 1998 A,
(New Bedford), 4.75%, 2/1/26
(FGIC) 1,837
2,800 Massachusetts Water Resource
Auth. Rev., Series 1993 C,
4.75%, 12/1/23 (MBIA) 2,579
7,000 Massachusetts Water Resource
Auth. Rev., Series 1998 B,
4.50%, 8/1/22 (FSA) 6,227
----------
13,596
----------
MICHIGAN--2.6%
2,000 Detroit City School District GO,
Series 1998 C, 5.25%, 5/1/25
(FGIC) 2,021
1,020 Paw Paw Public School District
GO, 5.00%, 5/1/25 (FGIC) 993
----------
3,014
----------
NEW JERSEY--0.8%
1,000 South Jersey Transportation
System Auth. Rev., 5.00%,
11/1/29 (AMBAC) 975
----------
NEW YORK--13.9%
2,000 Long Island Power Auth. Electric
System Rev., Series 1998 A,
5.125%, 12/1/22 (FSA) 1,962
2,000 Long Island Power Auth. Electric
System Rev., Series 1998 A,
5.75%, 12/1/24 2,079
2,000 New York City Transitional Finance
Auth. Rev., Series 1998 B,
4.50%, 11/15/27 1,762
3,000 New York GO, Series 1998 F,
5.375%, 8/1/19 (MBIA) 3,041
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$3,000 New York State Dormitory Auth.
Rev., (City University System),
5.50%, 7/1/16 (AMBAC) $ 3,101
1,000 New York State Environmental
Facilities Corp. Pollution Control
Rev., Series 1991 E, 6.30%,
6/15/01, Prerefunded at 102%
of Par(1) 1,070
1,000 New York State Local Government
Assistance Corp. Rev., Series
1991 D, 6.75%, 4/1/02,
Prerefunded at 102% of Par(1) 1,097
2,000 St. Lawrence County Industrial
Development Civic Facility Rev.,
Series 1998 A, (St. Lawrence
University), 5.375%, 7/1/18
(MBIA) 2,027
----------
16,139
----------
NORTH CAROLINA--0.9%
1,000 North Carolina Municipal Power
Agency #1 Rev., (Catawba
Electric), 6.00%, 1/1/10 (MBIA) 1,105
----------
OHIO--0.8%
750 Ohio Higher Educational Facility
Rev., Series 1990 B, (Case
Western Reserve University),
6.50%, 10/1/20 881
----------
PUERTO RICO--2.1%
2,050 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 1,830
500 Puerto Rico Commonwealth GO,
6.45%, 7/1/04, Prerefunded at
101.5% of Par(1) 562
----------
2,392
----------
RHODE ISLAND--4.3%
1,100 Rhode Island Clean Water Safe
Drinking Rev., 6.70%, 1/1/15
(AMBAC) 1,236
2,000 Rhode Island Depositors
Economic Protection Corp.
Special Obligation Rev., Series
1993 A, 6.25%, 8/1/16
(MBIA)(1) 2,282
1,300 Rhode Island Depositors
Economic Protection Corp.
Special Obligation Rev., Series
1993 B, 6.00%, 8/1/17
(MBIA)(1) 1,427
----------
4,945
----------
SOUTH CAROLINA--2.5%
860 Piedmont Municipal Power Agency
Electric Rev., Series 1991 A,
6.50%, 1/1/16 (FGIC) 1,002
See Notes to Financial Statements
24 1-800-345-2021
Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 140 Piedmont Municipal Power
Agency Electric Rev., Series
1991 A, 6.50%, 1/1/16
(FGIC)(1) $ 164
1,500 Piedmont Municipal Power
Agency Electric Rev., 6.75%,
1/1/19 (FGIC) 1,793
----------
2,959
----------
TEXAS--16.4%
1,000 Alliance Airport Auth. Special
Facilities Rev., (American
Airlines), 7.00%, 12/1/11
(GTEED) 1,168
1,000 Denton Utility System Rev., Series
1996 A, 5.95%, 12/1/14
(MBIA) 1,084
1,000 Frisco Independent School District
GO, Series 1998 A, 4.50%,
8/15/29 (Guaranteed:
Permanent School Fund) 881
5,000 Houston Independent School
District GO, 5.375%, 8/15/17
(Guaranteed: Permanent School
Fund) 5,072
1,400 Lubbock Health Facilities
Development Corp. Rev., (St.
Joseph Health System), 5.25%,
7/1/13 1,415
2,000 San Antonio Electric and Gas
System Rev., 7.10%, 2/1/09
(FGIC)(2) 1,265
1,000 Tarrant County Health Facility Rev.,
6.00%, 5/15/11 (MBIA) 1,101
2,500 Texas Municipal Power Agency
Rev., Series 1991 A, 6.75%,
9/1/12 (AMBAC) 2,694
2,000 Texas Southern University Rev.,
Series 1998 B, 4.50%,
11/1/23 (AMBAC) 1,776
1,765 Travis County GO, 4.50%, 3/1/19 1,604
1,000 Weatherford Utility System Rev.,
5.25%, 9/1/14 (FSA) 1,009
----------
19,069
----------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
UTAH--1.1%
$1,000 Salt Lake City Hospital Rev.,
Series 1988 A, (Intermountain
Health Corporation), 8.125%,
5/15/15(1) $ 1,276
----------
VIRGINIA--0.9%
1,000 Hampton Industrial Development
Auth. Rev., Series 1994 A,
(Sentara General Hospital),
6.50%, 11/1/12 1,104
----------
WASHINGTON--3.2%
1,405 Port of Seattle Rev., 7.50%,
12/1/00, Prerefunded at 102%
of Par (AMBAC)(1) 1,514
1,000 Washington GO, Series 1990 A,
6.75%, 2/1/15 1,196
1,000 Washington Public Power Supply
Rev., Series 1996 A, (Nuclear
Project #1), 5.75%, 7/1/12
(MBIA) 1,063
----------
3,773
----------
WISCONSIN--3.1%
1,180 Winneconne Community School
District GO, 6.75%, 4/1/06,
Prerefunded at 100% of Par
(FGIC)(1) 1,351
1,900 Wisconsin Clean Water Rev.,
6.875%, 6/1/11 2,260
----------
3,611
----------
TOTAL INVESTMENT SECURITIES--100.0% $116,424
==========
(Cost $111,022)
See Notes to Financial Statements
www.americancentury.com 25
Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
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
MBIA = MBIA Insurance Corp.
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
(2) Security is a zero-coupon municipal bond. The yield to maturity 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
* 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
High-Yield Municipal--Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF MAY 31, 1999
HIGH-YIELD LEHMAN LONG-TERM HIGH CURRENT YIELD MUNICIPAL FUNDS(3)
MUNICIPAL MUNICIPAL BOND INDEX AVERAGE RETURN FUND'S RANKING
======================================================================================
<S> <C> <C> <C> <C>
6 MONTHS(1)(2) 1.90% 0.24% 0.98% --
1 YEAR(2) 6.18% 4.35% 3.57% 1 OUT OF 53
======================================================================================
AVERAGE ANNUAL
RETURNS
LIFE OF FUND(2) 6.90% 4.97% 4.63% 1 OUT OF 53
</TABLE>
The fund's inception date was 3/31/98.
(1) Returns for periods less than one year are not annualized.
(2) Management fees were waived through 4/30/99. Returns would have been lower
if fees had not been waived.
(3) According to Lipper Inc., an independent mutual fund ranking service.
See pages 45-46 for more information about returns, the comparative index, and
Lipper fund rankings.
{mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 5/31/99
High-Yield Municipal $10,809
Lehman Long-Term
Muni Bond Index $10,583
High-Yield Lehman Long-Term
Municipal Muni Bond Index
DATE VALUE VALUE
3/31/98 $10,000 $10,000
4/30/98 $9,994 $9,946
5/31/98 $10,181 $10,141
6/30/98 $10,276 $10,187
7/31/98 $10,300 $10,210
8/31/98 $10,469 $10,393
9/30/98 $10,607 $10,537
10/31/98 $10,563 $10,504
11/30/98 $10,608 $10,557
12/31/98 $10,660 $10,568
1/31/99 $10,760 $10,671
2/28/99 $10,741 $10,626
3/31/99 $10,757 $10,657
4/30/99 $10,826 $10,667
5/31/99 $10,809 $10,583
$10,000 investment made 3/31/98
The graph at left shows the growth of a $10,000 investment over the life of the
fund. The Lehman Long-Term Municipal Bond Index is provided for comparison.
High-Yield Municipal's total returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
returns of the index do not. 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.
PORTFOLIO AT A GLANCE
5/31/99 5/31/98
NUMBER OF SECURITIES 39 35
WEIGHTED AVERAGE
MATURITY 15.9 YRS 19.4 YRS
AVERAGE DURATION 6.3 YRS 7.3 YRS
EXPENSE RATIO 0.01%* 0.00%*
* Fund expenses of approximately 0.64% were waived from the fund's inception on
3/31/98 through 4/30/99.
YIELDS AS OF MAY 31, 1999
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%
www.americancentury.com 27
High-Yield Municipal--Q&A
- --------------------------------------------------------------------------------
/photo of Steven Permut/
An interview with Steven Permut, a portfolio manager on the High-Yield
Municipal fund investment team.
HOW DID HIGH-YIELD MUNICIPAL PERFORM DURING THE 12 MONTHS ENDED MAY 31, 1999?
The fund significantly outpaced its peers. For the 12-month period,
High-Yield Municipal returned 6.18%, while the average return of the 53
"High-Yield Municipal Funds" tracked by Lipper Inc. was 3.57%. Based on those
returns, High-Yield Municipal ranked number one of the 53 funds for the one-year
period. (See the Total Returns table on the previous page for additional
performance comparisons.)
HOW DOES THE PORTFOLIO'S YIELD COMPARE WITH THE PEER GROUP?
High-Yield Municipal also produced more federal tax-free income than the
peer group average. As of May 31, the portfolio had a 30-day SEC yield of 5.31%.
By comparison, the average municipal high-yield fund yielded 4.69%, according to
Lipper. The fund's 5.31% yield translates to a tax-equivalent yield of
approximately 8.8% for investors in the highest (39.6%) federal tax bracket.
A fee waiver that expired on April 30 helped boost the fund's returns and
yield. The waiver provided a way to maintain competitive yields and returns
early in the fund's existence. Older funds in High-Yield Municipal's peer group
held bonds issued and purchased in higher interest rate environments. As a
result, their yields were likely to be higher than the yields on the bonds we
purchased in 1998, the year of the fund's inception. But over time, the yield
advantage of older funds should disappear as higher-yielding bonds mature or are
redeemed.
Even without the fee waiver, High-Yield Municipal's expense ratio of
approximately 0.64% is well below the average for high-yield municipal funds,
which was 1.23% as of May 31, according to Lipper.
WHAT INVESTMENT STRATEGIES HELPED HIGH-YIELD MUNICIPAL OVER THE PAST YEAR?
Timely adjustments to duration -- a measure of a bond fund's sensitivity to
interest rate changes -- helped performance. During the first half of the
period, we generally kept duration somewhat long at about 8 years. That meant
High-Yield Municipal's share price was more sensitive to changing interest rates
than many of its peers.
When interest rates declined through early October, the fund's sensitivity
to interest rate changes worked in its favor. By mid-October, however, we
reversed course by shortening duration to about 7.5 years because we feared that
interest rates and bond yields were headed higher. When rates and yields climbed
from November through May, having a shorter duration helped relative returns. We
further shortened duration to 6.3 years by the end of the period.
[left margin]
"HIGH-YIELD MUNICIPAL RANKED NUMBER ONE OF THE 53 FUNDS FOR THE ONE-YEAR
PERIOD."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/99 11/30/98
AAA 19% 19%
AA -- 3%
A 1% 4%
BBB 24% 22%
BB 1% 6%
UNRATED 55% 46%
Ratings provided by Standard & Poor's. See Credit Rating Definitions on page 5
for more information.
Investment terms are defined in the Glossary on pages 46-47.
28 1-800-345-2021
High-Yield Municipal--Q&A
- --------------------------------------------------------------------------------
(Continued)
WAS THE FUND EXPOSED TO ANY TROUBLED HEALTH CARE ISSUERS?
Last year's bankruptcy of a large hospital system in Pennsylvania, the
recent reduction in Medicare and Medicaid reimbursements, and one large
municipal bond insurer's refusal to continue insuring lower-quality health care
bonds cast a pall over the entire health care sector.
Fortunately, the fund had no exposure to the worst performing health care
bonds and had a smaller overall weighting in the sector relative to its peers. A
lot of the credit goes to our municipal analysts, who do extensive financial and
demographic analyses and frequently conduct site visits to determine a
security's value. We're also fortunate to have a municipal analyst who's a
health care industry specialist.
GIVEN THE LONG LIST OF CHALLENGES THEY FACE, HOW DO YOU IDENTIFY ATTRACTIVE
HEALTH CARE ENTITIES AND BONDS?
We're very, very selective-- we turn away five potential investments for
every one we buy. First of all, we're looking for bonds that offer an attractive
amount of yield as compensation for the issuing entity's credit risk.
We also generally emphasize hospitals that are sole providers within a
given geographic area. A good example is St. John's Hospital and Living Center,
located in Jackson Hole, Wyoming, whose closest competitor is more than 100
miles away. Other factors we look for include a history of good financial
performance and a strong management team.
Despite their recent disappointing performance, we plan to maintain
investments in health care bonds. Not only are they important from a
diversification standpoint, but they also offer attractive yields compared with
most other sectors of the high-yield municipal market.
HOW ARE HIGH-YIELD MUNICIPAL'S INVESTMENTS DIVIDED AMONG VARIOUS STATES?
The fund has a relatively large weighting in Florida, which continues to
benefit from low unemployment and strong tourism activity. We also favor
Arizona, Nevada, and Colorado, where economic trends are favorable.
On the flip side, the only states we're avoiding right now are Alaska and
Hawaii. Alaska is still feeling the lingering effects of low oil prices in 1998,
while Hawaii's credit quality recently declined due to a decrease in spending by
Asian tourists.
WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MUNICIPAL MARKET FOR THE NEXT SIX MONTHS
The direction of interest rates, of course, will be the main determinant of
municipal bond performance. In our view, interest rates may move higher over the
next six months. Wage pressures -- a main component of inflation -- appear to be
building. In response, the Federal Reserve has raised short-term interest rates
once, and could do it again to thwart inflationary pressures.
From a credit quality standpoint, we think the national economy will remain
strong. As a result, our outlook calls for high-yield municipals to perform well
relative to the rest of the municipal market.
WITH THAT OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR HIGH-YIELD MUNICIPAL OVER THE
NEXT SIX MONTHS?
We'll likely keep High-Yield Municipal's duration somewhat short. We also
plan to continue to do what has led to the fund's strong performance over the
past year -- use thorough bond-by-bond analysis to identify attractive
opportunities and avoid problem areas.
[right margin]
"THE FUND HAS A RELATIVELY LARGE WEIGHTING IN FLORIDA, WHICH CONTINUES TO
BENEFIT FROM LOW UNEMPLOYMENT AND STRONG TOURISM ACTIVITY."
TOP FIVE STATES (AS OF 5/31/99)
% OF FUND INVESTMENTS
FLORIDA 15.2%
PENNSYLVANIA 14.7%
CALIFORNIA 9.5%
ARIZONA 7.4%
NEW YORK 6.0%
TOP FIVE STATES (AS OF 11/30/98)
% OF FUND INVESTMENTS
CALIFORNIA 21.6%
FLORIDA 9.1%
PENNSYLVANIA 8.6%
ALASKA 6.0%
OREGON 5.8%
www.americancentury.com 29
High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--98.0%
ALASKA--1.5%
$ 660 Alaska Industrial Development &
Export Auth. Power Rev., (Upper
Lynn Canal Regional Power),
5.80%, 1/1/18 $ 647
---------
ARIZONA--7.4%
2,245 Gilbert Industrial Development
Nonprofit Auth. Rev., Series
1999 A, (Southwest Student
Services), 5.25%, 2/1/10 2,194
1,000 Phoenix Industrial Development
Auth. Single Family
Mortgage Rev., Series 1998 A,
6.60%, 12/1/29
(GNMA/FNMA/FHLMC) 1,088
---------
3,282
---------
CALIFORNIA--9.5%
2,230 Sacramento County Improvement
Bond Act 1915 Special
Assessment, (Sunrise/Cordova
Reassessment), 5.20%,
9/2/08(1) 2,251
1,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 5.80%, 9/1/14 1,016
1,000 Student Education Loan Marketing
Corp. Rev., Series 1998 IV-D-1,
5.875%, 1/1/18 (Guaranteed:
Student Loans) 953
---------
4,220
---------
COLORADO--4.0%
1,280 Colorado Health Facilities Auth.
Rev., Series 1998 A,
(Volunteers), 5.00%, 7/1/03 1,266
500 Denver Health & Hospital Rev.,
Series 1998 A, 4.75%,
12/1/01 507
---------
1,773
---------
FLORIDA --15.2%
865 Arbor Greene Community
Development District Special
Assessment Rev., 5.75%,
5/1/06 865
1,500 Florida Housing Finance Corp.
Rev., Series 1999-2,
(Homeowner Mortgage), 4.60%,
1/1/21 (FSA) 1,501
1,500 Heritage Isles Community
Development District Special
Assessment Rev., Series 1998 A,
5.75%, 5/1/05(1) 1,503
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$1,000 Heritage Isles Community
Development District Special
Assessment Rev., Series 1998 B,
6.00%, 5/1/20 $ 983
1,685 Herons Glen Recreational District
Special Assessment Tax
Allocation, 5.50%, 5/1/05(2) 1,678
210 Manatee County Housing Finance
Auth. Mortgage Rev., (Single
Family), 7.20%, 5/1/28
(GNMA/FNMA/FHLMC) 237
---------
6,767
---------
IDAHO--1.2%
495 Idaho Housing Agency Rev.,
Series 1995 C-2, (Single Family
Mortgage), 6.35%, 7/1/15 526
---------
ILLINOIS--3.4%
1,500 Illinois Health Facilities Auth. Rev.,
(Alexian Brothers Health
System), 5.25%, 1/1/14 (FSA) 1,506
---------
INDIANA--4.1%
750 Indiana Health Facilities Financing
Hospital Auth. Rev., (Riverview
Hospital), 5.25%, 8/1/14 732
1,020 Indianapolis Airport Auth. Rev.,
Series 1995 A, (United Airlines),
6.50%, 11/15/31 1,101
---------
1,833
---------
KENTUCKY--0.3%
135 Kentucky Housing Corp. Rev.,
Series 1988 C, 7.90%, 1/1/21
(FHA/VA Mortgages) 140
---------
MASSACHUSETTS--2.3%
1,000 Massachusetts Health &
Educational Facilities Auth. Rev.,
Series 1999 A, 5.25%, 7/1/07 1,003
---------
MISSISSIPPI--3.2%
1,500 Mississippi Business Finance Corp.
Health Facilities Rev., (Medical
Foundation Inc.), 5.375%,
7/1/15 1,436
---------
MISSOURI--1.1%
465 Hannibal Industrial Development
Auth. Educational Facilities Rev.,
(Hannibal-Lagrange College),
5.90%, 10/1/18 467
---------
NEW JERSEY--4.6%
2,000 New Jersey Economic
Development Auth. Rev., Series
1998 A, (Kapkowski Road
Landfill), 6.375%, 4/1/31 2,058
---------
See Notes to Financial Statements
30 1-800-345-2021
High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
NEW MEXICO--4.0%
$ 750 Rio Rancho Water & Wastewater
System Rev., 5.25%, 5/15/17
(AMBAC) $ 755
1,000 Santa Fe Educational Facilities
Rev., (College of Santa Fe),
5.875%, 10/1/21 1,018
---------
1,773
---------
NEW YORK--4.0%
1,755 New York State Dormitory Auth.
Rev., Series 1999 B,
(Community Enhancement),
4.00%, 4/1/00 1,765
---------
NORTH CAROLINA--2.2%
1,050 North Carolina Medical Care
Community Hospital Rev.,
(Halifax Regional Medical
Center), 5.00%, 8/15/24 982
---------
OREGON--5.3%
1,415 Oregon Health Housing
Educational & Cultural Facilities
Auth. Rev., 4.50%, 10/1/06 1,387
1,000 Oregon Health Housing
Educational & Cultural Facilities
Auth. Rev., 5.25%, 10/1/16 961
---------
2,348
---------
PENNSYLVANIA--14.7%
2,500 Dauphin County General Auth.
Rev., (Hyatt Regency Hotel &
Conference Center), 6.20%,
1/1/29 2,518
1,360 New Morgan Municipal Auth.
Office Rev., Series 1999 A,
(Commonwealth Office),
5.375%, 6/1/08(2) 1,337
1,000 Philadelphia School District GO,
Series 1998 A, 5.25%, 4/1/14
(MBIA) 1,015
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$1,695 Susquehanna Area Regional
Airport Auth. Rev., (Aero
Harrisburg LLC), 5.25%,
1/1/09 $ 1,669
---------
6,539
---------
TENNESSEE--0.6%
230 Tennessee Housing Development
Agency Mortgage Finance Rev.,
Series 1995 C, 6.45%, 7/1/21 245
---------
UTAH--4.7%
2,105 Bountiful Hospital Rev., (South
Davis Community Hospital),
5.125%, 12/15/05 2,107
---------
WASHINGTON--1.1%
500 Port Anacortes Rev., Series
1998 A, 5.625%, 9/1/16 499
---------
WYOMING--3.6%
1,500 Teton County Hospital District
Rev., 5.80%, 12/1/17 1,496
95 Wyoming Community
Development Auth. Rev., Series
1990 B, (Single Family
Mortgage), 8.125%, 6/1/21
(FHA) 98
---------
1,594
---------
TOTAL MUNICIPAL SECURITIES 43,510
---------
(Cost $43,431)
SHORT-TERM MUNICIPAL SECURITIES--2.0%
NEW YORK
900 New York GO, Series 1992 B,
VRDN, 3.30%, 6/1/99 (FGIC)
(SBBPA: General Electric
Capital Corp.) 900
---------
(Cost $900)
TOTAL INVESTMENT SECURITIES--100.0% $44,410
=========
(Cost $44,331)
See Notes to Financial Statements
www.americancentury.com 31
High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FHA = Federal Housing Authority
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Corporation
GO = General Obligation
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
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, 1999.
(1) Security, or a portion thereof, has been segregated at the custodian bank
for when-issued securities.
(2) 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
* 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
32 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM HIGH-YIELD
MAY 31, 1999 TAX-FREE TAX-FREE TAX-FREE MUNICIPAL
ASSETS (In Thousands Except Per-Share Amounts)
<S> <C> <C> <C> <C>
Investment securities, at value
(identified cost of $41,928,
$143,097, $111,022 and
$44,331, respectively)
(Note 3) ......................... $ 42,448 $147,102 $ 116,424 $44,410
Cash ............................. -- 223 -- --
Investment in affiliated money
market fund (Note 2) ............. -- 2 6 --
Receivable for investments sold .. -- -- 6,012 483
Interest receivable .............. 641 2,475 2,191 659
-------- -------- --------- -------
43,089 149,802 124,633 45,552
-------- -------- --------- -------
LIABILITIES
Disbursements in excess
of demand deposit cash ........... 909 -- 819 441
Payable for investments
purchased ........................ 1,023 -- 6,123 3,019
Dividends payable ................ 22 59 56 20
Accrued management
fees (Note 2) .................... 18 64 51 4
Payable for trustees'
fees and expenses ................ -- 1 -- --
-------- -------- --------- -------
1,972 124 7,049 3,484
-------- -------- --------- -------
Net Assets ....................... $ 41,117 $149,678 $ 117,584 $42,068
======== ======== ========= =======
CAPITAL SHARES
Outstanding (unlimited
number of shares
authorized) ...................... 4,056 14,406 11,222 4,158
======== ======== ========= =======
Net Asset Value Per Share ........ $ 10.14 $ 10.39 $ 10.48 $ 10.12
======== ======== ========= =======
NET ASSETS CONSIST OF:
Capital paid-in .................. $ 40,495 $145,314 $ 112,460 $41,973
Undistributed net investment
income ........................... 18 -- -- --
Accumulated undistributed
(distributions in excess of)
net realized gain on
investment transactions .......... 84 359 (278) 16
Net unrealized appreciation
on investments (Note 3) .......... 520 4,005 5,402 79
-------- -------- --------- -------
$ 41,117 $149,678 $ 117,584 $42,068
======== ======== ========= =======
</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 shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses, if any;
net gains earned on investments but not yet paid to shareholders or net losses
on investments (known as realized gains or losses); and finally, gains or losses
on securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown 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 33
<TABLE>
<CAPTION>
Statements of Operations
- --------------------------------------------------------------------------------
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM HIGH-YIELD
YEAR ENDED MAY 31, 1999 TAX-FREE TAX-FREE TAX-FREE MUNICIPAL
INVESTMENT INCOME (In Thousands)
Income:
<S> <C> <C> <C> <C>
Interest ............................ $ 1,791 $ 7,317 $ 6,419 $ 1,959
------- ------- ------- -------
Expenses (Note 2):
Management fees ..................... 204 734 604 235
Trustees' fees and expenses ......... 3 8 7 2
------- ------- ------- -------
Total expenses ...................... 207 742 611 237
Amount waived ....................... -- -- -- (233)
------- ------- ------- -------
Net expenses ........................ 207 742 611 4
------- ------- ------- -------
Net investment income ............... 1,584 6,575 5,808 1,955
------- ------- ------- -------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized gain on investments .... 188 765 411 169
Change in net unrealized
appreciation on investments ......... (139) (1,787) (2,257) (83)
------- ------- ------- -------
Net realized and unrealized
gain (loss) on investments .......... 49 (1,022) (1,846) 86
------- ------- ------- -------
Net Increase in Net Assets
Resulting from Operations ........... $ 1,633 $ 5,553 $ 3,962 $ 2,041
======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks down 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
34 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1999, PERIOD ENDED MAY 31, 1998(1)
AND YEAR ENDED OCTOBER 31, 1997
LIMITED-TERM TAX-FREE INTERMEDIATE-TERM TAX-FREE
MAY 31, MAY 31, OCT. 31, MAY 31, MAY 31, OCT. 31,
Increase (Decrease) in Net Assets 1999 1998 1997 1999 1998 1997
OPERATIONS (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net investment income ..........$ 1,584 $ 878 $ 1,796 $ 6,575 $ 3,630 $ 3,978
Net realized gain (loss)
on investments ................. 188 34 283 765 652 758
Change in net unrealized
appreciation
on investments ................. (139) 102 164 (1,787) 400 1,119
-------- -------- -------- --------- --------- ---------
Net increase in net assets
resulting from operations ...... 1,633 1,014 2,243 5,553 4,682 5,855
-------- -------- -------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ..... (1,584) (878) (1,796) (6,575) (3,630) (3,978)
From net realized gains
on investment transactions ..... (138) -- (281) (1,057) (257) (686)
-------- -------- -------- --------- --------- ---------
Decrease in net assets
from distributions ............. (1,722) (878) (2,077) (7,632) (3,887) (4,664)
-------- -------- -------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ...... 20,609 12,276 25,373 50,409 22,424 24,839
Proceeds from shares issued
in connection with
acquisition (Note 5) ........... -- -- -- -- -- 60,519
Proceeds from reinvestment
of distributions ............... 1,504 780 1,901 6,300 3,161 3,963
Payments for shares redeemed ... (19,317) (11,219) (40,869) (42,859) (20,889) (38,664)
-------- -------- -------- --------- --------- ---------
Net increase (decrease) in
net assets from capital
share transactions ............. 2,796 1,837 (13,595) 13,850 4,696 50,657
-------- -------- -------- --------- --------- ---------
Net increase (decrease)
in net assets .................. 2,707 1,973 (13,429) 11,771 5,491 51,848
NET ASSETS
Beginning of period ............ 38,410 36,437 49,866 137,907 132,416 80,568
-------- -------- -------- --------- --------- ---------
End of period ..................$ 41,117 $ 38,410 $ 36,437 $ 149,678 $ 137,907 $ 132,416
======== ======== ======== ========= ========= =========
Undistributed net
investment income ..............$ 18 -- -- -- -- --
======== ======== ======== ========= ========= =========
TRANSACTIONS IN
SHARES OF THE FUNDS
Sold ........................... 2,019 1,208 2,515 4,768 2,127 2,387
Shares issued in connection
with acquisition (Note 5) ...... -- -- -- -- -- 5,830
Issued in reinvestment of
distributions .................. 147 77 189 595 301 381
Redeemed ....................... (1,892) (1,106) (4,050) (4,060) (1,986) (3,725)
-------- -------- -------- --------- --------- ---------
Net increase (decrease) ........ 274 179 (1,346) 1,303 442 4,873
======== ======== ======== ========= ========= =========
</TABLE>
(1) The fiscal year end was changed from October 31 to May 31 for Limited-Term
Tax-Free and Intermediate-Term Tax-Free, resulting in a seven month
reporting period.
See Notes to Financial Statements
www.americancentury.com 35
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
(Continued)
YEAR ENDED MAY 31, 1999, PERIOD ENDED MAY 31, 1998(1)
AND YEAR ENDED OCTOBER 31,1997
LONG-TERM TAX-FREE HIGH-YIELD MUNICIPAL
MAY 31, MAY 31, OCT. 31, MAY 31, MAY 31,
Increase (Decrease) in Net Assets 1999 1998 1997 1999 1998
OPERATIONS (In Thousands)
<S> <C> <C> <C> <C> <C>
Net investment income ................ $5,808 $3,216 $3,377 $1,955 $106
Net realized gain (loss) on
investments ........................ 411 1,317 1,546 169 (17)
Change in net unrealized
appreciation on investments ........ (2,257) 93 853 (83) 162
---------- ---------- ---------- ---------- ---------
Net increase in net assets
resulting from operations .......... 3,962 4,626 5,776 2,041 251
---------- ---------- ---------- ---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........... (5,832) (3,216) (3,377) (1,955) (106)
From net realized gains on
investment transactions ............ (1,702) (725) (823) (136) --
In excess of net realized gains
on investment transactions ......... (278) -- -- -- --
---------- ---------- ---------- ---------- ---------
Decrease in net assets
from distributions ................. (7,812) (3,941) (4,200) (2,091) (106)
---------- ---------- ---------- ---------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............ 75,568 36,917 29,116 42,114 19,646
Proceeds from shares issued in
connection with acquisition
(Note 5) ........................... -- -- 52,028 -- --
Proceeds from reinvestment
of distributions ................... 6,209 3,148 3,588 1,678 90
Payments for shares redeemed ......... (76,958) (33,003) (38,212) (20,462) (1,093)
---------- ---------- ---------- ---------- ---------
Net increase (decrease) in
net assets from capital share
transactions ....................... 4,819 7,062 46,520 23,330 18,643
---------- ---------- ---------- ---------- ---------
Net increase (decrease) in
net assets ......................... 969 7,747 48,096 23,280 18,788
NET ASSETS
Beginning of period .................. 116,615 108,868 60,772 18,788 --
---------- ---------- ---------- ---------- ---------
End of period ........................ $117,584 $116,615 $108,868 $42,068 $18,788
========== ========== ========== ========== =========
TRANSACTIONS IN
SHARES OF THE FUNDS
Sold ................................. 6,983 3,424 2,730 4,137 1,964
Shares issued in connection
with acquisition (Note 5) .......... -- -- 4,905 -- --
Issued in reinvestment
of distributions ................... 574 292 337 164 9
Redeemed ............................. (7,119) (3,057) (3,591) (2,007) (109)
---------- ---------- ---------- ---------- ---------
Net increase (decrease) .............. 438 659 4,381 2,294 1,864
========== ========== ========== ========== =========
</TABLE>
(1) The fiscal year end was changed from October 31 to May 31 for Long-Term
Tax-Free, resulting in a seven month reporting period. For High-Yield
Municipal, the period shown is March 31, 1998 (inception) through May 31,
1998.
- --------------------------------------------------------------------------------
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 for the most recent
period
* distributions--income and gains distributed to shareholders
* capital 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
36 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
MAY 31, 1999
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. Limited-Term Tax-Free Fund (Limited-Term), Intermediate-Term Tax-Free
Fund (Intermediate-Term), Long-Term Tax-Free Fund (Long-Term) and High-Yield
Municipal Fund (High-Yield Municipal) (the funds) are four of the eight funds
issued by the trust. The funds, except High-Yield Municipal, are diversified
under the 1940 Act. The objective of Limited-Term, Intermediate-Term and
Long-Term 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. High-Yield Municipal's objective is to
seek as high a level of current income exempt from federal income taxes as is
consistent with its investment policies, which permit investment in lower-rated
and unrated securities. High-Yield Municipal invests primarily in lower-rated
debt securities, which are subject to greater credit risk and consequently offer
higher yields. Securities of this type are subject to substantial risks
including price volatility, liquidity risk and default risk. 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 are in accordance with generally accepted
accounting principles; these principles may require the use of estimates by fund
management.
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 funds' policy to distribute all net
investment income and net realized 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
gains are declared and paid annually. For the year ended May 31, 1999, 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 gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
For the seven months ended May 31, 1999, Long-Term and High-Yield Municipal
incurred net capital losses of $278,533 and $2,075, respectively. The funds have
elected to treat such losses as having been incurred in the following fiscal
year.
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 contracts 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 contracts
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, 1999.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
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. The Agreement provides that all expenses of the funds, except for
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 will be paid by ACIM. The fee is calculated daily and paid monthly. It
consists of an Investment Category Fee based on the average net assets of the
funds in a specific fund's investment category and a Complex Fee based on the
average net assets of all the funds managed by ACIM. The rates for the
Investment Category Fee range from 0.1625% to 0.2800% for Limited-Term,
Intermediate-Term, and Long-Term and the rates for High-Yield Municipal range
from 0.2925% to 0.4100%. Rates for the Complex Fee range from 0.2900% to
www.americancentury.com 37
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
0.3100%. For the year ended May 31, 1999, the effective annual management fee
was 0.51% for Limited-Term, Intermediate-Term and Long-Term. ACIM waived all
expenses for High-Yield Municipal from March 31, 1998 (inception) through April
30, 1999. As a result, the effective annual management fee for the year ended
May 31, 1999 was 0.01%. The effective annual management fee would have been
0.64% without the waiver.
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.
As of May 31, 1999, Intermediate-Term had invested $1,830, and Long-Term had
invested $5,862 in shares of Tax-Free Money Market Fund. The terms of such
transactions were identical to those with non-related entities except that, to
avoid duplicate management fees, Intermediate-Term and Long-Term did not pay
ACIM management fees with respect to assets invested in Tax-Free Money Market.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, were as follows:
INTERMEDIATE-
LIMITED-TERM TERM LONG-TERM HIGH-YIELD
TAX-FREE TAX-FREE TAX-FREE MUNICIPAL
PURCHASES (In Thousands)
Municipal Debt
Obligations ...... $19,293 $58,016 $99,652 $59,076
PROCEEDS FROM SALES (In Thousands)
Municipal Debt
Obligations ...... $16,586 $46,115 $95,892 $31,745
On May 31, 1999, 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:
INTERMEDIATE-
LIMITED-TERM TERM LONG-TERM HIGH-YIELD
TAX-FREE TAX-FREE TAX-FREE MUNICIPAL
(In Thousands)
Appreciation ....... $582 $4,647 $6,184 $ 308
Depreciation ....... (62) (642) (782) (229)
------------ ------------ ------------- -------------
Net ................ $520 $4,005 $5,402 $79
============ ============ ============= =============
The aggregate cost of investments for federal income tax purposes was the
same as the cost for financial reporting purposes for the funds.
- --------------------------------------------------------------------------------
4. BANK LOANS
Effective December 18, 1998, the funds, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The funds may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The funds did
not borrow from the line during the period December 18, 1998 through May 31,
1999.
38 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
MAY 31, 1999
- --------------------------------------------------------------------------------
5. 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.
- --------------------------------------------------------------------------------
6. FUND EVENTS
The following name changes became effective March 1, 1999:
=====================================================================
NEW NAME FORMER NAME
=====================================================================
FUND: Limited-Term Tax-Free Fund American Century - Benham Limited-Term
Tax-Free Fund
FUND: Intermediate-Term American Century - Benham
Tax-Free Fund Intermediate-Term Tax-Free Fund
FUND: Long-Term Tax-Free Fund American Century - Benham Long-Term
Tax-Free Fund
FUND: High-Yield Municipal Fund American Century - Benham High-Yield
Municipal Fund
www.americancentury.com 39
<TABLE>
<CAPTION>
Limited-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
1999 1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $10.16 $10.11 $10.08 $10.09 $9.95 $10.04
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............. 0.40 0.24 0.41 0.43 0.44 0.36
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ...................... 0.01 0.05 0.10 (0.01) 0.14 (0.09)
-------- -------- -------- -------- -------- --------
Total From Investment Operations .. 0.41 0.29 0.51 0.42 0.58 0.27
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ........ (0.40) (0.24) (0.41) (0.43) (0.44) (0.36)
From Net Realized Gains on
Investment Transactions ........... (0.03) -- (0.07) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ............... (0.43) (0.24) (0.48) (0.43) (0.44) (0.36)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ...... $10.14 $10.16 $10.11 $10.08 $10.09 $9.95
======== ======== ======== ======== ======== ========
Total Return(2) ................... 4.15% 2.87% 5.22% 4.26% 5.95% 2.75%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51% 0.52%(3) 0.59% 0.38%(4) --(4) --(4)
Ratio of Net Investment Income
to Average Net Assets ............... 3.93% 4.04%(3) 4.05% 4.28% 4.38% 3.62%
Portfolio Turnover Rate ............. 41% 28% 74% 68% 78% 42%
Net Assets, End of Period
(in thousands) ......................$41,117 $38,410 $36,437 $49,866 $58,837 $60,857
</TABLE>
(1) The period ended May 31, 1998 represents a seven month reporting period. The
fund's fiscal year end was changed from October 31 to May 31 during the
period. Periods prior to 1998 are based on a fiscal year ended October 31.
(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.
(4) ACIM 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--These statements itemize current period
activity and statistics and provide 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
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
40 1-800-345-2021
<TABLE>
<CAPTION>
Intermediate-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
1999 1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $10.52 $10.46 $10.35 $10.45 $10.01 $10.75
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............. 0.48 0.28 0.49 0.48 0.49 0.48
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ...................... (0.05) 0.08 0.21 (0.03) 0.52 (0.61)
-------- -------- -------- -------- -------- --------
Total From Investment Operations .. 0.43 0.36 0.70 0.45 1.01 (0.13)
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ........ (0.48) (0.28) (0.49) (0.48) (0.49) (0.48)
From Net Realized Gains on
Investment Transactions ........... (0.08) (0.02) (0.10) (0.07) (0.08) (0.13)
-------- -------- -------- -------- -------- --------
Total Distributions ............... (0.56) (0.30) (0.59) (0.55) (0.57) (0.61)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ...... $10.39 $10.52 $10.46 $10.35 $10.45 $10.01
======== ======== ======== ======== ======== ========
Total Return(2) ................... 4.07% 3.50% 6.88% 4.47% 10.41% (1.25)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51% 0.51%(3) 0.58% 0.60% 0.60% 0.60%
Ratio of Net Investment Income
to Average Net Assets ............... 4.52% 4.62%(3) 4.71% 4.66% 4.77% 4.59%
Portfolio Turnover Rate ............. 32% 17% 35%(4) 39% 32% 74%
Net Assets, End of Period
(in thousands) ......................$149,678 $137,907 $132,416 $80,568 $80,248 $81,400
</TABLE>
(1) The period ended May 31, 1998 represents a seven month reporting period. The
fund's fiscal year end was changed from October 31 to May 31 during the
period. Periods prior to 1998 are based on a fiscal year ended October 31.
(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.
(4) 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 Notes to Financial Statements
www.americancentury.com 41
<TABLE>
<CAPTION>
Long-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
1999 1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $10.81 $10.75 $10.58 $10.54 $9.75 $11.10
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............. 0.52 0.31 0.55 0.53 0.53 0.52
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ...................... (0.15) 0.13 0.33 0.04 0.83 (1.01)
-------- -------- -------- -------- -------- --------
Total From Investment Operations .. 0.37 0.44 0.88 0.57 1.36 (0.49)
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ........ (0.52) (0.31) (0.55) (0.53) (0.53) (0.52)
From Net Realized Gains
on Investment Transactions ........ (0.16) (0.07) (0.16) -- (0.04) (0.34)
In Excess of Net Realized Gains
on Investment Transactions ........ (0.02) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ............... (0.70) (0.38) (0.71) (0.53) (0.57) (0.86)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ...... $10.48 $10.81 $10.75 $10.58 $10.54 $9.75
======== ======== ======== ======== ======== ========
Total Return(2) ................... 3.44% 4.18% 8.59% 5.60% 14.45% (4.70)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51% 0.51%(3) 0.58% 0.59% 0.59% 0.60%
Ratio of Net Investment Income
to Average Net Assets ............... 4.86% 4.96%(3) 5.16% 5.06% 5.24% 5.00%
Portfolio Turnover Rate ............. 80% 47% 65%(4) 60% 61% 66%
Net Assets, End of Period
(in thousands) ......................$117,584 $116,615 $108,868 $60,772 $57,997 $50,964
</TABLE>
(1) The period ended May 31, 1998 represents a seven month reporting period. The
fund's fiscal year end was changed from October 31 to May 31 during the
period. Periods prior to 1998 are based on a fiscal year ended October 31.
(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.
(4) 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 Notes to Financial Statements
42 1-800-345-2021
High-Yield Municipal--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
1999 1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period .... $ 10.08 $ 9.99
---------- ----------
Income From Investment Operations
Net Investment Income ................... 0.54 0.09
Net Realized and Unrealized Gain
on Investment Transactions .............. 0.07 0.09
---------- ----------
Total From Investment Operations ........ 0.61 0.18
---------- ----------
Distributions
From Net Investment Income .............. (0.54) (0.09)
From Net Realized Gains on
Investment Transactions ................. (0.03) --
---------- ----------
Total Distributions ..................... (0.57) (0.09)
---------- ----------
Net Asset Value, End of Period .......... $ 10.12 $ 10.08
========== ==========
Total Return(2) ......................... 6.18% 1.81%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ................ 0.01% --
Ratio of Net Investment Income
to Average Net Assets(3) ................ 5.28% 5.38%(4)
Portfolio Turnover Rate ................. 92% 44%
Net Assets, End of Period
(in thousands) .......................... $ 42,068 $ 18,788
(1) March 31, 1998 (inception) 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) ACIM voluntarily agreed to pay all expenses of the fund from March 31, 1998
(inception) through April 30, 1999. In absence of the waiver, the ratio of
operating expenses to average net assets would have been 0.64% for both
periods (annualized for the period in 1998) and the ratio of net investment
income to average net assets would have been 4.66% and 4.74% (annualized),
for the year ended May 31, 1999 and the period March 31, 1998 through May
31, 1998, respectively.
(4) Annualized.
See Notes to Financial Statements
www.americancentury.com 43
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of the American Century Municipal Trust and Shareholders of the
Limited-Term Tax-Free Fund, Intermediate-Term Tax-Free Fund, Long-Term Tax-Free
Fund and High Yield Municipal Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Limited-Term Tax-Free Fund, the
Intermediate-Term Tax-Free Fund, the Long-Term Tax-Free Fund and the High Yield
Municipal Fund ( formerly the American Century - Benham Limited-Term Tax-Free
Fund, the American Century - Benham Intermediate-Term Tax-Free Fund, the
American Century -Benham Long-Term Tax-Free Fund and the American Century -
Benham High Yield Municipal Fund, respectively ) ( four of the funds
constituting the American Century Municipal Trust, hereafter referred to as the
"Funds") at May 31, 1999, and the results of their operations for the year then
ended, the changes in their net assets and the financial highlights for the year
ended May 31, 1999, the period November 1, 1997 through May 31, 1998 and the
year ended October 31, 1997 for the Limited-Term Tax-Free Fund,
Intermediate-Term Tax-Free Fund and Long-Term Tax-Free Fund and the period March
31, 1998 through May 31, 1998 for the High Yield Municipal Fund, in conformity
with generally accepted accounting principles. 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. The financial
highlights for each of the three 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. 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, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 12, 1999
44 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios 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.
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, which are
subject to greater credit and liquidity risk. The fund has no average maturity
restrictions but is expected to maintain a weighted average maturity of 10 years
or more.
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 has 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 has an
average maturity of five years. The bonds are rated BBB or higher by Standard &
Poor's, with an average rating of AA.
The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of
investment-grade municipal bonds with maturities greater than 22 years.
LIPPER RANKINGS
LIPPER 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 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).
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
BRYAN KARCHER
DAVE MACEWEN
STEVEN PERMUT
KEN SALINGER
MUNICIPAL CREDIT
RESEARCH TEAM
MANAGER
STEVEN PERMUT
MUNICIPAL CREDIT ANALYSTS
DAVID MOORE
ROBERT MILLER
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
www.americancentury.com 45
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 40-43.
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.
46 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
* 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).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income,
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 47
Notes
- --------------------------------------------------------------------------------
48 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9907 Funds Distributor, Inc.
SH-ANN-17028 (c)1999 American Century Services Corporation
