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MAY 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
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Arizona Intermediate-Term Municipal
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American
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[left margin]
ARIZONA INTERMEDIATE-TERM
MUNICIPAL
(BEAMX)
-----------------------
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Our Message to You
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[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The 12 months ended May 31, 2000, provided a difficult environment for U.S.
bond funds: a strong economy, inflation fears, and rising interest rates. Trying
to keep economic growth and inflation under control, the Federal Reserve raised
short-term interest rates six times during the last 12 months, putting pressure
on bond prices.
Despite these challenges, American Century Arizona Intermediate-Term
Municipal fund continued to provide above-average yields and returns and
below-average expenses (according to Lipper Inc., an independent mutual fund
ranking service).
The fund's low expenses and competitive yields have helped it place in the
top 10% of its peer group for the last five years (see page 5 for more
performance information). Our investment management team reviews the period and
the fund's performance in more detail beginning on page 6.
Turning to corporate matters, we're proud to announce that American
Century's fund performance reports, like this one, earned the Communications
Seal from DALBAR, Inc., an independent financial services research firm. They
commended us for meeting investors' needs with an attractive document that's
easy to read and understand.
We're also pleased to provide investors with two new investment tools. Fund
Advisor,(1) an online advice engine, is designed to give impartial guidance in
choosing the right no-load mutual funds to meet your financial goals.(2) And
American Century is the program manager for Learning Quest,(SM) an educational
savings program launched by the state of Kansas on July 1 that allows parents to
invest tax-deferred to meet higher education costs. The summer issue of the
American Century quarterly newsletter--Investor Perspective--provides more
details on these tools.
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
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(2) American Century does not receive sales commissions or direct compensation
for recommending any fund, although it may receive management, service, or
other fees from funds recommended through Fund Advisor. These arrangements
are described in Acumation Inc.'s Form ADV Part II.
[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 ......................................................... 10
Statement of Operations ................................................ 11
Statements of Changes
in Net Assets ....................................................... 12
Notes to Financial
Statements .......................................................... 13
Financial Highlights ................................................... 15
Report of Independent
Accountants ......................................................... 16
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 17
Comparative Indices ................................................. 17
Lipper Rankings ..................................................... 17
Credit Rating
Guidelines ....................................................... 17
Investment Team
Leaders .......................................................... 17
Glossary ............................................................... 18
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* Rising interest rates muted municipal bond returns during the year ended May
31, 2000.
* Shorter-maturity bonds outperformed longer-maturity ones.
* Strong economic growth and a booming U.S. stock market led the Federal
Reserve to raise short-term interest rates six times during the 12-month
period.
* Higher rates and a strong U.S. economy helped reduce municipal bond supply
by the second quarter of 2000, while higher bond yields attracted more
demand.
* Investment-grade municipal bonds outperformed lower-rated and non-rated
bonds because of tax-loss selling and concerns about health care and public
power bonds in the high-yield sector.
ARIZONA MUNICIPAL CREDIT REVIEW
* Arizona municipal credit quality improved during the year ended May 31,
2000.
* Service industry growth, led by call center and Internet company expansions,
continued to be a pillar of support for Arizona's growing employment base,
accounting for over half of the increase in employment opportunities.
* Arizona's solid economic growth helped boost personal incomes. Incomes in
2000 are on track to rise by around 8.1%, up from a 7.1% increase during
1999.
* Strong population growth in Arizona continued, though net in-migration has
slowed by 1998's vibrant standards.
* The state's strong demographic trends and growing high-tech exposure should
bode well for its municipal credit quality going forward.
MANAGEMENT Q&A
* Arizona Intermediate-Term Municipal continued to outpace nearly all of its
Lipper peers, though rising interest rates dampened absolute performance.
(See fund performance information on page 5.)
* For the three-year period ended May 31, 2000, Arizona Intermediate-Term
Municipal outpaced all of its Lipper peers.
* Duration management and strategic positioning of the portfolio's bond
maturity structure played a big part in helping the fund outperform its peer
group.
* We generally kept the fund's duration--a measure of sensitivity to changes
in interest rates--fairly close to that of its Lipper group, but began
lengthening it some toward the end of May.
* The portfolio's concentration in two- to four-year notes, and 10-year-plus
maturity bonds enhanced returns as the municipal yield curve
flattened--short-term bond yields rose more than long-term ones.
[left margin]
ARIZONA INTERMEDIATE-TERM
MUNICIPAL (BEAMX)
TOTAL RETURNS: AS OF 5/31/00
6 Months 1.08%*
1 Year 0.20%
30-DAY SEC YIELD: 4.97%
INCEPTION DATE: 4/11/94
NET ASSETS: $40.6 million
* Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on pages 18-19.
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 at American Century
RISING YIELDS, FALLING PRICES
Strong economic growth and rising interest rates muted municipal bond
returns during the 12 months ended May 31, 2000. In this environment,
shorter-maturity bonds outperformed longer-maturity ones (see the index returns
table at right). Long-term municipal bonds also lost some ground to long-term
Treasurys, which benefited from government plans to reduce Treasury issuance and
supply.
In an effort to rein in the U.S. economy, the Federal Reserve raised
short-term interest rates six times during the 12-month period. The most recent
rate hike was a half-percentage-point increase in May 2000, the largest rate
hike in five years. This yearlong rate-raising effort pushed the fed funds
target--the rate used for overnight loans between banks--up nearly two
percentage points, to 6.5%, the highest level in nine years. As short-term
interest rates soared, municipal bond yields rose and prices fell.
Municipal bond yields reached their highest levels in several years. For an
investor in the 39.6% federal tax bracket, a 30-year AAA-rated municipal bond
that yielded approximately 5.95% on May 31, 2000 (up from about 5.05% on May 31,
1999), offered a tax-equivalent yield of approximately 9.85%. That compared very
favorably with the 6.01% yield on the 30-year U.S. Treasury bond on May 31,
2000.
LESS SUPPLY, MORE DEMAND
The municipal market began to rebound as supply and demand conditions
improved, particularly during the second quarter of 2000. On the supply side,
the strong economy bolstered the financial stability of many municipal issuers
and curtailed their borrowing needs. In addition, refinancing of old debt came
to a virtual standstill as higher interest rates eliminated the financial
incentive to retire old debt.
Meanwhile, the demand for municipal bonds firmed. Stock market volatility
and attractive yields triggered increased buying activity in the municipal
market.
HIGH-QUALITY BONDS OUTPERFORM
Investment-grade municipal bonds (those rated BBB or higher) outpaced
lower-rated and non-rated bonds-- the so-called "high-yield sector"--during the
period. Much of this sector's underperformance can be attributed to heavy
tax-loss selling from late 1999 through early 2000, and concerns about health
care bonds and public power bonds, which tainted the entire high-yield market.
We think the high-yield sell-off was overdone--the strength of the U.S. economy
lifted the credit quality of the high-yield sector, as well as the municipal
market as a whole.
[right margin]
"AS SHORT-TERM INTEREST RATES SOARED, MUNICIPAL BOND YIELDS ROSE AND PRICES
FELL."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED MAY 31, 2000
MERRILL LYNCH 0- TO 3-YEAR
MUNICIPAL INDEX 2.68%
LEHMAN BROS. 5-YEAR
MUNICIPAL GO INDEX 0.65%
LEHMAN BROS. LONG-TERM
MUNICIPAL BOND INDEX -4.45%
Source: Lipper Inc. and Russell/Mellon Analytical Services
[line graph - data below]
RISING & FLATTENING MUNICIPAL YIELD CURVE
5/31/99 11/30/99 5/31/00
YEARS TO
MATURITY
1 3.29% 3.89% 4.70%
2 3.52% 4.12% 4.89%
3 3.71% 4.30% 4.99%
4 3.88% 4.44% 5.06%
5 4.00% 4.55% 5.11%
6 4.10% 4.64% 5.15%
7 4.19% 4.72% 5.19%
8 4.28% 4.80% 5.23%
9 4.37% 4.88% 5.27%
10 4.45% 4.96% 5.31%
11 4.53% 5.06% 5.36%
12 4.61% 5.14% 5.42%
13 4.67% 5.22% 5.47%
14 4.75% 5.30% 5.53%
15 4.84% 5.38% 5.59%
16 4.88% 5.44% 5.64%
17 4.92% 5.50% 5.70%
18 4.96% 5.56% 5.75%
19 4.99% 5.62% 5.81%
20 5.02% 5.68% 5.87%
21 5.03% 5.68% 5.88%
22 5.04% 5.69% 5.89%
23 5.05% 5.69% 5.90%
24 5.05% 5.70% 5.91%
25 5.06% 5.71% 5.91%
26 5.06% 5.71% 5.92%
27 5.06% 5.71% 5.92%
28 5.07% 5.72% 5.93%
29 5.07% 5.72% 5.93%
30 5.08% 5.73% 5.94%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Municipal Credit Review
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CREDIT SNAPSHOT
Arizona municipal credit quality improved during the year ended May 31,
2000. As has been the case in recent years, job growth, rising personal incomes,
and a swelling population all contributed to the state's fiscal soundness.
A GROWING EMPLOYMENT BASE
Service industry growth, led by call center and Internet company
expansions, continued to be a pillar of support for Arizona's growing employment
base, accounting for over half of the increase in employment opportunities.
Expansion among Arizona's semiconductor manufacturers was also part of the
story. Employment growth during 2000 is currently on track to meet 1999 levels,
while the unemployment rate could fall to around 4.0%, which would be a 30-year
low.
HIGHER INCOMES
Arizona's solid economic growth has also helped boost personal incomes.
Incomes in 2000 are on track to rise by around 8.1%, up from a 7.1% increase
during 1999. In spite of that overall growth, Arizona still has one of the
widest gaps between the rich and poor of any state, though recent data indicate
that the gap may have narrowed slightly over the past few years.
AN EXPANDING POPULATION
Strong population growth continued, though net in-migration has slowed by
1998's vibrant standards. The state's warm weather continued to attract
retirees, who flowed into Arizona at four times the national average. Abundant
job growth also attracted younger migrants. Tucson, one of the state's largest
metropolitan areas, benefited strongly from the residential influx, accelerating
to become one of the fastest growing metro areas in the nation. In fact,
Tucson's credit ratings were upgraded in June 2000, reflecting the growth in
southern Arizona's major employment center. Arizona's resident growth in 2000 is
on track to exceed 1999 levels.
LOOKING AHEAD
Overall, we expect Arizona to remain one of the fastest-growing states in
the nation. Arizona's growing participation in high-tech industries has shifted
its economy away from heavy dependence on tourism and natural resource
industries, such as cattle, citrus, and copper. As the economy continues to
become more diverse, the state should also become better able to withstand
economic downturns. However, increased dependence on economically sensitive
revenues could leave Arizona's improving financial position vulnerable to a
pronounced slowdown. Nevertheless, the state's strong demographic trends and
growing high-tech exposure should bode well for its municipal credit quality
going forward.
CAREFUL CREDIT RESEARCH
To help ensure that the municipal securities chosen for the Arizona
Intermediate-Term Municipal fund match our strict criteria, our seasoned credit
research team looks closely at the underlying credit stories behind the
securities that we consider for the portfolio. We believe that improves our
ability to find undervalued municipal bonds for the fund that can potentially
translate into better yields and higher returns for our shareholders.
[left margin]
"THE STATE'S STRONG DEMOGRAPHIC TRENDS AND GROWING HIGH-TECH EXPOSURE SHOULD
BODE WELL FOR ITS MUNICIPAL CREDIT QUALITY 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
Arizona Intermediate-Term Municipal--Performance
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TOTAL RETURNS AS OF MAY 31, 2000
ARIZONA LEHMAN 5-YEAR OTHER STATES INTERM.
INTERMEDIATE-TERM MUNICIPAL MUNI. DEBT FUNDS(2)
MUNICIPAL GO INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.08% 0.58% 0.34% --
1 YEAR 0.20% 0.65% -1.29% 2 OUT OF 78
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS(3) 3.93% 4.13% 3.04% 1 OUT OF 69
5 YEARS(3) 4.44% 4.64% 3.79% 4 OUT OF 58
LIFE OF FUND(3) 5.17% 5.14%(4) 4.38%(5) 1 OUT OF 43(5)
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 3/31/94, the date nearest the fund's inception for which return data
are available.
(5) Since 4/30/94, the date nearest the fund's inception for which return data
are available.
See pages 17-18 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 5/31/00
Arizona Intermediate-Term Municipal $13,626
Lehman 5-Year Municipal GO Index $13,378
Arizona Lehman 5-Year
Intermediate-Term Municipal
Municipal GO Index
DATE VALUE VALUE
4/11/1994 $10,000 $10,000
6/30/1994 $10,170 $10,134
9/30/1994 $10,309 $9,938
12/31/1994 $10,204 $10,268
3/31/1995 $10,674 $10,689
6/30/1995 $10,969 $10,957
9/30/1995 $11,248 $11,129
12/31/1995 $11,546 $11,285
3/31/1996 $11,485 $11,195
6/30/1996 $11,548 $11,373
9/30/1996 $11,736 $11,726
12/31/1996 $11,978 $11,823
3/31/1997 $11,935 $11,876
6/30/1997 $12,252 $12,133
9/30/1997 $12,539 $12,356
12/31/1997 $12,803 $12,592
3/31/1998 $12,892 $12,702
6/30/1998 $13,044 $12,959
9/30/1998 $13,457 $13,137
12/31/1998 $13,557 $13,312
3/31/1999 $13,638 $13,324
6/30/1999 $13,416 $13,246
9/30/1999 $13,439 $13,333
12/31/1999 $13,429 $13,324
3/31/2000 $13,714 $13,410
5/31/2000 $13,626 $13,378
$10,000 investment made 4/11/94
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 Municipal 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 ENDED MAY 31)
Arizona Lehman 5-Year
Intermediate-Term Municipal
Municipal GO Index
DATE RETURN RETURN
5/31/1994* 0.92% 0.56%
5/31/1995 7.52% 6.89%
5/31/1996 4.65% 4.74%
5/31/1997 5.77% 6.08%
5/31/1998 7.19% 6.95%
5/31/1999 4.51% 4.90%
5/31/2000 0.20% 0.65%
* 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 Municipal--Q&A
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[photo of Ken Salinger]
An interview with Ken Salinger, a portfolio manager on the Arizona
Intermediate-Term Municipal fund investment team.
HOW DID THE FUND PERFORM DURING THE YEAR ENDED MAY 31, 2000?
Arizona Intermediate-Term Municipal continued to outpace nearly all of its
Lipper peers, though rising interest rates (see page 3) dampened absolute
performance. The fund returned 0.20% for the year, compared with the -1.29%
average return of the 78 funds in Lipper Inc.'s "Other States Intermediate
Municipal Debt Funds" category.
Based on that performance, Arizona Intermediate-Term Municipal ranked
second in its Lipper group for the year ended May 31, 2000. For the three-year
period ended the same, Arizona Intermediate-Term Municipal outpaced all of its
Lipper peers, while ranking in the top 10% for the five-year period. The fund's
benchmark, the Lehman 5-Year GO Index, returned 0.65% for the 12 months. (See
Total Returns on the previous page.)
In addition, Arizona Intermediate-Term Municipal's 30-day SEC yield of
4.97% on May 31, 2000, compared very favorably with the 4.38% average yield of
Lipper's Other States Intermediate Municipal Debt funds category.
WHAT WERE SOME OF THE REASONS BEHIND THE FUND'S ONGOING SUCCESS?
The techniques that we discussed in Arizona Intermediate-Term Municipal's
previous report--November 30, 1999, semiannual--remained key contributors. So
elements such as duration management and strategic positioning of the
portfolio's bond maturity structure played a big part in helping the fund
outperform.
Low expenses were another important ingredient. As of May 31, 2000, fund
expenses were only 0.51%, compared with the 0.95% average expenses charged by
the fund's Lipper peers.
YOU MENTIONED THAT DURATION MANAGEMENT PLAYED A ROLE IN ARIZONA
INTERMEDIATE-TERM MUNICIPAL'S POSITIVE PERFORMANCE. CAN YOU ELABORATE?
We generally keep the fund's duration--a measure of sensitivity to changes
in interest rates--fairly close to that of its Lipper group. Such positioning is
important because making large duration bets can lead to unpredictable returns.
So we keep duration on a short leash. Over the last six months, for
example, we kept duration in a range around 5.3 to 5.6 years, roughly neutral to
the fund's Lipper group. We began extending duration some toward the end of May
by adding some longer-term discount municipals--ones around the 15-year-plus
maturity range--which had become especially attractive relative to shorter-term
bonds.
By the end of May, Arizona Intermediate-Term Municipal's duration was
slightly longer than that of its peers at around 5.6 years. As municipal bond
prices have generally risen and yields have fallen since that time, the position
has added to the returns we generated with other strategies.
[left margin]
"ARIZONA INTERMEDIATE-TERM MUNICIPAL RANKED SECOND IN ITS LIPPER GROUP FOR THE
YEAR ENDED MAY 31, 2000."
YIELDS AS OF MAY 31, 2000
30-DAY SEC YIELD 4.97%
30-DAY TAX-EQUIVALENT YIELDS
31.02% TAX BRACKET 7.20%
33.90% TAX BRACKET 7.52%
34.59% TAX BRACKET 7.60%
39.33% TAX BRACKET 8.19%
PORTFOLIO AT A GLANCE
5/31/00 5/31/99
NUMBER OF SECURITIES 42 53
WEIGHTED AVERAGE
MATURITY 9.4 YRS 9.7 YRS
AVERAGE DURATION 5.6 YRS 5.6 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 18-19.
6 1-800-345-2021
Arizona Intermediate-Term Municipal--Q&A
--------------------------------------------------------------------------------
(Continued)
WHAT OTHER STRATEGIES DID YOU USE TO BOOST PERFORMANCE OVER THE LAST YEAR?
Arizona Intermediate-Term Municipal's bond maturity structure also helped.
Six months ago the fund was fairly barbelled--heavily weighted in bonds with
short and long maturities, with little in between. We accomplished that position
by concentrating on bonds in the two to four, and 10-year-plus areas. That paid
off as the municipal yield curve flattened--short-term bond yields rose more
than long-term ones.
We've begun reducing that barbell slightly, but historically low issuance
has made changing the portfolio's structure difficult.
CAN YOU PUT THAT LOW ISSUANCE IN BETTER PERSPECTIVE?
During the first six months of 1998, Arizona released around $2.4 billion
in new municipals, while during the same period in 1999, issuance ran at around
$1.3 billion. Projections for the first six months of 2000 are even lower. In
fact, we may only see around $700 million in new municipal bonds.
WHY THE STEADY DECLINE IN ARIZONA MUNICIPAL ISSUANCE?
The Students FIRST (Fair and Immediate Resources for Students Today) Act of
1998 is the primary driver. As we mentioned in the fund's May 31, 1998, report,
the legislation is aimed at creating uniform educational standards in Arizona.
To accomplish that objective, the Act has changed the way state funding is given
to, and raised by, the various school districts.
One result, as we predicted back in 1998, has been reduced municipal
securities issued by Arizona school districts. Our seasoned credit research team
has monitored the Act from the start, so the reduced supply comes as no surprise
to us.
SPEAKING OF SUPPLY, WHAT'S YOUR NEAR-TERM OUTLOOK FOR THE ARIZONA MUNICIPAL BOND
MARKET?
July is a big month for Arizona municipal securities--many bonds will
mature or pay interest to bond holders. Even though not all of the money that
becomes available will necessarily work its way back into the municipal market,
a good portion should. In fact, we could conceivably see more than twice as much
money become available for reinvestment as we've seen issuance so far this year.
So the result should spell higher bond prices and lower yields.
WHILE WE'RE LOOKING FORWARD, WHAT DO YOU SEE AHEAD FOR INTEREST RATES?
We're adopting a wait-and-see approach for now, but wouldn't be overly
surprised if the Federal Reserve raised rates one or two more times. Although
the Fed raised rates six times over the last year, signs of slowing economic
growth are only beginning to appear and are still somewhat sporadic. In
addition, oil prices are close to nine-year highs, and consumer prices are
rising much faster this year than they did during 1998 or 1999. So there's still
a great deal of uncertainty in the market.
WITH THOSE PERSPECTIVES IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
In spite of the clouded outlook for interest rates, we will probably keep
duration slightly long relative to the fund's Lipper peers for now. That should
enhance returns in July, when we expect to see prices rise and yields fall due
to heightened demand.
We will also continue to closely monitor the municipal yield curve--a
graphic representation of the relationship between bond prices and yields--in
hopes of finding bonds that offer attractive yields relative to other
maturities.
[right margin]
TOP FIVE SECTORS (AS OF 5/31/00)
% OF FUND INVESTMENTS
GO 48%
ELECTRIC REVENUE 9%
SPECIAL TAX REVENUE 9%
COPS/LEASES 7%
TAX ALLOCATION REVENUE 7%
TOP FIVE SECTORS (AS OF 11/30/99)
% OF FUND INVESTMENTS
GO 48%
ELECTRIC REVENUE 9%
COPS/LEASES 9%
SPECIAL TAX REVENUE 8%
INDUSTRIAL DEVELOPMENT REVENUE 7%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
AAA 63% 64%
AA 18% 20%
A 10% 7%
BBB 9% 9%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 17
for more information.
www.americancentury.com 7
Arizona Intermediate-Term Municipal--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 100.0%
ARIZONA -- 85.4%
$1,000,000 Arizona COP, Series 1992 B,
5.90%, 9/1/02 (AMBAC) $ 1,019,710
1,000,000 Arizona Student Loan Acquisition
Auth. Rev., Series 1999 A-1,
5.65%, 5/1/14 (Guaranteed:
Student Loans) 979,870
250,000 Buckeye Excise Tax Rev., 5.90%,
8/1/20 (AMBAC) 247,852
900,000 Coconino & Yavapai Counties
Joint Unified School District
No. 9, Series 1994 C, (Sedona
Project of 1992), 5.60%,
7/1/06 (FGIC) 915,192
1,000,000 Coconino County Unified School
District No. 1 Flagstaff GO,
5.25%, 7/1/03 (FSA) 1,006,020
1,000,000 East Valley Institute of Technology
No. 401 GO, 5.00%, 7/1/03
(AMBAC) 998,970
545,000 Gilbert County GO, Series
1994 C, 6.00%, 7/1/02 (MBIA) 556,222
1,200,000 Glendale Industrial Development
Auth. Rev., Series 1998 A,
(Midwestern University), 5.375%,
5/15/28 1,019,940
705,000 Maricopa County COP, 5.625%,
6/1/00 705,000
500,000 Maricopa County GO, 6.25%,
7/1/03 (FGIC) 516,690
1,000,000 Maricopa County Hospital Rev.,
(Sun Health Corp.), 5.75%,
4/1/07 975,850
500,000 Maricopa County Industrial
Development Auth. Hospital
Facility Rev., (Samaritan Health
Services), 7.15%, 12/1/04
(MBIA)(1) 531,330
1,000,000 Maricopa County School District
No. 4 Mesa GO, Series 1993 E,
5.25%, 7/1/03 (FGIC) 1,005,740
1,750,000 Maricopa County School District
No. 40 Glendale GO, 6.25%,
7/1/10 (FSA) 1,830,990
1,000,000 Maricopa County Unified School
District No. 1 GO, (Phoenix
Elementary), 5.50%, 7/1/09
(MBIA) 1,014,600
1,000,000 Maricopa County Unified School
District No. 201 GO, Series
1992 E, (Phoenix), 7.10%,
7/1/04(2) 1,070,970
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) 1,025,100
Principal Amount Value
--------------------------------------------------------------------------------
$1,000,000 Maricopa County Unified School
District No. 48 GO, (Scottsdale),
6.60%, 7/1/12 $ 1,108,160
1,000,000 Maricopa County Unified School
District No. 90 GO, (Ruth Fisher
Elementary), 5.375%, 7/1/00 1,000,370
1,000,000 Mesa Utility System Rev., 5.25%,
7/1/16 (FGIC) 947,430
1,000,000 Peoria GO, 5.00%, 4/1/17 (FGIC) 908,170
300,000 Phoenix Airport Rev., Series
1994 C, 5.50%, 7/1/01
(MBIA) 301,941
1,255,000 Phoenix Civic Improvement Corp.
Airport Rev., Series 1998 B,
(Senior Lien), 5.00%, 7/1/03
(FSA) 1,252,992
1,000,000 Phoenix Civic Improvement Corp.
Wastewater System Rev., (Junior
Lien), 6.25%, 7/1/17 (FGIC)(3) 1,040,920
550,000 Phoenix GO, 6.00%, 7/1/01 557,469
1,450,000 Phoenix GO, Series 1995 B,
5.25%, 7/1/15 1,389,447
2,020,000 Phoenix Industrial Development
Auth. Single Family Mortgage
Rev., Series 1998 A, 6.60%,
12/1/29
(GNMA/FNMA/FHLMC) 2,097,083
500,000 Phoenix Street and Highway Rev.,
5.95%, 7/1/00 500,525
1,000,000 Pima County Unified School
District No. 10 GO,
(Amphitheater), 7.00%,
7/1/05 (MBIA) 1,080,140
1,000,000 Pima County Unified School
District No. 12 GO, (Sunnyside),
5.50%, 7/1/09 (MBIA) 1,009,460
1,000,000 Salt River Project Agricultural
Improvement and Power District
Electric System Rev., Series
1993 B, 6.50%, 1/1/04 1,043,770
480,000 Scottsdale GO, 7.50%, 7/1/02 503,678
1,600,000 Scottsdale GO, 6.25%, 7/1/15 1,677,232
1,000,000 Sedona COP, 5.75%, 7/1/20 918,060
525,000 Tucson COP, 5.70%, 7/1/02 525,100
1,000,000 Tucson Street and Highway Rev.,
5.70%, 7/1/01 1,010,240
500,000 Yavapai County Unified School
District No. 28 GO, (Camp
Verde), 6.10%, 7/1/04 (FGIC) 517,395
-----------
34,809,628
-----------
PUERTO RICO -- 12.2%
1,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1997 AA, 5.375%,
7/1/27 (MBIA) 925,580
2,410,000 Puerto Rico Electric Power Auth.
Rev., Series 1998 DD, 5.00%,
7/1/28 (FSA) 2,087,494
1,000,000 Puerto Rico Municipal Finance
Agency, Series 1997 A, 5.50%,
7/1/17 (FSA) 976,690
8 1-800-345-2021 See Notes to Financial Statements
Arizona Intermediate-Term Municipal--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$1,000,000 Puerto Rico Municipal Finance
Agency, Series 1999 A, 5.00%,
8/1/02 $ 999,220
-----------
4,988,984
-----------
VIRGIN ISLANDS -- 2.4%
1,000,000 Virgin Islands Public Finance
Auth. Rev., Series 1999 A,
5.00%, 10/1/04 979,180
-----------
TOTAL INVESTMENT SECURITIES -- 100.0% $40,777,792
===========
(Cost $41,290,894)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates 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
MBIA = MBIA Insurance Corp.
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(3) When-issued security.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
MAY 31, 2000
ASSETS
Investment securities, at value
(identified cost of $41,290,894)
(Note 3) ............................................... $ 40,777,792
Cash ..................................................... 355
Interest receivable ...................................... 890,382
------------
41,668,529
------------
LIABILITIES
Payable for investments purchased ........................ 1,029,951
Dividends payable ........................................ 26,556
Accrued management fees (Note 2) ......................... 17,402
Payable for trustees' fees and expenses .................. 210
------------
1,074,119
------------
Net Assets ............................................... $ 40,594,410
============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................................. 4,009,595
============
Net Asset Value Per Share ................................ $ 10.12
============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $ 41,597,353
Accumulated net realized loss
on investment transactions ............................. (489,841)
Net unrealized depreciation
on investments (Note 3) ................................ (513,102)
------------
$ 40,594,410
============
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
YEAR ENDED MAY 31, 2000
INVESTMENT INCOME
Income:
Interest ................................................... $ 2,153,503
-----------
Expenses (Note 2):
Management fees ............................................ 208,939
Trustees' fees and expenses ................................ 2,594
-----------
211,533
-----------
Net investment income ...................................... 1,941,970
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(NOTE 3)
Net realized loss on investments ........................... (489,841)
Change in net unrealized
depreciation on investments .............................. (1,437,725)
-----------
Net realized and unrealized
loss on investments ...................................... (1,927,566)
-----------
Net Increase in Net Assets
Resulting from Operations ................................ $ 14,404
===========
See Notes to Financial Statements www.americancentury.com 11
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MAY 31, 2000 AND MAY 31, 1999
Increase (Decrease) in Net Assets 2000 1999
OPERATIONS
Net investment income ...................... $ 1,941,970 $ 1,850,492
Net realized gain (loss)
on investments ........................... (489,841) 303,577
Change in net unrealized
appreciation (depreciation)
on investments ........................... (1,437,725) (307,941)
------------ ------------
Net increase in net assets
resulting from operations ................ 14,404 1,846,128
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. (1,941,970) (1,850,492)
From net realized gains on
investment transactions .................. -- (268,298)
In excess of net realized gains
on investment transactions ............... (119,783) --
------------ ------------
Decrease in net assets
from distributions ....................... (2,061,753) (2,118,790)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 22,650,903 16,288,072
Proceeds from reinvestment
of distributions ......................... 1,581,583 1,608,799
Payments for shares redeemed ............... (27,000,366) (12,261,906)
------------ ------------
Net increase (decrease) in net
assets from capital
share transactions ....................... (2,767,880) 5,634,965
------------ ------------
Net increase (decrease)
in net assets ............................ (4,815,229) 5,362,303
NET ASSETS
Beginning of period ........................ 45,409,639 40,047,336
------------ ------------
End of period .............................. $ 40,594,410 $ 45,409,639
============ ============
TRANSACTIONS IN SHARES OF THE FUND
Sold ....................................... 2,207,587 1,512,103
Issued in reinvestment
of distributions ......................... 154,058 149,456
Redeemed ................................... (2,626,841) (1,140,362)
------------ ------------
Net increase (decrease) .................... (265,196) 521,197
============ ============
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
MAY 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Municipal Trust (the trust) is registered
under the Investment Company Act of 1940 (the 1940 Act) as an open-end
management investment company. 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
policies 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, 2000, 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.
At May 31, 2000, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $466,489 (expiring in 2008) which
may be used to offset future taxable gains.
For the seven month period ended May 31, 2000, the fund incurred net capital
losses of $23,352. The fund has elected to treat such losses as having been
incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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), under which ACIM 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 fund, except
brokerage, taxes, portfolio insurance, interest, fees and expenses of those
trustees who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is 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, 2000, the effective annual management fee was 0.51%.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended May 31, 2000, were $48,436,937 and $51,880,052,
respectively.
On May 31, 2000, accumulated net unrealized depreciation was $513,102, which
consisted of unrealized appreciation of $153,594 and unrealized depreciation of
$666,696. The aggregate cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended May 31, 2000.
14 1-800-345-2021
Arizona Intermediate-Term Municipal--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), EXPENSE RATIO (operating expenses as a percentage of average net
assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 10.62 $ 10.67 $ 10.44 $ 10.31 $ 10.35
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................ 0.48 0.46 0.46 0.45 0.51
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ......................... (0.47) 0.01 0.28 0.13 (0.03)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ..... 0.01 0.47 0.74 0.58 0.48
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ........... (0.48) (0.46) (0.46) (0.45) (0.51)
From Net Realized Gains on
Investment Transactions .............. -- (0.06) (0.05) -- (0.01)
In Excess of Net Realized Gains
on Investment Transactions ........... (0.03) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions .................. (0.51) (0.52) (0.51) (0.45) (0.52)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......... $ 10.12 $ 10.62 $ 10.67 $ 10.44 $ 10.31
========== ========== ========== ========== ==========
Total Return(1) ...................... 0.20% 4.51% 7.19% 5.77% 4.65%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.51% 0.51% 0.54% 0.66% 0.14%
Ratio of Operating Expenses
to Average Net Assets
(Before Expense Waiver) .............. 0.51% 0.51% 0.60% 0.79% 0.82%
Ratio of Net Investment Income
to Average Net Assets ................ 4.71% 4.30% 4.33% 4.35% 4.85%
Ratio of Net Investment Income
to Average Net Assets
(Before Expense Waiver) .............. 4.71% 4.30% 4.27% 4.22% 4.17%
Portfolio Turnover Rate ................ 117% 70% 39% 81% 36%
Net Assets, End of Period
(in thousands) ....................... $ 40,594 $ 45,410 $ 40,047 $ 30,555 $ 25,789
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements www.americancentury.com 15
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Board of Trustees of the American Century Municipal Trust and
Shareholders of 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 (one of the eight funds constituting the American Century
Municipal Trust, hereafter referred to as the "Fund") at May 31, 2000, and the
results of its operations for the year then ended, the changes in net assets for
the two years in the period then ended, and the financial highlights for the
three years in the period then ended, in conformity with accounting principles
generally accepted in the United States. The financial highlights for each of
the two years in the period ended May 31, 1997, were audited by other auditors,
whose report, dated July 7, 1997, expressed an unqualified opinion on those
statements. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 14, 2000
16 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 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
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 in that index 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.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Managers
KEN SALINGER
COLLEEN DENZLER
Municipal Credit Research Director
STEVEN PERMUT
www.americancentury.com 17
Glossary
--------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 15.
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 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 measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* AVERAGE DURATION -- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder's account. (See Note 2 in
the Notes to Financial Statements.)
TYPES OF MUNICIPAL SECURITIES
* COPS/LEASES -- securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases. Certificates of
participation represent long-term debt obligations, while leases have a higher
risk profile than GOs because they require annual appropriation.
* GO BONDS -- general obligation securities backed by the taxing power of the
issuer.
* LAND-SECURED BONDS -- securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
* PREREFUNDED BONDS/ETM BONDS --securities refinanced or escrowed to maturity by
the issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
* REVENUE BONDS --securities backed by revenues from sales taxes or from a
specific project, system, or facility (such as a hospital, electric utility, or
water system).
18 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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 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 Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE
COMPANIES
1-800-345-6488
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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0007 American Century Investment Services, Inc.
SH-ANN-21199 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
[graphic of runners]
Florida Municipal Money Market
[american century logo (reg.sm)]
American
Century
[inside front cover]
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
They say hindsight is 20/20. But what about insight? That's what you really
want when choosing mutual funds. Now you can get the insight you need with Fund
Advisor, an online tool that helps you select the right no-load funds for
you--on a goal by goal basis. Fund Advisor helps you:
Get organized.
Compile all your investments, review their performance and see if you're on
track to meet your personal financial goals.
Get direction.
Receive recommendations based on funds available through your current fund
family or financial service provider -- not just American Century funds.
Gain confidence.
Whether you want to analyze your current investments, or find new ones, Fund
Advisor can help you feel confident with the decisions you make.
How does it work?
Just tell Fund Advisor about your investing style, your current investments
and your goals. It will analyze your investments and offer impartial
recommendations to help you get on track.
To review Fund Advisor's unique perspective, go to www.americancentury.com
and select Fund Advisor at the top of the page. For the initial set-up, you
might want to have available:
* Your latest tax return
* Your most recent investment account statements
* Printouts from any software you use to track your personal finances
To learn more about this new tool and how it can help you better manage your
financial future, select the "Demo" from the Fund Advisor introduction page.
* Patent pending. It was developed for Acumation, Inc., a registered investment
advisor and wholly owned subsidiary of American Century.
American Century does not receive sales commissions or direct compensation for
recommending any fund, although it may receive management, service or other fees
from funds recommended through Fund Advisor. These agreements are described in
Acumation, Inc.'s Form ADV Part II.
[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.
Receive Your Annual Reports Online
--------------------------------------------------------------------------------
Now you can receive documents such as annual reports, prospectuses, and
newsletters online rather than regular mail. Your link to American Century
documents is a click away with the Electronic Communication option.
* Receive links to documents by email
* Download select documents and file electronically to save space in
your file cabinets
* Read documents at your convenience
To sign up for this option, visit www.americancentury.com and log in with
your secure OnePIN. Then simply select an account on your account list and
choose the Electronic Communication link. Questions? Call 1-800-345-2021. LOG IN
AND TAKE CONTROL TODAY!
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The 12 months ended May 31, 2000, provided a nearly ideal environment for
money market funds: rising interest rates, relatively low inflation, and stock
market volatility.
Trying to keep U.S. economic growth and inflation under control, the
Federal Reserve raised short-term interest rates six times in the last 12
months, boosting money market yields. While rates rose, inflation remained low
by historical standards, helping money market instruments maintain their
purchasing power. In addition, stock market volatility made the relative
stability of money market funds look attractive for investors with near-term
financial goals.
In that environment, American Century Florida Municipal Money Market
continued to perform well, providing a better total return than most of its
peers (according to Lipper Inc., an independent mutual fund ranking service).
The fund's low expenses and competitive yields have helped Florida Municipal
Money Market place in the top half of its peer group since inception (see page
3). Fund manager Bryan Karcher reviews the period and the fund's performance in
more detail on page 4.
Turning to corporate matters, we're proud to announce that American
Century's fund performance reports, like this one, earned the Communications
Seal from DALBAR, Inc., an independent financial services research firm. DALBAR
commended us for meeting investors' needs with an attractive document that's
easy to read and understand.
We're also pleased to provide investors with two new investment tools. Fund
Advisor,(1) an online advice engine, is designed to give impartial guidance in
choosing the right no-load mutual funds to meet your financial goals.(2) And
American Century is the program manager for Learning Quest,( SM ) an educational
savings program launched by the state of Kansas on July 1 that allows parents to
invest tax-deferred to meet higher education costs. The summer issue of the
American Century investor newsletter provides more details on these tools.
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
(1) Patent pending.
(2) American Century does not receive sales commissions or direct compensation
for recommending any fund, although it may receive management, service, or
other fees from funds recommended through Fund Advisor. These arrangements
are described in Acumation Inc.'s Form ADV Part II.
[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
Types of Investments
in the Portfolio .................................................... 4
Schedule of Investments ................................................ 5
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 7
Statement of Operations ................................................ 8
Statements of Changes
in Net Assets ....................................................... 9
Notes to Financial
Statements .......................................................... 10
Financial Highlights ................................................... 11
Report of Independent
Accountants ......................................................... 12
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 13
Lipper Rankings ..................................................... 13
Credit Rating
Guidelines ....................................................... 13
Investment and Credit
Research Teams ................................................... 13
Glossary ............................................................... 14
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?
There is a 10-business-day holding period for deposited funds--including
your initial investment in a new account. There is a one-business-day holding
period for wire transfers.
IS THERE A COST FOR WRITING CHECKS ON MY MONEY MARKET ACCOUNT?
As long as each check is for $100 or more, you can write as many checks as
you like at no charge.
HOW CAN I KEEP TRACK OF MY MONEY MARKET FUND TRANSACTIONS BETWEEN ACCOUNT
STATEMENTS?
You can access your investments any time through our automated telephone
line and the American Century Web site. These services provide fund yields,
returns, account information, and transaction services.
You can keep tabs on your investments 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* weekdays,
7 a.m.-7 p.m. Central time Saturdays, 9 a.m.-2 p.m. Central time
WHY DOES MY MONEY FUND YIELD FLUCTUATE?
Money market funds are managed to maintain a stable $1 share price, but
their yields will fluctuate with changes in market conditions. Common reasons
for changes in your fund's yield are adjustments to Federal Reserve interest
rate policy, the outlook for inflation, and supply and demand for money market
securities.
Keep in mind that no money market fund is guaranteed or insured by the U.S.
government. And although money market funds are intended to preserve the value
of your investment at $1 per share, there's no guarantee that they'll be able to
do so.
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 you can make an exchange by calling an Investor Relations
Representative, using our Automated Information Line, or visiting our Web
site, you 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 our Investor Relations Representatives to set up either of these
options.
2 1-800-345-2021
Florida Municipal Money Market--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 2000
FLORIDA OTHER STATES TAX-EXEMPT
MUNICIPAL MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.78% 1.69% --
1 YEAR 3.30% 3.12% 11 OUT OF 43
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 3.17% 3.04% 12 OUT OF 34
5 YEARS(3) 3.39% 3.13% 3 OUT OF 27
LIFE OF FUND(3) 3.43% 3.16%(4) 2 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 13-14 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
AS OF 5/31/00
NET ASSETS $84.9 MILLION
5/31/00 5/31/99
NUMBER OF SECURITIES 37 42
WEIGHTED AVERAGE
MATURITY 65 DAYS 54 DAYS
EXPENSE RATIO 0.50% 0.50%
YIELDS AS OF MAY 31, 2000
7-DAY CURRENT YIELD 3.65%
7-DAY EFFECTIVE YIELD 3.72%
7-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.07%
31.0% TAX BRACKET 5.29%
36.0% TAX BRACKET 5.70%
39.6% TAX BRACKET 6.04%
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, 2000?
The portfolio performed well relative to other state-specific tax-free
money market funds. For the year, the fund ranked in about the top quarter of
the 43 "Other States Tax-Exempt Money Market Funds" tracked by Lipper Inc.
What's more, our long-term returns are also all better than average. (See the
previous page for detailed performance comparisons.)
WHY HAS FLORIDA MUNICIPAL MONEY MARKET PERFORMED SO WELL?
We think there are several key reasons for the fund's solid long-term
performance. First, our expenses are lower than those of most state-specific
tax-exempt money market funds. Other things being equal, lower expenses mean
higher yields and returns for our shareholders.
Second, we have excellent working relationships with securities dealers in
our markets. That helped us secure very attractive yields on variable-rate
demand notes, also known as "floaters," which represent the largest percentage
of fund holdings (see the pie charts at left).
In addition to these factors, we think we did a good job adding yield to
the fund in recent months by buying securities in the secondary market and
taking advantage of buying opportunities at tax time.
CAN YOU TELL US ABOUT SOME OF THE WAYS YOU BOOSTED THE FUND'S YIELD?
In the past several months, we added yield by avoiding the newest,
high-profile deals and focusing instead on higher-yielding securities in the
secondary market. Many funds concentrate on buying newly issued securities, but
that means there's often less demand--and better yields--for existing money
market securities.
We also added higher-yielding municipal notes around tax time, when
investors typically write checks against their money market accounts to pay
Uncle Sam. With demand for money market instruments low during tax season,
yields have to rise to attract buyers.
For example, yields on one-year municipal notes rose from 4.08% on April 1
to 4.64% by mid-May. At the same time, municipal yields increased from about
two-thirds to three-quarters of the yield available on one-year Treasury bills.
As a result, we boosted the fund's yield by adding some higher-yielding
municipal notes in late April and May. Of course, this takes good planning to
make sure we have the cash on hand to meet redemptions and still capitalize on
the increase in yields.
WHAT'S YOUR OUTLOOK FOR MUNICIPAL MONEY MARKET FUND YIELDS?
The best guidepost for money market yields is Federal Reserve interest rate
policy. Recent data show the U.S. economy slowing, so we think the Fed's work is
largely done. As a result, we think interest rates and money market yields are
probably near the peak of the current cycle.
[left margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
A1+ 90% 79%
A1 10% 16%
A2 -- 5%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 13
for more information.
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF MAY 31, 2000
VRDNS 62%
BONDS <1 YEAR 20%
PUT BONDS 18%
AS OF NOVEMBER 30, 1999
VRDNS 73%
BONDS <1 YEAR 18%
PUT BONDS 9%
Security types are defined on page 14.
4 1-800-345-2021
Florida Municipal Money Market--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES -- 100.0%
$2,000,000 Broward County Housing Finance
Auth. Multifamily Rev.,
(Fishermens Landing), VRDN,
4.10%, 6/7/00 (LOC: Bank
One, Michigan) $ 2,000,000
1,995,000 Broward County Industrial
Development Rev., (Fast Real
Estate Partners), VRDN, 4.45%,
6/7/00 (LOC: Suntrust Bank
South Florida, N.A.) (Acquired
3/10/97-3/20/98, Cost
$1,995,000)(1) 1,995,000
2,040,000 Broward County Industrial
Development Rev., (MDR
Fitness Corp.), VRDN, 4.45%,
6/7/00 (LOC: Suntrust Bank,
Miami, N.A.) 2,040,000
950,000 Collier County Water-Sewer
District Water Rev., Series
1999 B, 4.00%, 7/1/00 (FGIC) 950,546
1,900,000 Coral Springs Industrial
Development Rev., (Royal
Plastics Group), VRDN, 4.45%,
6/7/00 (LOC: Suntrust Bank
South Florida, N.A.) 1,900,000
1,430,000 Dade County Aviation Rev., Series
1996 C, 5.00%, 10/1/00
(MBIA) 1,435,881
3,310,000 Dade County GO, (Public
Improvement), 7.20%, 6/1/01
(FSA) 3,388,207
3,000,000 Dade County Health Facilities
Auth. Hospital Rev., (Miami
Childrens Hospital), VRDN,
4.15%, 6/7/00 (AMBAC)
(SBBPA: Suntrust Bank,
Miami, N.A.) 3,000,000
1,535,000 Dade County Industrial
Development Auth. Pollution
Control Rev., (Florida Power &
Light Co.), VRDN, 4.45%,
6/1/00 1,535,000
1,150,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., VRDN, 4.43%,
6/1/00 (Liquidity: Merrill Lynch
& Co., Inc.) (Acquired 12/3/96,
Cost $1,150,000)(1) 1,150,000
3,160,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., VRDN, 4.43%,
6/1/00 (Liquidity: Merrill Lynch
& Co., Inc.) (Acquired 4/9/98,
Cost $3,160,000)(1) 3,160,000
1,000,000 Florida Board of Education
Capital Outlay GO, Series
1991 B, 6.70%, 6/1/01,
Prerefunded at 101% of Par(2) 1,029,038
Principal Amount Value
--------------------------------------------------------------------------------
$1,000,000 Florida Board of Education
Capital Outlay GO, Series
1994 E, 4.55%, 6/1/00 $ 1,000,000
250,000 Florida Board of Education
Capital Outlay GO, Series
1994 E, 5.10%, 6/1/00 250,000
4,200,000 Florida Housing Finance Agency
Multifamily Housing Rev.,
(Country Club), VRDN, 4.50%,
6/1/00 (LOC: Bank of
New York) 4,200,000
2,000,000 Florida Housing Finance Agency
Multifamily Housing Rev.,
(Woodlands), VRDN, 4.45%,
6/7/00 (LOC: Northern Trust
Company) 2,000,000
2,000,000 Florida Housing Finance Agency
Rev., Series 1996 P, (Tiffany
Club), VRDN, 4.15%, 6/7/00
(LOC: Bank of America N.A.) 2,000,000
4,325,000 Florida Housing Finance Agency
Trust Receipts, VRDN, 4.50%,
6/7/00 (LOC: Bank of New
York) (Acquired 2/12/98-
1/31/00, Cost $4,325,000)(1) 4,325,000
4,095,000 Florida Housing Finance Corp.
Rev., Series 1999 I-1, (Heritage
Pointe), VRDN, 4.15%, 6/7/00
(LOC: Keybank, N.A.) 4,095,000
2,140,000 Florida Ports Financing
Commission Rev., 4.25%,
10/1/00 (FGIC) 2,143,628
1,010,000 Gulf Breeze Rev., Series 1985 B,
(Local Govt. Loan), VRDN,
4.30%, 6/1/00 (FGIC)
(SBBPA: Credit Local de
France) 1,010,000
3,750,000 Hillsborough County Housing
Finance Auth. Multifamily Rev.,
Series 2000 A, (Lakewood
Shores Apartments), VRDN,
4.40%, 6/1/00 (LOC: Bank of
America N.A.) 3,750,000
700,000 Indian River County Industrial
Development Rev., (Florida
Convention Centers), VRDN,
4.60%, 6/1/00 (LOC:
Toronto-Dominion Bank) 700,000
1,500,000 Inland Financing Corp. Special
Obligation Rev., 5.00%,
7/1/00 (FSA) 1,501,482
700,000 Jacksonville Electric Auth. Rev.,
Series 1993-10, (St. John
River-Issue 2), 4.60%, 10/1/00 701,356
1,000,000 Jacksonville Health Facilities
Auth. Rev., Series 1990 B,
(Daughter's Health), 7.50%,
11/1/00, Prerefunded at
102% of Par (Acquired
12/29/99, Cost
$1,044,370)(1)(2) 1,032,386
See Notes to Financial Statements www.americancentury.com 5
Florida Municipal Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$4,000,000 Miami-Dade County Housing
Finance Auth. Rev., Series
1999 A-2, (Home Ownership
Mortgage), 3.55%, 8/1/00 $ 4,000,000
4,000,000 Miami-Dade County Housing
Finance Auth. Rev., Series
2000 A-2, (Home Ownership
Mortgage), 4.80%, 4/16/01 4,000,000
2,800,000 Miami-Dade County Industrial
Development Auth. Rev.,
(Dutton Press Inc.), VRDN,
4.45%, 6/7/00 (LOC: Suntrust
Bank, Miami, N.A.) (Acquired
1/2/00, Cost $2,800,000)(1) 2,800,000
2,775,000 Orange County Housing Finance
Auth. Homeowner Rev., Series
1999 A-3, 3.40%, 6/1/00 2,775,000
3,500,000 Orange County Housing Finance
Auth. Homeowner Rev., Series
2000 A-2, 3.95%, 12/1/00
(GNMA/FNMA) 3,500,000
3,000,000 Orange County Health Facilities
Auth. Rev., VRDN, 4.60%,
6/1/00 (Liquidity: Merrill Lynch
& Co., Inc.) (Acquired 12/15/98,
Cost $3,000,000)(1) 3,000,000
Principal Amount Value
--------------------------------------------------------------------------------
$2,150,000 Orange County Housing Finance
Auth. Multifamily Guaranteed
Mortgage Rev., Series 1989 A,
(Sundown Association II),
VRDN, 4.45%, 6/7/00 (LOC:
Fleet Bank, N.A.) $ 2,150,000
1,000,000 Orlando Utilities Commission
Water & Electric Rev., 5.20%,
10/1/00 1,003,547
2,200,000 Pinellas County Industrial Council
Development Rev., (Better
Business Forms Inc.), VRDN,
4.45%, 6/7/00 (LOC: Suntrust
Bank, Tampa Bay) 2,200,000
2,100,000 Pinellas County Industrial Council
Development Rev., (Hunter
Douglas Inc.), VRDN, 4.45%,
6/7/00 (LOC: ABN Amro
Bank N.V.) (Acquired 3/17/97,
Cost $2,100,000)(1) 2,100,000
2,000,000 Tampa Health System Rev.,
Series 1998 A-1, (Catholic
Health), 4.50%, 11/15/00 2,003,499
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $81,824,570
============
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
FNMA = Federal National Mortgage Association
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, 2000.
(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 be sold only to qualified institutional investors. The
aggregate value of restricted securities at May 31, 2000, was $19,562,386
which represented 23.0% 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
securities.
6 1-800-345-2021 See Notes to Financial Statements
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
MAY 31, 2000
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) ........................... $ 81,824,570
Cash ..................................................... 3,438,741
Interest receivable ...................................... 673,157
------------
85,936,468
------------
LIABILITIES
Payable for investments purchased ........................ 1,000,000
Accrued management fees (Note 2) ......................... 34,178
Payable for trustees' fees and expenses .................. 427
Accrued expenses and other liabilities ................... 20
------------
1,034,625
------------
Net Assets ............................................... $ 84,901,843
============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................................. 84,940,613
============
Net Asset Value Per Share ................................ $ 1.00
============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $ 84,940,613
Accumulated net realized loss
on investment transactions ............................. (38,770)
------------
$ 84,901,843
============
See Notes to Financial Statements www.americancentury.com 7
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
YEAR ENDED MAY 31, 2000
INVESTMENT INCOME
Income:
Interest ................................................ $ 3,269,809
-----------
Expenses (Note 2):
Management fees ......................................... 428,202
Trustees' fees and expenses ............................. 5,443
-----------
433,645
-----------
Net investment income ................................... 2,836,164
-----------
REALIZED LOSS ON INVESTMENTS
Net realized loss on investments ........................ (38,770)
-----------
Net Increase in Net Assets
Resulting from Operations ............................. $ 2,797,394
===========
8 1-800-345-2021 See Notes to Financial Statements
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MAY 31, 2000 AND MAY 31, 1999
Decrease in Net Assets 2000 1999
OPERATIONS
Net investment income .................... $ 2,836,164 $ 2,948,374
Net realized loss on investments ......... (38,770) --
------------- -------------
Net increase in net assets
resulting from operations .............. 2,797,394 2,948,374
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............... (2,836,164) (2,948,374)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................ 107,372,100 136,641,148
Proceeds from reinvestment
of distributions ....................... 2,579,591 2,500,325
Payments for shares redeemed ............. (112,520,535) (161,316,337)
------------- -------------
Net decrease in net assets
from capital share transactions ........ (2,568,844) (22,174,864)
------------- -------------
Net decrease in net assets ............... (2,607,614) (22,174,864)
NET ASSETS
Beginning of period ...................... 87,509,457 109,684,321
------------- -------------
End of period ............................ $ 84,901,843 $ 87,509,457
============= =============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ..................................... 107,372,100 136,641,148
Issued in reinvestment
of distributions ....................... 2,579,591 2,500,325
Redeemed ................................. (112,520,535) (161,316,337)
------------- -------------
Net decrease ............................. (2,568,844) (22,174,864)
============= =============
See Notes to Financial Statements www.americancentury.com 9
Notes to Financial Statements
--------------------------------------------------------------------------------
MAY 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Municipal Trust (the trust) is registered
under the Investment Company Act of 1940 (the 1940 Act) as an open-end
management investment company. 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 policies 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, 2000, 100%
(unaudited) of the fund's distributions from net investment income have been
designated as exempt from federal income tax.
At May 31, 2000, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $24,496 (expiring 2003-2008) which
may be used to offset future taxable gains.
For the seven month period ended May 31, 2000, the fund incurred net capital
losses of $14,488. The fund has elected to treat such losses as having been
incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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 fund, except brokerage,
taxes, portfolio insurance, interest, fees and expenses of those trustees' who
are not considered "interested persons" as defined in the 1940 Act (including
counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is
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, 2000, the effective annual management fee was 0.49%.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
10 1-800-345-2021
Florida Municipal Money Market--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), and EXPENSE RATIO (operating expenses as a percentage of average net
assets).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, 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 0.03 0.04
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.03) (0.03) (0.03) (0.03) (0.04)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(1) ...................... 3.30% 2.92% 3.31% 3.55% 3.86%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.50% 0.50% 0.51% 0.12% 0.01%
Ratio of Operating Expenses
to Average Net Assets
(Before Expense Waiver) .............. 0.50% 0.50% 0.53% 0.66% 0.71%
Ratio of Net Investment Income
to Average Net Assets ................ 3.26% 2.88% 3.25% 3.48% 3.75%
Ratio of Net Investment Income
to Average Net Assets
(Before Expense Waiver) .............. 3.26% 2.88% 3.23% 2.94% 3.05%
Net Assets, End of Period
(in thousands) ....................... $ 84,902 $ 87,509 $ 109,684 $ 112,129 $ 99,993
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 11
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 (one of the eight funds constituting the American Century Municipal Trust,
hereafter referred to as the "Fund") at May 31, 2000, and the results of its
operations for the year then ended, the changes in net assets for the two years
in the period then ended, and the financial highlights for the three years in
the period then ended, in conformity with accounting principles generally
accepted in the United States. The financial highlights for each of the two
years in the period ended May 31, 1997, were audited by other auditors, whose
report, dated July 7, 1997, expressed an unqualified opinion on those
statements. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 14, 2000
12 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 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
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 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.
A-1 (which includes A-1+) is Standard & Poor's highest credit rating for
short-term securities. Here are the most common short-term credit ratings and
their definitions:
* A-1+: extremely strong ability to meet financial obligations.
* A-1: strong ability to meet financial obligations.
* A-2: satisfactory ability to meet financial obligations.
It's important to note that credit ratings are subjective. They reflect the
opinions of the rating agencies that issue them and are not absolute standards
of quality.
[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 13
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 total returns, please refer to the "Financial
Highlights" on page 11.
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 measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* 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.
14 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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 15
Notes
--------------------------------------------------------------------------------
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 Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE
COMPANIES
1-800-345-6488
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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0007 American Century Investment Services, Inc.
SH-ANN-21197 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
[graphic of runners]
Florida Intermediate-Term Municipal
[american century logo (reg.sm)]
American
Century
[inside front cover]
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
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Acumation, Inc.'s Form ADV Part II.
[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.
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[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The 12 months ended May 31, 2000, provided a difficult environment for U.S.
bond funds: a strong economy, inflation fears, and rising interest rates. Trying
to keep economic growth and inflation under control, the Federal Reserve raised
short-term interest rates six times during the last 12 months, putting pressure
on bond prices.
Despite these challenges, American Century Florida Intermediate-Term
Municipal fund continued to provide above-average yields and returns and
below-average expenses (according to Lipper Inc., an independent mutual fund
ranking service).
The fund's low expenses and relatively high yields and returns have helped
it rank #1 in its peer group for the last five years (see page 5 for more
performance information). Our investment management team reviews the period and
the fund's performance in more detail beginning on page 6.
Turning to corporate matters, we're proud to announce that American
Century's fund performance reports, like this one, earned the Communications
Seal from DALBAR, Inc., an independent financial services research firm. They
commended us for meeting investors' needs with an attractive document that's
easy to read and understand.
We're also pleased to provide investors with two new investment tools. Fund
Advisor,(1) an online advice engine, is designed to give impartial guidance in
choosing the right no-load mutual funds to meet your financial goals.(2) And
American Century is the program manager for Learning Quest,(SM) an educational
savings program launched by the state of Kansas on July 1 that allows parents to
invest tax-deferred to meet higher education costs. The summer issue of the
American Century quarterly newsletter--Investor Perspective--provides more
details on these tools.
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
(1) Patent pending.
(2) American Century does not receive sales commissions or direct compensation
for recommending any fund, although it may receive management, service, or
other fees from funds recommended through Fund Advisor. These arrangements
are described in Acumation Inc.'s Form ADV Part II.
[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 ......................................................... 10
Statement of Operations ................................................ 11
Statements of Changes
in Net Assets ....................................................... 12
Notes to Financial
Statements .......................................................... 13
Financial Highlights ................................................... 15
Report of Independent
Accountants ......................................................... 16
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 17
Comparative Indices ................................................. 17
Lipper Rankings ..................................................... 17
Credit Rating
Guidelines ....................................................... 17
Investment Team
Leaders .......................................................... 17
Glossary ............................................................... 18
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Rising interest rates muted municipal bond returns during the year ended May
31, 2000.
* Shorter-maturity bonds outperformed longer-maturity ones.
* Strong economic growth and a booming U.S. stock market led the Federal
Reserve to raise short-term interest rates six times during the 12-month
period.
* Higher rates and a strong U.S. economy helped reduce municipal bond supply
by the second quarter of 2000, while higher bond yields attracted more
demand.
* Investment-grade municipal bonds outperformed lower-rated and non-rated
bonds because of tax-loss selling and concerns about health care and public
power bonds in the high-yield sector.
FLORIDA MUNICIPAL CREDIT REVIEW
* Florida municipal credit quality remained very healthy during the year ended
May 31, 2000.
* Expansion in financial services, business services, and the tourism and
hotel industries, continued to be pillars of support for the state's growing
employment base.
* Florida's demographics remained favorable, as net in-migration continued to
rise, though at a slower pace than in recent years.
* The further reduction of the Florida intangibles tax has had little
discernable credit impact on the state's municipalities.
* The state continues to follow generally conservative fiscal practices,
which, combined with its favorable economic fundamentals, should bode well
for its municipal credit quality going forward.
MANAGEMENT Q&A
* Florida Intermediate-Term Municipal outperformed all of the funds in its
Lipper peer group for the year ended May 31, 2000, though rising interest
rates dampened absolute returns. Three- and five-year performance against
the Lipper group was equally impressive. (See fund performance information
on page 5.)
* Duration management and strategic positioning of the portfolio's bond
maturity structure played a big part in helping the fund outperform its peer
group.
* We generally kept the fund's duration--a measure of sensitivity to changes
in interest rates--fairly close to that of its Lipper group, but began
lengthening it some toward the end of May.
* The portfolio's concentration in two- to four-year notes, and 10-year-plus
maturity bonds enhanced returns as the municipal yield curve
flattened--short-term bond yields rose more than long-term ones.
* In spite of the clouded outlook for interest rates, we will probably keep
duration slightly long relative to the average Florida Intermediate
Municipal Debt fund for now.
[left margin]
FLORIDA INTERMEDIATE-
TERM MUNICIPAL (ACBFX)
TOTAL RETURNS: AS OF 5/31/00
6 Months 1.23%*
1 Year 0.49%
30-DAY SEC YIELD: 4.93%
INCEPTION DATE: 4/11/94
NET ASSETS: $46.1 million
* Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on pages 18-19.
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 at American Century
RISING YIELDS, FALLING PRICES
Strong economic growth and rising interest rates muted municipal bond
returns during the 12 months ended May 31, 2000. In this environment,
shorter-maturity bonds outperformed longer-maturity ones (see the index returns
table at right). Long-term municipal bonds also lost some ground to long-term
Treasurys, which benefited from government plans to reduce Treasury issuance and
supply.
In an effort to rein in the U.S. economy, the Federal Reserve raised
short-term interest rates six times during the 12-month period. The most recent
rate hike was a half-percentage-point increase in May 2000, the largest rate
hike in five years. This yearlong rate-raising effort pushed the fed funds
target--the rate used for overnight loans between banks--up nearly two
percentage points, to 6.5%, the highest level in nine years. As short-term
interest rates soared, municipal bond yields rose and prices fell.
Municipal bond yields reached their highest levels in several years. For an
investor in the 39.6% federal tax bracket, a 30-year AAA-rated municipal bond
that yielded approximately 5.95% on May 31, 2000 (up from about 5.05% on May 31,
1999), offered a tax-equivalent yield of approximately 9.85%. That compared very
favorably with the 6.01% yield on the 30-year U.S. Treasury bond on May 31,
2000.
LESS SUPPLY, MORE DEMAND
The municipal market began to rebound as supply and demand conditions
improved, particularly during the second quarter of 2000. On the supply side,
the strong economy bolstered the financial stability of many municipal issuers
and curtailed their borrowing needs. In addition, refinancing of old debt came
to a virtual standstill as higher interest rates eliminated the financial
incentive to retire old debt.
Meanwhile, the demand for municipal bonds firmed. Stock market volatility
and attractive yields triggered increased buying activity in the municipal
market.
HIGH-QUALITY BONDS OUTPERFORM
Investment-grade municipal bonds (those rated BBB or higher) outpaced
lower-rated and non-rated bonds-- the so-called "high-yield sector"--during the
period. Much of this sector's underperformance can be attributed to heavy
tax-loss selling from late 1999 through early 2000, and concerns about health
care bonds and public power bonds, which tainted the entire high-yield market.
We think the high-yield sell-off was overdone--the strength of the U.S. economy
lifted the credit quality of the high-yield sector, as well as the municipal
market as a whole.
[right margin]
"AS SHORT-TERM INTEREST RATES SOARED, MUNICIPAL BOND YIELDS ROSE AND PRICES
FELL."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED MAY 31, 2000
MERRILL LYNCH 0- TO 3-YEAR
MUNICIPAL INDEX 2.68%
LEHMAN BROS. 5-YEAR
MUNICIPAL GO INDEX 0.65%
LEHMAN BROS. LONG-TERM
MUNICIPAL BOND INDEX -4.45%
Source: Lipper Inc. and Russell/Mellon Analytical Services
[line graph - data below]
RISING & FLATTENING MUNICIPAL YIELD CURVE
5/31/99 11/30/99 5/31/00
YEARS TO
MATURITY
1 3.29% 3.89% 4.70%
2 3.52% 4.12% 4.89%
3 3.71% 4.30% 4.99%
4 3.88% 4.44% 5.06%
5 4.00% 4.55% 5.11%
6 4.10% 4.64% 5.15%
7 4.19% 4.72% 5.19%
8 4.28% 4.80% 5.23%
9 4.37% 4.88% 5.27%
10 4.45% 4.96% 5.31%
11 4.53% 5.06% 5.36%
12 4.61% 5.14% 5.42%
13 4.67% 5.22% 5.47%
14 4.75% 5.30% 5.53%
15 4.84% 5.38% 5.59%
16 4.88% 5.44% 5.64%
17 4.92% 5.50% 5.70%
18 4.96% 5.56% 5.75%
19 4.99% 5.62% 5.81%
20 5.02% 5.68% 5.87%
21 5.03% 5.68% 5.88%
22 5.04% 5.69% 5.89%
23 5.05% 5.69% 5.90%
24 5.05% 5.70% 5.91%
25 5.06% 5.71% 5.91%
26 5.06% 5.71% 5.92%
27 5.06% 5.71% 5.92%
28 5.07% 5.72% 5.93%
29 5.07% 5.72% 5.93%
30 5.08% 5.73% 5.94%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Municipal Credit Review
--------------------------------------------------------------------------------
CREDIT SNAPSHOT
Florida municipal credit quality remained very healthy during the year
ended May 31, 2000. As has been the case in recent years, job growth and a
swelling population contributed to the state's fiscal soundness.
A GROWING EMPLOYMENT BASE
Expansion in financial services, business services (such as call centers
and employee leasing), and the tourism and hotel industries, continued to be
pillars of support for Florida's growing employment base. As a result, the
state's employment opportunities are on track to grow 3.2% during 2000--higher
than the national average. With the jobs base increasing, the unemployment rate
continued to fall, dropping to 3.9% during 1999, and on track to fall to 3.8%
for 2000. However, slowing net in-migration, especially from retirees who are
being lured to other warm-weather states such as Arizona, could present an
obstacle for the state's job growth down the road.
AN EXPANDING POPULATION
Florida's demographics remained favorable, as net in-migration continued to
rise, though at a slower pace than in recent years. However, the state's
burgeoning population will require greater spending on infrastructure such as
airports, roads, and schools, resulting in the need for additional borrowing by
the state.
ON THE LEGISLATIVE FRONT
Earlier this year, the state enacted legislation that further reduced the
Florida intangibles tax on residents. Though this development may mildly reduce
the attractiveness of Florida's municipal securities to some residents going
forward, there has been little discernable credit impact on the state's
municipalities.
LOOKING AHEAD
The state continues to follow generally conservative fiscal practices,
which, combined with its favorable economic fundamentals, should bode well for
its municipal credit quality going forward. We expect Florida's economic growth
to moderate from its current hectic pace, but it should still remain one of the
nation's better performers. The state's favorable regulatory environment should
also continue to make it an attractive place for business expansions. However,
Florida's continued dependence on tourism makes it vulnerable to economic swings
that can reduce its sales tax base. To offset the historically volatile sales
tax, the state enacted a constitutional amendment establishing a Budget
Stabilization Fund, which was funded at $787 million at the end of fiscal 1999.
This fund met the required minimum level of 5% of general fund revenues.
CAREFUL RESEARCH
Florida is a complex, dynamic state, making thorough research and analysis
of its municipalities a vital ingredient to our investment approach for the
Florida Intermediate-Term Municipal fund. To help ensure that the municipal
securities chosen for the fund match our strict criteria, our credit research
team looks closely at the underlying credit stories behind the securities that
we consider for the portfolio. We believe this improves our ability to find
undervalued municipal bonds for Florida Intermediate-Term Municipal's portfolio
that can potentially translate into better yields and higher returns for our
shareholders.
[left margin]
"FLORIDA MUNICIPAL CREDIT QUALITY REMAINED VERY HEALTHY DURING THE YEAR ENDED
MAY 31, 2000."
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
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 2000
FLORIDA LEHMAN 5-YEAR FLORIDA INTERM.
INTERMEDIATE-TERM MUNICIPAL MUNICIPAL DEBT FUNDS(2)
MUNICIPAL GO INDEX AVERAGE RETURN FUND'S RANKING
===============================================================================
6 MONTHS(1) 1.23% 0.58% 0.43% --
1 YEAR 0.49% 0.65% -0.87% 1 OUT OF 16
===============================================================================
AVERAGE ANNUAL RETURNS
3 YEARS(3) 4.42% 4.13% 3.15% 1 OUT OF 13
5 YEARS(3) 4.84% 4.64% 3.75% 1 OUT OF 11
LIFE OF FUND(3) 5.43% 5.14%(4) 4.31%(5) 1 OUT OF 10(5)
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 3/31/94, the date nearest the fund's inception for which return data
are available.
(5) Since 4/30/94, the date nearest the fund's inception for which return data
are available.
See pages 17-18 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 5/31/00
Florida Intermediate-Term Municipal $13,835
Lehman 5-Year Municipal GO Index $13,378
Florida Lehman 5-Year
Intermediate-Term Municipal
Municipal GO Index
DATE VALUE VALUE
4/11/1994 $10,000 $10,000
6/30/1994 $10,140 $10,134
9/30/1994 $10,260 $9,938
12/31/1994 $10,117 $10,268
3/31/1995 $10,629 $10,689
6/30/1995 $10,903 $10,957
9/30/1995 $11,163 $11,129
12/31/1995 $11,493 $11,285
3/31/1996 $11,434 $11,195
6/30/1996 $11,459 $11,373
9/30/1996 $11,660 $11,726
12/31/1996 $11,913 $11,823
3/31/1997 $11,931 $11,876
6/30/1997 $12,309 $12,133
9/30/1997 $12,621 $12,356
12/31/1997 $12,893 $12,592
3/31/1998 $13,029 $12,702
6/30/1998 $13,206 $12,959
9/30/1998 $13,611 $13,137
12/31/1998 $13,730 $13,312
3/31/1999 $13,816 $13,324
6/30/1999 $13,591 $13,246
9/30/1999 $13,632 $13,333
12/31/1999 $13,648 $13,324
3/31/2000 $13,928 $13,410
5/31/2000 $13,835 $13,378
$10,000 investment made 4/11/94
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 Municipal 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 ENDED MAY 31)
Florida Lehman 5-Year
Intermediate-Term Municipal
Municipal GO Index
DATE RETURN RETURN
5/31/1994* 0.93% 0.56%
5/31/1995 7.31% 6.89%
5/31/1996 4.34% 4.74%
5/31/1997 6.63% 6.08%
5/31/1998 8.20% 6.95%
5/31/1999 4.71% 4.90%
5/31/2000 0.49% 0.65%
* 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 fund investment team.
HOW DID THE FUND PERFORM DURING THE YEAR ENDED MAY 31, 2000?
Florida Intermediate-Term Municipal outperformed all of the funds in its
Lipper peer group, though rising interest rates (see page 3) dampened absolute
returns. The fund returned 0.49%, compared with the -0.87% average return of the
16 funds in Lipper Inc.'s "Florida Intermediate Municipal Debt Funds" category.
The fund's benchmark, the Lehman 5-Year GO Index, returned 0.65%.
Longer-term performance against the peer group was equally impressive. For
the three- and five-year periods ended May 31, 2000, Florida Intermediate-Term
Municipal ranked #1. (See Total Returns on the previous page.)
HOW DID FLORIDA INTERMEDIATE-TERM MUNICIPAL'S YIELD COMPARE?
The fund not only performed better than the other funds in its Lipper group
based on return, but also offered shareholders considerably more current income
than the peer average.
Florida Intermediate-Term Municipal's 30-day SEC yield of 4.93% on May 31,
2000, compared very favorably with the 4.30% average yield of Lipper's
Intermediate Municipal Debt funds category.
WHAT WERE SOME OF THE REASONS BEHIND THE FUND'S ONGOING SUCCESS?
The techniques that we discussed in Florida Intermediate-Term Municipal's
previous report--November 30, 1999, semiannual--remained key contributors. So
elements such as duration management and strategic positioning of the
portfolio's bond maturity structure played a big part in helping the fund
outperform.
Low expenses were another important ingredient. As of May 31, 2000, fund
expenses were only 0.51%, compared with the 0.91% average expenses charged by
the fund's Lipper peers.
YOU MENTIONED THAT DURATION MANAGEMENT PLAYED A ROLE IN FLORIDA
INTERMEDIATE-TERM MUNICIPAL'S POSITIVE PERFORMANCE. CAN YOU ELABORATE?
We generally keep the fund's duration--a measure of sensitivity to changes
in interest rates--fairly close to that of its Lipper group. Such positioning is
important because making large duration bets can lead to unpredictable returns,
especially since it's extremely difficult to gauge how much interest rates will
rise or fall at any given time, let alone for a protracted period. Even if you
make great choices with regard to other aspects of managing a fund, a
significant duration bet in the wrong direction can quickly erase hard-earned
gains.
So we keep duration on a short leash. Over the last six months, for
example, we kept duration in a range around 5.3 to 5.6 years, roughly neutral to
the fund's Lipper group. We began extending duration toward the end of May by
adding some longer-term discount municipals--ones around the 15-year-plus
maturity range--which had become especially attractive relative to shorter-term
bonds.
[left margin]
"FLORIDA INTERMEDIATE-TERM MUNICIPAL OUTPERFORMED ALL OF THE FUNDS IN ITS LIPPER
PEER GROUP."
YIELDS AS OF MAY 31, 2000
30-DAY SEC YIELD 4.93%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 6.85%
31.0% TAX BRACKET 7.14%
36.0% TAX BRACKET 7.70%
39.6% TAX BRACKET 8.16%
PORTFOLIO AT A GLANCE
5/31/00 5/31/99
NUMBER OF SECURITIES 58 59
WEIGHTED AVERAGE
MATURITY 9.3 YRS 9.1 YRS
AVERAGE DURATION 5.4 YRS 5.6 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 18-19.
6 1-800-345-2021
Florida Intermediate-Term Municipal--Q&A
--------------------------------------------------------------------------------
(Continued)
By the end of May, Florida Intermediate-Term Municipal had a slightly
longer duration than its peers. As municipal bond prices have generally risen
and yields have fallen since that time, the position has added to the returns we
generated with other strategies.
WHAT OTHER STRATEGIES DID YOU USE TO BOOST PERFORMANCE OVER THE LAST YEAR?
Florida Intermediate-Term Municipal's bond maturity structure also helped.
Six months ago the fund was fairly barbelled--heavily weighted in bonds with
short and long maturities, with little in between. We accomplished that position
by concentrating on bonds in the two to four, and 10-year-plus areas. That paid
off as the municipal yield curve flattened--short-term bond yields rose more
than long-term ones. Recently, we've begun to reduce that position, but are
still somewhat barbelled and will likely remain so for the near future.
DID YOU MAKE ANY CHANGES TO THE FUND'S CREDIT QUALITY EXPOSURE?
Some, but the slight changes were more a byproduct of the securities that
we bought and sold, rather than a conscious effort to modify overall credit
quality. The portfolio's exposure to AAA securities rose from 63% six months ago
to 79% by the end of May, while AA holdings fell from around 21% to 5%.
The vast majority of Florida municipal issuance that we've seen this year
has either been in insured, AAA-rated securities, or BBB- or lower-rated ones.
So with the exception of a few A- and BBB-rated hospital bonds that we found
with the help of our credit research team, most of what we added to the
portfolio was premium credit quality, and much of what we sold was rated AA.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We're adopting a wait-and-see approach for now, but wouldn't be overly
surprised if the Federal Reserve raised rates one or two more times. Although
the Fed raised rates six times over the last year, signs of slowing economic
growth are only beginning to appear and are still somewhat sporadic. In
addition, oil prices are close to nine-year highs, and consumer prices are
rising much faster this year than they did during 1998 or 1999.
And even though economic growth during the second quarter is expected to
slow from its 5.5% annual, first-quarter pace, that may be something of a
seasonal phenomenon. During 1998 and 1999, second-quarter growth slowed from
first-quarter activity, only to rebound with a vengeance during the third
quarter. So there's still a great deal of uncertainty in the market.
WITH THAT PERSPECTIVE IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
In spite of the clouded outlook for interest rates, we will probably keep
duration slightly long relative to the peer group average for now. We've chosen
that approach because we think the municipal market's prospects are looking
brighter, thanks to an expected supply/demand imbalance in the near future.
Although demand has fluctuated some over the last six months, it should
increase significantly in July. July is a big month for municipal
securities--many bonds will mature or pay interest to bond holders. Add that
dynamic to the fairly low issuance we've seen this year and the result should
spell good news for the municipal market over the next couple of months.
[right margin]
TOP FIVE SECTORS (AS OF 5/31/00)
% OF FUND INVESTMENTS
SPECIAL TAX REVENUE 22%
TRANSPORTATION REVENUE 13%
HOUSING REVENUE 11%
GO 9%
HOSPITAL REVENUE 9%
TOP FIVE SECTORS (AS OF 11/30/99)
% OF FUND INVESTMENTS
GO 19%
TRANSPORTATION REVENUE 14%
HOSPITAL REVENUE 10%
HOUSING REVENUE 8%
ELECTRIC REVENUE 8%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
AAA 79% 63%
AA 5% 21%
A 5% 7%
BBB 11% 9%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 17
for more information.
www.americancentury.com 7
Florida Intermediate-Term Municipal--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 100%
FLORIDA -- 88.2%
$ 505,000 Atlantic Beach Health
Care
Facilities Rev., (Fleet Landing),
5.00%, 10/1/00 (ACA) $ 505,364
1,000,000 Cocoa Water and Sewer Rev.,
4.50%, 10/1/26 (FGIC) 776,900
915,000 Crossings at Fleming Island
Community Development
District Special Assessment
Rev., Series 2000 B, 5.15%,
5/1/03 (MBIA) 918,276
960,000 Crossings at Fleming Island
Community Development
District Special Assessment
Rev., Series 2000 B, 5.20%,
5/1/04 (MBIA) 964,512
715,000 Crossings at Fleming Island
Community Development
District Special Assessment
Rev., Series 2000 B, 5.25%,
5/1/05 (MBIA) 719,118
250,000 Dade County Aviation Rev.,
Series 1995 E, 5.50%,
10/1/10 (AMBAC) 251,852
1,000,000 Dade County Aviation Rev.,
Series 1997 A, (Miami
International Airport), 5.50%,
10/1/02 (FSA) 1,008,730
500,000 Duval County School District GO,
6.25%, 8/1/05 (AMBAC) 517,410
500,000 East County Water Control District
Rev., 5.375%, 11/1/01
(Asset Guaranty) 502,855
225,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., 6.00%, 4/1/02
(GNMA/FNMA) 227,560
210,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.80%,
4/1/06 (GNMA/FNMA) 204,303
330,000 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.85%,
4/1/07 (GNMA/FNMA) 319,866
1,050,000 Florida Board of Education Capital
Outlay GO, Series 1995 C,
5.50%, 6/1/12 (MBIA) 1,050,262
1,000,000 Florida Board of Education Capital
Outlay GO, Series 1999 B,
4.50%, 6/1/24 (MBIA) 782,370
450,000 Florida Housing Finance Agency
Rev., (Williamsburg Village
Apartments), 5.60%, 12/1/07
(AMBAC) 456,876
500,000 Florida Housing Finance Agency
Rev., (Windwood), 5.65%,
12/1/07 (AXA) 504,460
Principal Amount Value
--------------------------------------------------------------------------------
$2,585,000 Florida Housing Finance Corp.
Rev., Series 1999-2,
(Homeowner Mortgage), 4.60%,
1/1/21 (FSA) $ 2,494,809
1,000,000 Florida Ports Financing
Commission Rev., 4.75%,
10/1/07 (FGIC) 958,950
1,000,000 Florida Rural Utility Financing
Community Rev., (Public
Projects Construction), 5.25%,
9/1/01 1,004,540
1,000,000 Florida Turnpike Auth. Rev.,
Series 1993 A, (Department of
Transportation), 5.00%, 7/1/16
(FGIC) 932,360
350,000 Gainesville Utilities System Rev.,
Series 1996 A, 5.75%,
10/1/09 361,060
1,260,000 Hillsborough County Industrial
Development Auth. Rev.,
Series 1999 A, (University
Community Hospital), 4.90%,
8/15/07 1,150,493
400,000 Hillsborough County Port District
Special Rev., 6.50%, 6/1/04
(FSA) 417,756
400,000 Indian Trace Community
Development District Water
Special Benefit Assessment,
Series 1995 A, 5.25%,
5/1/03 (MBIA) 402,612
500,000 Jacksonville Electric Auth. Rev.,
Series 1995 6-C, (St. John's
River Power), 6.50%, 10/1/01 510,060
1,250,000 Jacksonville Excise Taxes Rev.,
Series 1996 B, 5.20%,
10/1/04 (FGIC) 1,250,100
1,500,000 Jacksonville Excise Taxes Rev.,
Series 1996 B, 5.40%,
10/1/06 (FGIC) 1,504,635
1,550,000 Jacksonville Excise Taxes Rev.,
Series 1996 B, 5.50%,
10/1/07 (FGIC) 1,557,130
1,000,000 Jacksonville Health Facilities
Auth. Industrial Development
Rev., Series 2000 A, (National
Benevolent-Cypress Village),
7.00%, 3/1/20 976,270
550,000 Lee County Industrial
Development Health Care
Facilities Auth. Rev., Series
1999 A, (Shell Point Village),
5.50%, 11/15/09 493,999
650,000 Miami Parking Facilities Rev.,
5.25%, 10/1/15 (MBIA) 624,481
1,015,000 Northern Palm Beach County
Improvement District Special
Assessment, (Unit Development
18), 4.90%, 8/1/13 (MBIA) 944,792
160,000 Orange County Health Facilities
Auth. Rev., Series 1996 A,
6.00%, 10/1/04 (MBIA) 164,864
8 1-800-345-2021 See Notes to Financial Statements
Florida Intermediate-Term Municipal--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 390,000 Orange County Health Facilities
Auth. Rev., Series 1996 A,
6.00%, 10/1/04 (MBIA)(1) $ 403,233
1,000,000 Orlando and Orange County
Expressway Auth. Rev., 5.10%,
7/1/04 (FGIC) 999,480
450,000 Orlando and Orange County
Expressway Auth. Rev., 6.50%,
7/1/11 (FGIC) 492,232
500,000 Orlando Utilities Commission
Water & Electric Rev., 5.70%,
10/1/04 512,565
2,500,000 Orlando Utilities Commission
Water & Electric Rev., Series
1993 B, 5.25%, 10/1/23
(MBIA) 2,250,050
2,000,000 Pasco County Solid Waste
Disposal & Resource Recovery
System Rev., 6.00%, 4/1/10
(AMBAC) 2,069,620
700,000 Pembroke Pines Capital
Improvement Rev., 4.625%,
12/1/13 (AMBAC) 618,625
500,000 Pensacola Airport Rev., Series
1997 B, 5.40%, 10/1/07
(MBIA) 500,710
300,000 Pensacola Airport Rev., Series
1998 A, 6.00%, 10/1/01
(MBIA) 304,320
360,000 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.45%, 10/1/01 355,428
430,000 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.75%, 10/1/05 405,554
450,000 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.85%, 10/1/06 422,082
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of
Florida Inc.), 4.45%, 12/1/04 279,021
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of
Florida Inc.), 4.55%, 12/1/05 274,254
300,000 Plantation Health Facilities Auth.
Rev., (Covenant Village of
Florida Inc.), 4.70%, 12/1/07 268,392
Principal Amount Value
--------------------------------------------------------------------------------
$1,000,000 Polk County Housing Finance
Auth. Multifamily Housing Rev.,
Series 1997 A, (Winter Oaks
Apartments), 5.25%, 7/1/07
(FNMA) $ 991,220
300,000 Reedy Creek Improvement
District Utility Rev.,
Series 1991-1, 6.25%,
10/1/01, Prerefunded at
101% of Par (MBIA)(1) 308,289
400,000 St. Cloud Utility Rev., 6.40%,
8/1/06 (MBIA) 414,228
300,000 Tampa Utility Tax Rev., Series
1999 A, 4.75%, 10/1/11
(FSA) 278,199
500,000 Volusia County School District
GO, 6.20%, 8/1/03 (FGIC) 513,940
500,000 West Orange Healthcare District
Rev., Series 1999 A, 4.60%,
2/1/01 498,400
500,000 West Orange Healthcare District
Rev., Series 1999 A, 5.25%,
2/1/02 497,015
-----------
39,116,482
-----------
PUERTO RICO --8.5%
2,500,000 Puerto Rico Commonwealth
Aqueduct & Sewer Auth. Rev.,
Series 1985 A, 9.00%, 7/1/05,
Prerefunded at 100% of Par
(FSA)(1) 2,850,850
1,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1997 AA, 5.375%,
7/1/27 (MBIA) 925,580
-----------
3,776,430
-----------
VIRGIN ISLANDS --3.3%
1,500,000 Virgin Islands Public Finance
Auth. Rev., Series 1999 A,
5.00%, 10/1/03 1,478,445
-----------
TOTAL INVESTMENT SECURITIES --100.0% $44,371,357
===========
(Cost $45,232,238)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access
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
MBIA = MBIA Insurance Corp.
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
MAY 31, 2000
ASSETS
Investment securities, at value
(identified cost of $45,232,238)
(Note 3) ............................................... $ 44,371,357
Cash ..................................................... 428,534
Receivable for investments sold .......................... 654,092
Interest receivable ...................................... 673,441
------------
46,127,424
------------
LIABILITIES
Accrued management fees (Note 2) ......................... 20,099
Dividends payable ........................................ 30,131
Payable for trustees' fees and expenses .................. 242
------------
50,472
------------
Net Assets ............................................... $ 46,076,952
============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................................. 4,570,964
============
Net Asset Value Per Share ................................ $ 10.08
============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $ 47,422,766
Accumulated net realized loss on
investment transactions ................................ (484,933)
Net unrealized depreciation
on investments (Note 3) ................................ (860,881)
------------
$ 46,076,952
============
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
YEAR ENDED MAY 31, 2000
INVESTMENT INCOME
Income:
Interest ................................................ $ 2,397,870
-----------
Expenses (Note 2):
Management fees ......................................... 242,677
Trustees' fees and expenses ............................. 3,004
-----------
245,681
-----------
Net investment income ................................... 2,152,189
-----------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ........................ (484,743)
Change in net unrealized
depreciation on investments ........................... (1,368,165)
-----------
Net realized and unrealized loss
on investments ........................................ (1,852,908)
-----------
Net Increase in Net Assets
Resulting from Operations ............................. $ 299,281
===========
See Notes to Financial Statements www.americancentury.com 11
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MAY 31, 2000 AND MAY 31, 1999
Increase in Net Assets 2000 1999
OPERATIONS
Net investment income ........................ $ 2,152,189 $ 1,457,298
Net realized gain (loss) on
investment transactions .................... (484,743) 290,688
Change in net unrealized
appreciation (depreciation)
on investments ............................. (1,368,165) (239,507)
------------ ------------
Net increase in net assets
resulting from operations .................. 299,281 1,508,479
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (2,152,189) (1,457,298)
From net realized gains on
investment transactions .................... -- (381,472)
In excess of net realized gains
on investment transactions ................. (42,748) --
------------ ------------
Decrease in net assets from distributions .... (2,194,937) (1,838,770)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................... 35,464,099 36,435,233
Proceeds from reinvestment
of distributions ........................... 1,302,513 1,056,236
Payments for shares redeemed ................. (33,172,596) (22,387,798)
------------ ------------
Net increase in net assets
from capital share transactions ............ 3,594,016 15,103,671
------------ ------------
Net increase in net assets ................... 1,698,360 14,773,380
NET ASSETS
Beginning of period .......................... 44,378,592 29,605,212
------------ ------------
End of period ................................ $ 46,076,952 $ 44,378,592
============ ============
TRANSACTIONS IN SHARES OF THE FUND
Sold ......................................... 3,487,214 3,423,113
Issued in reinvestment of distributions ...... 127,967 99,204
Redeemed ..................................... (3,269,438) (2,100,988)
------------ ------------
Net increase ................................. 345,743 1,421,329
============ ============
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
MAY 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Municipal Trust (the trust) is registered
under the Investment Company Act of 1940 (the 1940 Act) as an open-end
management investment company. 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 policies 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, 2000, 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.
At May 31, 2000, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $367,647 (expiring in 2008) which
may be used to offset future taxable gains.
For the seven month period ended May 31, 2000, the fund incurred net capital
losses of $117,286. The fund has elected to treat such losses as having been
incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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), under which ACIM 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 fund, except
brokerage, taxes, portfolio insurance, interest, fees and expenses of those
trustees who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is 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, 2000, the effective annual management fee was 0.51%.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended May 31, 2000 were $76,836,049 and $73,494,768,
respectively.
On May 31, 2000, accumulated net unrealized depreciation was $860,881, which
consisted of unrealized appreciation of $109,708 and unrealized depreciation of
$970,589. The aggregate cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended May 31, 2000.
14 1-800-345-2021
Florida Intermediate-Term Municipal--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), EXPENSE RATIO (operating expenses as a percentage of average net
assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 10.50 $ 10.56 $ 10.34 $ 10.18 $ 10.30
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................ 0.45 0.44 0.45 0.46 0.52
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .... (0.41) 0.05 0.38 0.20 (0.08)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ..... 0.04 0.49 0.83 0.66 0.44
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ........... (0.45) (0.44) (0.45) (0.46) (0.52)
From Net Realized Gains on
Investment Transactions .............. -- (0.11) (0.16) (0.04) (0.04)
In Excess of Net Realized Gains
on Investment Transactions ........... (0.01) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions .................. (0.46) (0.55) (0.61) (0.50) (0.56)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......... $ 10.08 $ 10.50 $ 10.56 $ 10.34 $ 10.18
========== ========== ========== ========== ==========
Total Return(1) ...................... 0.49% 4.71% 8.20% 6.63% 4.34%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.51% 0.51% 0.54% 0.65% 0.13%
Ratio of Operating Expenses
to Average Net Assets
(Before Expense Waiver) .............. 0.51% 0.51% 0.58% 0.86% 0.88%
Ratio of Net Investment Income
to Average Net Assets ................ 4.49% 4.13% 4.28% 4.42% 5.05%
Ratio of Net Investment Income
to Average Net Assets
(Before Expense Waiver) .............. 4.49% 4.13% 4.24% 4.21% 4.30%
Portfolio Turnover Rate ................ 155% 154% 154% 82% 66%
Net Assets, End of Period
(in thousands) ....................... $ 46,077 $ 44,379 $ 29,605 $ 16,513 $ 10,319
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 15
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Board of Trustees of the American Century Municipal Trust and
Shareholders of 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 (one of the eight funds constituting the American Century
Municipal Trust, hereafter referred to as the "Fund") at May 31, 2000, and the
results of its operations for the year then ended, the changes in net assets for
the two years in the period then ended, and the financial highlights for the
three years in the period then ended, in conformity with accounting principles
generally accepted in the United States. The financial highlights for each of
the two years in the period ended May 31, 1997, were audited by other auditors,
whose report, dated July 7, 1997, expressed an unqualified opinion on those
statements. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 14, 2000
16 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 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
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 in that index 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.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Managers
KEN SALINGER
DAVE MACEWEN
Municipal Credit Research Director
STEVEN PERMUT
www.americancentury.com 17
Glossary
--------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 15.
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 measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* AVERAGE DURATION -- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder's account. (See Note 2 in
the Notes to Financial Statements.)
TYPES OF MUNICIPAL SECURITIES
* COPS/LEASES -- securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases. Certificates of
participation represent long-term debt obligations, while leases have a higher
risk profile than GOs because they require annual appropriation.
* GO BONDS -- general obligation securities backed by the taxing power of the
issuer.
* LAND-SECURED BONDS -- securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
* PREREFUNDED BONDS/ETM BONDS --securities refinanced or escrowed to maturity by
the issuer because of their premium coupons (higher-than- market interest
rates). These bonds tend to have higher credit ratings because they are backed
by Treasury securities.
* REVENUE BONDS --securities backed by revenues from sales taxes or from a
specific project, system, or facility (such as a hospital, electric utility, or
water system).
18 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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 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 Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE
COMPANIES
1-800-345-6488
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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0007 American Century Investment Services, Inc.
SH-ANN-21199 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
[graphic of runners]
Tax-Free Money Market
[american century logo (reg.sm)]
American
Century
[inside front cover]
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
They say hindsight is 20/20. But what about insight? That's what you really
want when choosing mutual funds. Now you can get the insight you need with Fund
Advisor, an online tool that helps you select the right no-load funds for
you--on a goal by goal basis. Fund Advisor helps you:
Get organized.
Compile all your investments, review their performance and see if you're on
track to meet your personal financial goals.
Get direction.
Receive recommendations based on funds available through your current fund
family or financial service provider -- not just American Century funds.
Gain confidence.
Whether you want to analyze your current investments, or find new ones, Fund
Advisor can help you feel confident with the decisions you make.
How does it work?
Just tell Fund Advisor about your investing style, your current investments
and your goals. It will analyze your investments and offer impartial
recommendations to help you get on track.
To review Fund Advisor's unique perspective, go to www.americancentury.com
and select Fund Advisor at the top of the page. For the initial set-up, you
might want to have available:
* Your latest tax return
* Your most recent investment account statements
* Printouts from any software you use to track your personal finances
To learn more about this new tool and how it can help you better manage your
financial future, select the "Demo" from the Fund Advisor introduction page.
* Patent pending. It was developed for Acumation, Inc., a registered investment
advisor and wholly owned subsidiary of American Century.
American Century does not receive sales commissions or direct compensation for
recommending any fund, although it may receive management, service or other fees
from funds recommended through Fund Advisor. These agreements are described in
Acumation, Inc.'s Form ADV Part II.
[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.
Receive Your Annual Reports Online
--------------------------------------------------------------------------------
Now you can receive documents such as annual reports, prospectuses, and
newsletters online rather than regular mail. Your link to American Century
documents is a click away with the Electronic Communication option.
* Receive links to documents by email
* Download select documents and file electronically to save space in
your file cabinets
* Read documents at your convenience
To sign up for this option, visit www.americancentury.com and log in with
your secure OnePIN. Then simply select an account on your account list and
choose the Electronic Communication link. Questions? Call 1-800-345-2021. LOG IN
AND TAKE CONTROL TODAY!
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The 12 months ended May 31, 2000, provided a nearly ideal environment for
money market funds--rising interest rates, relatively low inflation, and stock
market volatility.
Trying to keep U.S. economic growth and inflation under control, the
Federal Reserve raised short-term interest rates six times in the last 12
months, boosting money market yields. While rates rose, inflation remained low
by historical standards, helping money market instruments maintain their
purchasing power. In addition, stock market volatility made the relative
stability of money market funds look attractive for investors with near-term
financial goals.
American Century Tax-Free Money Market fund continued to perform well in
that environment, providing a higher yield and total return than most of its
peers (according to Lipper Inc., an independent mutual fund ranking service).
The fund's low expenses and competitive yields have helped Tax-Free Money Market
place in the top 20% of its peer group for the last 10 years (see page 3). Fund
manager Bryan Karcher reviews the period and the fund's performance in more
detail on page 4.
Turning to corporate matters, we're proud to announce that American
Century's fund performance reports, like this one, earned the Communications
Seal from DALBAR, Inc., an independent financial services research firm. DALBAR
commended us for meeting investors' needs with an attractive document that's
easy to read and understand.
We're also pleased to provide investors with two new investment tools. Fund
Advisor,(1) an online advice engine, is designed to give impartial guidance in
choosing the right no-load mutual funds to meet your financial goals.(2) And
American Century is the program manager for Learning Quest,(SM) an educational
savings program launched by the state of Kansas on July 1 that allows parents to
invest tax-deferred to meet higher education costs. The summer issue of the
American Century investor newsletter provides more details on these tools.
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
(1) Patent pending.
(2) American Century does not receive sales commissions or direct compensation
for recommending any fund, although it may receive management, service, or
other fees from funds recommended through Fund Advisor. These arrangements
are described in Acumation Inc.'s Form ADV Part II.
[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
Types of Investments
in the Portfolio .................................................... 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?
There is a 10-business-day holding period for deposited funds--including
your initial investment in a new account. There is a one-business-day holding
period for wire transfers.
IS THERE A COST FOR WRITING CHECKS ON MY MONEY MARKET ACCOUNT?
As long as each check is for $100 or more, you can write as many checks as
you like at no charge.
HOW CAN I KEEP TRACK OF MY MONEY MARKET FUND TRANSACTIONS BETWEEN ACCOUNT
STATEMENTS?
You can access your investments any time through our automated telephone
line and the American Century Web site. These services provide fund yields,
returns, account information, and transaction services.
You can keep tabs on your investments 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* weekdays,
7 a.m.-7 p.m. Central time Saturdays, 9 a.m.-2 p.m. Central time
WHY DOES MY MONEY FUND YIELD FLUCTUATE?
Money market funds are managed to maintain a stable $1 share price, but
their yields will fluctuate with changes in market conditions. Common reasons
for changes in your fund's yield are adjustments to Federal Reserve interest
rate policy, the outlook for inflation, and supply and demand for money market
securities.
Keep in mind that no money market fund is guaranteed or insured by the U.S.
government. And although money market funds are intended to preserve the value
of your investment at $1 per share, there's no guarantee that they'll be able to
do so.
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 you can make an exchange by calling an Investor Relations
Representative, using our Automated Information Line, or visiting our Web
site, you 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 our Investor Relations Representatives to set up either of these
options.
2 1-800-345-2021
Tax-Free Money Market--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 2000
TAX-FREE TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
===============================================================================
6 MONTHS(1) 1.77% 1.63% --
1 YEAR 3.30% 3.02% 11 OUT OF 137
===============================================================================
AVERAGE ANNUAL RETURNS
3 YEARS(3) 3.37% 2.95% 6 OUT OF 124
5 YEARS(3) 3.25% 3.01% 13 OUT OF 115
10 YEARS(3) 3.18% 3.07% 13 OUT OF 73
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.
(3) Returns and rankings would have been lower if management fees had not been
waived.(+)
See pages 14-15 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
AS OF 5/31/00
NET ASSETS $233.9 MILLION
5/31/00 5/31/99
NUMBER OF SECURITIES 54 71
WEIGHTED AVERAGE
MATURITY 58 DAYS 49 DAYS
EXPENSE RATIO 0.50% 0.31%(+)
YIELDS AS OF MAY 31, 2000
7-DAY CURRENT YIELD 3.64%
7-DAY EFFECTIVE YIELD 3.71%
7-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 5.06%
31.0% TAX BRACKET 5.28%
36.0% TAX BRACKET 5.69%
39.6% TAX BRACKET 6.03%
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.
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, 2000?
The portfolio performed very well relative to other tax-exempt money market
funds. For the year, the fund ranked in the top 8% of the 137 "Tax-Exempt Money
Market Funds" tracked by Lipper Inc., while its three-, five-, and 10-year
returns all rank in the top 20%. (See the previous page for detailed performance
comparisons.)
HOW DOES THE PORTFOLIO'S YIELD COMPARE?
Tax-Free Money Market's 7-day effective yield of 3.71% was better than the
3.61% average yield of the Lipper group. The fund's yield translates into a
tax-equivalent yield of better than 6% for shareholders in the highest federal
tax bracket (see the previous page).
WHAT'S BEHIND TAX-FREE MONEY MARKET'S BETTER-THAN-AVERAGE YIELDS AND RETURNS?
As we've discussed in past reports, we think there are a couple key reasons
for the fund's solid long-term performance. First, our expenses are lower than
those of the average tax-exempt money market fund. Other things being equal,
lower expenses mean higher yields and returns for our shareholders. Second, we
have solid working relationships with securities dealers in our markets.
In addition, we think we did a good job adding yield to the fund in recent
months by buying securities in the secondary market and taking advantage of tax
time.
CAN YOU TELL US ABOUT SOME OF THE WAYS YOU BOOSTED THE FUND'S YIELD?
In the past several months, we added yield by avoiding the newest,
high-profile deals and focusing instead on higher-yielding securities, in the
secondary market. Many funds concentrate on buying newly issued securities. But
that means there's often less demand--and better yields--for existing money
market securities.
We also added higher-yielding municipal notes around tax time, when
investors typically write checks against their money market accounts to pay
Uncle Sam. With demand for money market instruments low during tax season,
yields have to rise to attract buyers.
For example, yields on one-year municipal notes rose from 4.08% on April 1
to 4.64% by mid-May. At the same time, municipal yields increased from about
two-thirds to three-quarters of the yield available on one-year Treasury bills.
As a result, we boosted the fund's yield by adding some higher-yielding
municipal notes in late April and May. Of course, this takes good planning to
make sure we have the cash on hand to meet redemptions and still capitalize on
the increase in yields.
WHAT'S YOUR OUTLOOK FOR MUNICIPAL MONEY MARKET FUND YIELDS?
The best guidepost for money market yields is Federal Reserve interest rate
policy. Recent data show the U.S. economy slowing, so we think the Fed's work is
largely done. As a result, we think interest rates and money market yields are
probably near the peak of the current cycle.
[left margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
A1+ 85% 81%
A1 7% 12%
A2 8% 7%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 14
for more information.
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF MAY 31, 2000
VRDNS 65%
BONDS <1 YEAR 30%
PUT BONDS 5%
AS OF NOVEMBER 30, 1999
VRDNS 67%
BONDS <1 YEAR 21%
PUT BONDS 9%
MUNICIPAL NOTES 3%
Security types are defined on page 15.
4 1-800-345-2021
Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES -- 100%
ARIZONA -- 0.9%
$ 1,095,000 Maricopa County Unified School
District No. 1 GO, (Phoenix
Elementary), 4.75%, 7/1/00
(FSA) $ 1,095,934
1,000,000 Tempe Excise Tax Rev., Series
1999 A, 3.75%, 7/1/00 1,000,311
------------
2,096,245
------------
COLORADO -- 0.9%
2,000,000 Arapahoe County Industrial
Development Rev., (Denver
Jetcenter), VRDN, 4.65%,
6/1/00 (LOC: U.S. Bank, N.A.) 2,000,000
------------
DISTRICT OF COLUMBIA -- 0.7%
1,590,000 District of Columbia Rev., Series
1999 A, (George Washington
University), 5.00%, 9/15/00
(MBIA) 1,594,234
------------
FLORIDA -- 17.3%
3,410,000 Broward County Housing Finance
Auth. Multifamily Rev.,
(Fishermens Landing), VRDN,
4.10%, 6/7/00 (LOC: Bank
One, Michigan) 3,410,000
5,500,000 Dade County Health Facilities
Auth. Hospital Rev., (Miami
Childrens Hospital), VRDN,
4.15%, 6/7/00 (AMBAC)
(SBBPA: Suntrust Bank) 5,500,000
11,305,000 Florida Housing Finance Agency
Multifamily Housing Rev.,
(Country Club), VRDN, 4.50%,
6/1/00 (LOC: Bank of New
York) 11,305,000
6,000,000 Florida Housing Finance Agency
Multifamily Housing Rev.,
(Woodlands), VRDN, 4.45%,
6/7/00 (LOC: Northern Trust
Company) 6,000,000
2,000,000 Jacksonville Electric Auth. Rev.,
Series 1991-4-1-A, (Bulk
Power Supply-Scherer), 6.70%,
10/1/00, Prerefunded at
101.5% of Par(1) 2,049,494
8,000,000 Jacksonville Electric Auth. Rev.,
VRDN, 4.19%, 6/7/00 (LOC:
Societe Generale) (Acquired
1/31/00-5/24/00, Cost
$8,000,000)(2) 8,000,000
3,000,000 Miami-Dade County Housing
Finance Auth. Rev., Series
1999 A-2, (Home Ownership
Mortgage), 3.55%, 8/1/00
(GIC: Trinity Funding Corp.) 3,000,000
------------
39,264,494
------------
Principal Amount Value
--------------------------------------------------------------------------------
GEORGIA -- 2.2%
$ 5,000,000 Richmond County Hospital Auth.
Rev. Anticipation Certificates,
(University Health Services Inc.),
VRDN, 4.40%, 6/7/00 (LOC:
Suntrust Bank) $ 5,000,000
------------
HAWAII -- 5.1%
3,000,000 Hawaii Department of Budget &
Finance Special Purpose
Meeting Rev., Series 1999 A,
(Palama Meat Co.), VRDN,
4.70%, 6/1/00 (LOC: Bank of
Hawaii) 3,000,000
4,000,000 Hawaii Department of Budget &
Finance Special Purpose
Mortgage Rev., (Wailuku River
Hydroelectric), VRDN, 4.70%,
6/6/00 (LOC: Union Bank of
California N.A.) 4,000,000
1,000,000 Hawaii Highway Rev., 4.00%,
7/1/00 (FGIC) 1,000,579
3,550,000 Honolulu City and County GO,
Series 1991 A, 10.00%,
8/1/00(1) 3,585,134
------------
11,585,713
------------
ILLINOIS -- 5.4%
3,500,000 Chicago School Financing Auth.
GO, Series 1993 A, 4.70%,
6/1/00 (FGIC) 3,500,000
1,410,000 Chicago Wastewater Transmission
Rev., (2nd Lien), 5.00%,
1/1/01 (MBIA) 1,415,957
3,040,000 Illinois Sales Tax Rev., Series
1991 N, 6.90%, 6/15/01,
Prerefunded at 102% of Par(1) 3,162,358
4,140,000 Illinois Sports Facilities Auth. Rev.,
Series 1999 A, 4.00%,
6/15/00 (MBIA) 4,141,011
------------
12,219,326
------------
KENTUCKY -- 7.9%
10,000,000 Kentucky Economic Development
Finance Auth. Rev., (Pooled
Hospital Loan Program), VRDN,
4.30%, 6/7/00 (Capital
Reinsurance Company)
(SBBPA: Chase Manhattan
Bank) 10,000,000
7,100,000 Kentucky Turnpike Auth. Resource
Recovery Road Floating Rate
Trust Receipts, Series 1997-17,
4.40%, 6/7/00 (FSA) (SBBPA:
Commerzbank AG) (Acquired
10/8/97-12/12/97, Cost
$7,100,000)(2)(3) 7,100,000
905,000 Mayfield Multi-City Lease Rev.,
VRDN, 4.40%, 6/7/00 (LOC:
PNC Bank NA) 905,000
------------
18,005,000
------------
See Notes to Financial Statements www.americancentury.com 5
Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
LOUISIANA -- 1.7%
$ 4,000,000 Jefferson Parish Home Mortgage
Auth. Single Family Rev., Series
1999 B-2, 3.65%, 6/30/00
(GIC: AIG Matched Funding
Corp.) $ 4,000,000
------------
MARYLAND -- 2.6%
5,815,000 Maryland Health & Higher
Educational Facilities Auth. Rev.,
(Doctors Community Hospital),
8.75%, 7/1/00, Prerefunded at
102% of Par(1) 5,955,246
------------
MASSACHUSETTS -- 7.9%
5,184,000 Koch Certificates Trust Rev.,
Series 1999-4, VRDN, 4.94%,
6/1/00 (AMBAC) (SBBPA:
State Street Bank & Trust Co.)
(Acquired 2/29/00-5/31/00,
Cost $5,184,000)(2) 5,184,000
3,000,000 Massachusetts GO, Series
1998 B, (Consolidated Loan),
4.50%, 4/1/01 3,006,002
3,600,000 Massachusetts Health &
Educational Facilities Auth. Rev.,
Series 1990 B, (Goddard
Memorial Hospital), 9.00%,
7/1/00, Prerefunded at 102%
of Par(1) 3,687,731
6,000,000 Massachusetts State GO, Series
1996 A, 5.25%, 11/1/00 6,036,674
------------
17,914,407
------------
MICHIGAN -- 3.1%
6,750,000 Royal Oak Hospital Finance Auth.
Rev., Series 1991 D, (William
Beaumont Hospital), 6.75%,
1/1/01, Prerefunded at 102%
of Par(1) 6,985,238
------------
MISSOURI -- 3.4%
1,910,000 Missouri Development Finance
Board Industrial Development
Rev., (J & J Enterprises), VRDN,
4.65%, 6/7/00 (LOC:
Commerce Bank, N.A.
(Missouri)) 1,910,000
5,900,000 Missouri Health & Educational
Facilities Auth. Rev., (Pembroke
Hill School), VRDN, 4.35%,
6/1/00 (LOC: Commerce Bank,
N.A. (Missouri)) 5,900,000
------------
7,810,000
------------
MULTI-STATE -- 4.4%
10,000,000 Koch Certificates Trust Rev.,
Series 2000-1, VRDN, 4.30%,
6/1/00 (AMBAC) (SBBPA:
State Street Bank & Trust Co.)
(Acquired 5/2/00, Cost
$10,000,000)(2) 10,000,000
------------
Principal Amount Value
--------------------------------------------------------------------------------
NEVADA -- 5.5%
$ 6,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-1,
VRDN, 4.25%, 6/7/00 (MBIA)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 6/3/98, Cost
$6,000,000)(2) $ 6,000,000
4,000,000 Clark County Economic
Development Rev., (Lutheran
Secondary School Association),
VRDN, 4.50%, 6/1/00 (LOC:
Allied Irish Banks PLC) 4,000,000
2,500,000 Clark County School District,
Series 1995 A, 5.75%,
6/15/01 (MBIA) 2,525,663
------------
12,525,663
------------
NEW YORK -- 1.4%
3,000,000 New York State Local
Government Assistance Corp.
Rev., Series 1991 B, 7.50%,
4/1/01, Prerefunded at 102%
of Par(1) 3,126,983
------------
NORTH DAKOTA -- 0.7%
1,510,000 Hebron Industrial Development
Rev., (Dacco Inc.), VRDN,
4.50%, 6/1/00 (LOC: U.S.
Bank, N.A.) (Acquired 2/26/98,
Cost $1,510,000)(2) 1,510,000
------------
OHIO -- 3.2%
3,260,000 Butler County Healthcare
Facilities Rev., (Knolls of Oxford),
VRDN, 4.35%, 6/1/00 (LOC:
Firstar Bank N.A.) 3,260,000
3,950,000 Clinton County Hospital Rev.,
(Ohio Hospital Capital Inc.),
VRDN, 4.25%, 6/7/00 (LOC:
Fifth Third Bank) 3,950,000
------------
7,210,000
------------
PENNSYLVANIA -- 0.4%
930,000 Allegheny County Airport Auth.
Rev., (Pittsburgh International
Airport), 4.75%, 1/1/01 (FGIC) 931,683
------------
PUERTO RICO -- 2.6%
6,000,000 Puerto Rico Commonwealth,
Series 2000 A-1, VRDN,
4.55%, 6/1/00 (SBBPA: Bank
of New York) 6,000,000
------------
SOUTH DAKOTA -- 2.3%
5,180,000 South Dakota Housing
Development Auth. Rev., Series
2000 C, (Homeownership
Mortgage), 4.10%, 2/1/01 5,180,000
------------
6 1-800-345-2021 See Notes to Financial Statements
Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
TEXAS -- 4.8%
$ 2,277,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-22,
VRDN, 4.25%, 6/7/00 (MBIA)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 12/3/98, Cost
$2,277,000)(2) $ 2,277,000
5,500,000 Gulf Coast Industrial Development
Auth. Rev., (Petrounited Term
Inc.), VRDN, 4.40%, 6/1/00
(LOC: Bank One, Texas) 5,500,000
3,150,000 Tarrant County Water Control &
Improvement District No. 1 Rev.,
6.00%, 3/1/01, Prerefunded at
100% of Par(1) 3,179,503
------------
10,956,503
------------
VIRGINIA -- 2.9%
6,500,000 Halifax County Industrial
Development Auth. Rev.,
(O'Sullivan Industries), VRDN,
4.75%, 6/1/00 (LOC:
Wachovia Bank, N.A.) (Acquired
2/1/99, Cost $6,500,000)(2) 6,500,000
------------
WASHINGTON -- 7.9%
1,405,000 Pierce County Economic
Development Corporate Rev.,
(K & M Holdings II), VRDN,
4.70%, 6/7/00 (LOC: Wells
Fargo Bank, N.A.) (Acquired
11/17/97, Cost $1,405,000)(2) 1,405,000
Principal Amount Value
--------------------------------------------------------------------------------
$ 1,850,000 Washington GO, Series 1999 B,
4.25%, 1/1/01 $ 1,851,035
2,600,000 Washington Housing Finance
Commission Nonprofit Rev.,
(YMCA Columbia/Willamette),
VRDN, 4.30%, 6/1/00 (LOC:
Wells Fargo Bank, N.A.) 2,600,000
4,960,000 Washington Public Power Supply
System Nuclear Project No. 2
Rev., Series 1990 C, 7.375%,
1/1/01, Prerefunded at 102%
of Par (FGIC)(1) 5,128,629
2,000,000 Washington Public Power Supply
System Rev., Series 1990 C,
(Nuclear Project No. 1), 7.25%,
7/1/00 (FGIC) 2,006,424
5,000,000 Washington State Housing
Finance Commission Multifamily
Mortgage Rev., (Mill Plain
Crossing), VRDN, 4.30%,
6/6/00 (LOC: Harris Trust &
Savings Bank) 5,000,000
------------
17,991,088
------------
WISCONSIN -- 4.8%
11,000,000 Ladysmith Solid Waste Disposal
Facility Rev., (City Forest Corp.),
VRDN, 4.70%, 6/7/00 (LOC:
Union Bank of California N.A.) 11,000,000
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $227,361,823
============
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
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, 2000.
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at May 31, 2000, was $47,976,000,
which represented 20.5% of net assets. None of these securities are
considered to be illiquid.
(3) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective May 31, 2000.
See Notes to Financial Statements www.americancentury.com 7
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
MAY 31, 2000
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) .......................... $ 227,361,823
Cash .................................................... 4,058,825
Interest receivable ..................................... 2,529,989
-------------
233,950,637
-------------
LIABILITIES
Accrued management fees (Note 2) ........................ 97,150
Payable for trustees' fees and expenses ................. 1,213
Accrued expenses and other liabilities .................. 80
-------------
98,443
-------------
Net Assets .............................................. $ 233,852,194
=============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ................................. 233,877,127
=============
Net Asset Value Per Share ............................... $ 1.00
=============
NET ASSETS CONSIST OF:
Capital paid in ......................................... $ 233,877,127
Undistributed net investment income ..................... 22,975
Accumulated net realized
loss on investments ................................... (47,908)
-------------
$ 233,852,194
=============
8 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED MAY 31, 2000
INVESTMENT INCOME
Income:
Interest ................................................ $ 9,368,797
-----------
Expenses (Note 2):
Management fees ......................................... 1,238,054
Trustees' fees and expenses ............................. 14,450
-----------
1,252,504
-----------
Net investment income ................................... 8,116,293
-----------
REALIZED LOSS ON INVESTMENTS
Net realized loss on investments ........................ (47,908)
-----------
Net Increase in Net Assets
Resulting from Operations ............................. $ 8,068,385
===========
See Notes to Financial Statements www.americancentury.com 9
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MAY 31, 2000 AND MAY 31, 1999
Decrease in Net Assets 2000 1999
OPERATIONS
Net investment income ...................... $ 8,116,293 $ 12,496,571
Net realized gain (loss) on investments .... (47,908) 22,974
------------- -------------
Net increase in net assets
resulting from operations ................ 8,068,385 12,519,545
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. (8,135,943) (12,496,571)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 250,007,281 564,457,327
Proceeds from reinvestment
of distributions ......................... 7,790,118 11,355,619
Payments for shares redeemed ............... (306,923,492) (737,066,946)
------------- -------------
Net decrease in net assets
from capital share transactions .......... (49,126,093) (161,254,000)
------------- -------------
Net decrease in net assets ................. (49,193,651) (161,231,026)
NET ASSETS
Beginning of period ........................ 283,045,845 444,276,871
------------- -------------
End of period .............................. $ 233,852,194 $ 283,045,845
============= =============
Undistributed net investment income ........ $ 22,975 $ 19,650
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold ....................................... 250,007,281 564,457,327
Issued in reinvestment
of distributions ......................... 7,790,118 11,355,619
Redeemed ................................... (306,923,492) (737,066,946)
------------- -------------
Net decrease ............................... (49,126,093) (161,254,000)
------------- -------------
10 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
MAY 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Municipal Trust (the trust), is registered
under the Investment Company Act of 1940 (the 1940 Act) as an open-end
management investment company. Tax-Free Money Market Fund (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 policies 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, 2000, 100%
(unaudited) of the funds' distributions from net investment income have been
designated as exempt from federal income tax.
At May 31, 2000, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $12,653 (expiring in 2008) which
may be used to offset future taxable gains.
For the seven months ended May 31, 2000, the fund incurred net capital
losses of $35,255. The fund has elected to treat such losses as having been
incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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 1940 Act (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, 2000, the effective annual management fee was 0.50%.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
www.americancentury.com 11
Tax-Free Money Market--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), and EXPENSE RATIO (operating expenses as a percentage of average net
assets).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................ 0.03 0.03 0.04 0.03 0.03
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.03) (0.03) (0.04) (0.03) (0.03)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(1) ...................... 3.30% 3.10% 3.70% 2.98% 3.19%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.50% 0.31%(2) 0.04%(2) 0.67% 0.65%
Ratio of Net Investment Income
to Average Net Assets ................ 3.23% 3.10%(2) 3.68%(2) 2.93% 3.12%
Net Assets, End of Period
(in thousands) ....................... $ 233,852 $ 283,046 $ 444,277 $ 85,730 $ 91,118
</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 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 3.10% for
1998,
respectively.
12 1-800-345-2021 See Notes to Financial Statements
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 Tax-Free Money Market Fund (one of
the eight funds constituting the American Century Municipal Trust, hereafter
referred to as the "Fund") at May 31, 2000, and the results of its operations
for the year then ended, the changes in net assets for the two years in the
period then ended, and the financial highlights for the three years in the
period then ended, in conformity with accounting principles generally accepted
in the United States. The financial highlights for each of the two years in the
period ended May 31, 1997, were audited by other auditors, whose report, dated
July 7, 1997, expressed an unqualified opinion on those statements. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, 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, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 14, 2000
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 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
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:
TAX-FREE MONEY MARKET seeks to provide interest income exempt from federal
income taxes by investing in short-term municipal securities.
An investment in Tax-Free Money Market is 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.
A-1 (which includes A-1+) is Standard & Poor's highest credit rating for
short-term securities. Here are the most common short-term credit ratings and
their definitions:
* A-1+: extremely strong ability to meet financial obligations.
* A-1: strong ability to meet financial obligations.
* A-2: satisfactory ability to meet financial obligations.
It's important to note that credit ratings are subjective. They reflect the
opinions of the rating agencies that issue them and are not absolute standards
of quality.
[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 total 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 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 measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* 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
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.
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.
* 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 Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo (reg.sm)]
American
Century
P.O. BOX 419200
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INVESTOR RELATIONS
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THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
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American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0007 American Century Investment Services, Inc.
SH-ANN-21196 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
MAY 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
[graphic of runners]
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]
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[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.
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Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The year ended May 31, 2000, provided a difficult environment for U.S. bond
funds: a strong economy, inflation fears, and rising interest rates. Trying to
keep economic growth, inflation, and the U.S. stock market under control, the
Federal Reserve raised short-term interest rates six times during the one-year
period, putting pressure on bond prices.
Despite these obstacles, the American Century Limited-, Intermediate-, and
Long-Term Tax Free funds and American Century High-Yield Municipal fund
continued to provide above-average returns and below-average expenses. These
attributes helped the funds place consistently in the top 40% or better in their
peer groups for the last five years, according to Lipper Inc., an independent
mutual fund ranking service. See pages 6, 11, 18, and 24 for more performance
information.
Our investment management team had its work cut out for it during this
challenging period. Some of the team leaders review the period and the funds'
performance in more detail beginning on page 4.
Turning to corporate matters, we're proud to announce that American
Century's fund performance reports, like this one, earned the Communications
Seal from DALBAR, Inc., an independent financial services research firm. DALBAR
commended us for meeting investors' needs with an attractive document that's
easy to read and understand.
We're also pleased to provide investors with two new investment tools. Fund
Advisor,(1) an online advice engine, is designed to give impartial guidance in
choosing the right no-load mutual funds to meet your financial goals.(2) And
American Century is the program manager for Learning Quest,(SM) an educational
savings program launched by the state of Kansas on July 1 that allows parents to
invest tax-deferred to meet higher education costs. The summer issue of the
American Century investor newsletter provides more details on these tools.
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
(1) Patent pending.
(2) American Century does not receive sales commissions or direct compensation
for recommending any fund, although it may receive management, service, or
other fees from funds recommended through Fund Advisor. These arrangements
are described in Acumation Inc.'s Form ADV Part II.
[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 ................................................ 11
Management Q&A ......................................................... 12
Schedule of Investments ................................................ 14
LONG-TERM TAX-FREE
Performance Information ................................................ 18
Management Q&A ......................................................... 19
Schedule of Investments ................................................ 21
HIGH-YIELD MUNICIPAL
Performance Information ................................................ 24
Management Q&A ......................................................... 25
Schedule of Investments ................................................ 27
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 29
Statements of Operations ............................................... 30
Statements of Changes
in Net Assets ....................................................... 31
Notes to Financial
Statements .......................................................... 33
Financial Highlights ................................................... 35
Report of Independent
Accountants ......................................................... 39
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 40
Credit Rating
Guidelines ....................................................... 40
Investment and Credit
Research Teams ................................................... 40
Comparative Indices ................................................. 41
Lipper Rankings ..................................................... 41
Glossary ............................................................... 42
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Rising interest rates muted municipal bond returns during the year ended May
31, 2000.
* Shorter-maturity bonds outperformed longer-maturity securities.
* Strong economic growth and a booming U.S. stock market led the Federal
Reserve to raise short-term interest rates six times during the 12-month
period.
* Higher rates and the strong U.S. economy helped reduce municipal bond
issuance and supply by the second quarter of 2000, while higher yields
attracted more demand from investors.
* Investment-grade municipal bonds outperformed lower-rated and non-rated
bonds because of tax-loss selling and concerns about health care and public
power bonds in the high-yield sector.
MUNICIPAL CREDIT REVIEW
* The first quarter of 2000 marked the 18th consecutive quarter in which
municipal credit rating upgrades exceeded downgrades. This trend held true
in every region, underscoring the broad distribution of the current U.S.
economic expansion.
* Tax-backed municipal securities (bonds backed by revenues from sales,
property, and income taxes) remained among the prime beneficiaries of the
nation's ongoing economic strength.
* Water, sewer, transportation, and housing revenue bonds were also generally
bolstered by the strong economy.
* However, health care was a notable exception to the favorable trend.
Cutbacks in reimbursements and higher labor costs weighed heavily on the
sector.
* We do not believe that the potential loss of sales tax revenues due to
e-commerce represents a major threat to the tax bases of most states and
municipalities.
LIMITED-TERM TAX-FREE
* Despite a difficult environment for bonds, Limited-Term Tax-Free posted much
better yields and returns than its peer group for the fiscal year.
* Rather than make bets on the direction of interest rates, we tried to
improve the fund's yield and return through careful security selection and
sector allocation.
* We improved performance by reducing our exposure to health care bonds, which
performed poorly, and by adding some "forward settlements" (see page 8 for
further details).
* Our "barbell" maturity structure also helped returns--we overweighted very
short- and more intermediate-term notes, which were less affected by rising
rates.
* An uncertain supply and demand outlook means that we're likely to maintain
our neutral stance on interest rates in the near term and try to add value
through individual security selection.
[left margin]
LIMITED-TERM TAX-FREE
(TWTSX)
TOTAL RETURNS: AS OF 5/31/00
6 Months 0.67%*
1 Year 1.14%
30-DAY SEC YIELD: 4.69%
INCEPTION DATE: 3/1/93
NET ASSETS: $32.3 million
INTERMEDIATE-TERM TAX-FREE
(TWTIX)
TOTAL RETURNS: AS OF 5/31/00
6 Months 1.18%*
1 Year 0.44%
30-DAY SEC YIELD: 5.03%
INCEPTION DATE: 3/2/87
NET ASSETS: $149.5 million
* Not annualized.
See Total Returns on pages 6 and 11.
Investment terms are defined in the Glossary on pages 42-43.
2 1-800-345-2021
Report Highlights
--------------------------------------------------------------------------------
(Continued)
INTERMEDIATE-TERM TAX-FREE
* Intermediate-Term Tax-Free continued to outpace the majority of its peers,
though rising interest rates dampened returns.
* We kept the fund's duration--a measure of price sensitivity to changes in
interest rates--fairly close to that of its Lipper category over the last
six months, but began lengthening slightly toward the end of May.
* Intermediate-Term Tax-Free's barbelled bond maturity structure--heavily
weighted in bonds with short and long maturities, with little in
between--also helped performance.
* We will probably maintain the portfolio's slightly long duration and barbell
position in the near term, which we think should boost returns during the
July wave of municipal bond coupon and maturity payments.
LONG-TERM TAX-FREE
* The fund outperformed most of its peers in a difficult period for municipal
bond investors. Low expenses continued to be a key factor.
* A favorable portfolio structure also contributed to Long-Term Tax-Free's
strong relative performance. A "coupon barbell" consisting of discount and
premium bonds (see page 19 for further details) allowed the fund to
outperform municipal portfolios holding primarily par bonds.
* We increased our holdings of bonds rated BBB because we believed the
significant additional yield outweighed the potential credit risks.
* We're cautiously optimistic about future interest rate and supply and demand
developments, so we'll likely maintain a slightly longer-than-average
duration in the coming months to better capture potential bond price gains.
HIGH-YIELD MUNICIPAL
* Rising interest rates and market pressure from tax-loss selling dampened
returns, but the fund outperformed most of its peers. Below-average expenses
were a key factor.
* A relative underweighting in health care bonds (compared with its peers)
also helped High-Yield Municipal. Health care was the worst-performing
sector of the municipal high-yield market.
* We also kept the fund's duration shorter than the average of its peers,
which cushioned the portfolio somewhat against rising interest rates.
* When opportunities presented themselves, we swapped some of the fund's
older, lower-coupon bonds for newer, higher-coupon issues. We continued to
favor land-secured bonds.
* Because of the U.S. economy's continued strength, we're still bullish on the
municipal high-yield market. With the exception of one or two individual
sectors, municipal financial health and credit quality has generally
improved.
[right margin]
LONG-TERM TAX-FREE
(TWTLX)
TOTAL RETURNS: AS OF 5/31/00
6 Months 1.31%*
1 Year -2.38%
30-DAY SEC YIELD: 5.46%
INCEPTION DATE: 3/2/87
NET ASSETS: $96.3 million
HIGH-YIELD MUNICIPAL
(ABHYX)
TOTAL RETURNS: AS OF 5/31/00
6 Months -0.26%*
1 Year -2.81%
30-DAY SEC YIELD: 5.81%
INCEPTION DATE: 3/31/98
NET ASSETS: $28.2 million
* Not annualized.
See Total Returns on pages 18 and 24.
Investment terms are defined in the Glossary on pages 42-43.
www.americancentury.com 3
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
RISING YIELDS, FALLING PRICES
Inflation fears (due to strong economic growth) and rising interest rates
muted municipal bond returns during the year ended May 31, 2000. In this
environment, shorter-maturity securities outperformed longer-maturity bonds (see
the index returns table at left). Long-term municipal bonds also lost some
ground to long-term Treasurys, which benefited from government plans to reduce
Treasury issuance and supply.
In an effort to rein in the U.S. economy and stock market, the Federal
Reserve raised short-term interest rates six times during the 12-month period.
The most recent rate hike was a half-percentage-point increase in May 2000, the
largest rate hike in five years. This yearlong rate-raising effort pushed the
federal funds rate target--the rate used for overnight loans between banks--up
nearly two percentage points to 6.5%, the highest level in nine years. As
short-term interest rates soared, municipal bond yields rose and prices fell.
Because of this rising rate environment, municipal bond yields reached
their highest levels in several years. For an investor in the highest (39.6%)
federal tax bracket, a 30-year AAA-rated municipal bond that yielded
approximately 5.95% on May 31, 2000 (up from about 5.05% on May 31, 1999),
offered a tax-equivalent yield of approximately 9.85%. That compared very
favorably with the 6.01% yield on the 30-year U.S. Treasury bond as of May 31,
2000.
LESS SUPPLY, MORE DEMAND
The municipal market began to rebound as supply and demand conditions
improved during the second quarter of 2000. On the supply side, the strong
economy bolstered the financial stability of many municipal issuers and
curtailed their borrowing needs. In addition, refinancing of old debt came to a
virtual standstill as higher interest rates eliminated the financial incentive
to retire old debt.
Meanwhile, demand for municipal bonds firmed. Stock market volatility and
attractive yields triggered increased buying activity in the municipal market.
HIGH-QUALITY BONDS OUTPERFORM
Investment-grade municipal bonds (those rated BBB or higher) outpaced
lower-rated and non-rated bonds--the so-called "high-yield" sector--during the
period. Much of this sector's underperformance can be attributed to heavy
tax-loss selling from late 1999 through early 2000 and concerns about health
care and project finance bonds, which tainted the entire high-yield market. We
think the high-yield sell-off was overdone--the strength of the U.S. economy
lifted the credit quality of the high-yield sector, as well as the municipal
market as a whole.
[left margin]
"AS SHORT-TERM INTEREST RATES SOARED, MUNICIPAL BOND YIELDS ROSE AND PRICES
FELL."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED MAY 31, 2000
MERRILL LYNCH 0- TO 3-YEAR
MUNICIPAL INDEX 2.68%
LEHMAN BROS. 5-YEAR
MUNICIPAL GO INDEX 0.65%
LEHMAN BROS. LONG-TERM
MUNICIPAL BOND INDEX -4.45%
Source: Lipper Inc. and Russell/Mellon Analytical Services
[line graph - data below]
RISING & FLATTENING MUNICIPAL YIELD CURVE
5/31/99 11/30/99 5/31/00
YEARS TO
MATURITY
1 3.29% 3.89% 4.70%
2 3.52% 4.12% 4.89%
3 3.71% 4.30% 4.99%
4 3.88% 4.44% 5.06%
5 4.00% 4.55% 5.11%
6 4.10% 4.64% 5.15%
7 4.19% 4.72% 5.19%
8 4.28% 4.80% 5.23%
9 4.37% 4.88% 5.27%
10 4.45% 4.96% 5.31%
11 4.53% 5.06% 5.36%
12 4.61% 5.14% 5.42%
13 4.67% 5.22% 5.47%
14 4.75% 5.30% 5.53%
15 4.84% 5.38% 5.59%
16 4.88% 5.44% 5.64%
17 4.92% 5.50% 5.70%
18 4.96% 5.56% 5.75%
19 4.99% 5.62% 5.81%
20 5.02% 5.68% 5.87%
21 5.03% 5.68% 5.88%
22 5.04% 5.69% 5.89%
23 5.05% 5.69% 5.90%
24 5.05% 5.70% 5.91%
25 5.06% 5.71% 5.91%
26 5.06% 5.71% 5.92%
27 5.06% 5.71% 5.92%
28 5.07% 5.72% 5.93%
29 5.07% 5.72% 5.93%
30 5.08% 5.73% 5.94%
Source: Bloomberg Financial Markets
4 1-800-345-2021
Municipal Credit Review
--------------------------------------------------------------------------------
STRONG ECONOMY BOOSTS CREDIT QUALITY
Robust U.S. economic growth continued to bolster municipal credit quality
during the year ended May 31, 2000. Although housing and retail sales slowed
slightly in response to rising interest rates, sales remained solid thanks to
strong wealth gains and rising personal incomes.
The first quarter of 2000 also marked the 18th consecutive quarter in which
municipal credit rating upgrades exceeded downgrades. The generally positive
municipal credit environment is reflected in the accompanying map, which shows
each state's credit rating as of May 31, 2000.
SECTOR ANALYSIS
Tax-backed bonds remained among the prime beneficiaries of the nation's
ongoing economic strength. Brisk consumer spending and healthy real estate
activity lifted sales and property tax collections, while vigorous wage and
salary growth helped buoy income tax receipts. Over 30 states received
higher-than-budgeted revenues during fiscal 1999 for sales, personal income, and
corporate taxes. Only nine states received less than was budgeted.
Credit trends among bonds backed by revenue from specific municipal
projects or entities were decidedly more mixed. A healthy economy helped
maintain strong revenue trends for water, sewer, transportation, and housing
sectors. However, cutbacks in reimbursements from government and managed-care
health plans as well as rising labor costs continued to weigh heavily on the
health care sector.
REGIONAL PERFORMANCE
During 1999, credit rating upgrades significantly exceeded the number of
downgrades in every region, underscoring the breadth of the current U.S.
economic expansion.
The greatest number of upgrades occurred in the Great Lakes region--which
benefited from improved economic diversification away from its traditional
manufacturing base--followed by the Southeast region. Even former laggards
Alaska, which has benefited from higher oil prices, and Hawaii, which has
profited from stronger tourism and better economic conditions in Japan,
rebounded in 2000.
Meanwhile, the Mid-Atlantic states experienced slightly more downgrades,
due to the tough operating environment for the region's not-for-profit
hospitals.
E-COMMERCE AND SALES TAXES
The rise of sales of goods and services on the Internet--which are not
taxed currently by municipal issuers--has raised questions about lost tax
receipts and their impact on municipal bond credit quality. While we are
watching developments closely, our view is that even if e-commerce volume
increases 10-fold over the next few years, it will represent only about 10% of
total retail transactions and therefore doesn't represent a serious threat to
the tax bases of most states and municipalities.
[right margin]
"CREDIT RATING UPGRADES SIGNIFICANTLY EXCEEDED THE NUMBER OF DOWNGRADES IN EVERY
REGION, UNDERSCORING THE BREADTH OF THE CURRENT U.S. ECONOMIC EXPANSION."
[map chart - data below]
NATIONAL CREDIT QUALITY AS OF MAY 31, 2000
STATE S&P RATING
Alabama AA
Alaska AA
Arizona AA
Arkansas AA
California AA
Colorado AA
Connecticut AA-
Delaware AAA
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 Not Rated
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 Not Rated
Tennessee AAA
Texas AA
Utah AAA
Vermont AA-
Virginia AAA
Washington AA+
West Virginia AA-
Wisconsin AA
Wyoming AA
Source: Standard & Poor's
Credit ratings are defined on page 40.
www.americancentury.com 5
Limited-Term Tax-Free--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 2000
MERRILL LYNCH SHORT/INTERMEDIATE
LIMITED-TERM 0- TO 3-YEAR MUNICIPAL DEBT FUNDS(2)
TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 0.67% 1.53% 0.38% --
1 YEAR 1.14% 2.68% 0.27% 4 OUT OF 41
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 3.68% 4.07% 3.13% 3 OUT OF 38
5 YEARS 3.97% 4.18% 3.59% 7 OUT OF 26
LIFE OF FUND 3.98% 4.06% 3.90%(3) 7 OUT OF 15(3)
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 40-42 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 5/31/00 Limited-Term Tax-Free
$13,271 Merrill Lynch 0- to 3-Year
Municipal Index $13,345
Merrill Lynch
Limited-Term 0- to 3-Year
Tax-Free Municipal Index
DATE VALUE VALUE
3/1/1993 $10,000 $10,000
3/31/1993 $10,014 $9,991
6/30/1993 $10,132 $10,110
9/30/1993 $10,227 $10,149
12/31/1993 $10,337 $10,321
3/31/1994 $10,322 $10,318
6/30/1994 $10,426 $10,395
9/30/1994 $10,524 $10,498
12/31/1994 $10,591 $10,457
3/31/1995 $10,790 $10,693
6/30/1995 $10,964 $10,903
9/30/1995 $11,110 $11,063
12/31/1995 $11,305 $11,212
3/31/1996 $11,364 $11,324
6/30/1996 $11,434 $11,402
9/30/1996 $11,564 $11,534
12/31/1996 $11,721 $11,672
3/31/1997 $11,768 $11,728
6/30/1997 $12,007 $11,906
9/30/1997 $12,204 $12,072
12/31/1997 $12,378 $12,220
3/31/1998 $12,501 $12,355
6/30/1998 $12,627 $12,474
9/30/1998 $12,892 $12,678
12/31/1998 $13,012 $12,832
3/31/1999 $13,112 $12,950
6/30/1999 $13,006 $12,973
9/30/1999 $13,116 $13,081
12/31/1999 $13,164 $13,154
3/31/2000 $13,291 $13,304
5/31/2000 $13,271 $13,345
$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 ENDED MAY 31)
Merrill Lynch
Limited-Term 0- to 3-Year
Tax-Free Municipal Index
DATE RETURN RETURN
5/31/1993* 0.76% 0.23%
5/31/1994 3.26% 4.02%
5/31/1995 5.00% 4.31%
5/31/1996 4.32% 4.62%
5/31/1997 4.49% 4.08%
5/31/1998 5.79% 4.96%
5/31/1999 4.15% 4.58%
5/31/2000 1.14% 2.68%
* 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, a portfolio manager on the Limited-Term
Tax-Free fund investment team.
HOW DID LIMITED-TERM TAX-FREE PERFORM DURING THE FISCAL YEAR ENDED MAY 31, 2000?
Rising interest rates meant bond returns hit a rough patch over the past
year (see page 4). However, the portfolio performed very well relative to other
short-term municipal funds. For the fiscal year, the fund's total return of
1.14% ranked in the top 10% of the 41 "Short/Intermediate Municipal Debt Funds"
tracked by Lipper Inc. Limited-Term Tax-Free's longer-term returns were also
better than average. (See the previous page for additional returns and
performance comparisons.)
HOW DID THE PORTFOLIO'S YIELD COMPARE?
On May 31, 2000, the portfolio had a 30-day SEC yield of 4.69%, while the
average short/intermediate municipal fund had a yield of 4.32%. So, even though
the fiscal year was a difficult one for bond investors in terms of total return,
the good news is that we were able to offer shareholders very attractive
tax-free yields. The portfolio's tax-equivalent yield for shareholders in the
highest federal tax bracket was 7.76% (see the yield table at right).
WHY DID LIMITED-TERM TAX-FREE OUTPERFORM MOST OF ITS PEERS?
We try to give shareholders a pure play on short-term municipal bonds, so
we don't typically make big bets on the direction of interest rates. Instead, we
try to add value by adjusting the fund's maturity structure, as well as looking
for undervalued securities or sectors of the municipal market. We believe that
strategy helped our relative performance in recent months because interest rates
were very volatile.
Let's look at the five-year U.S. Treasury note yield as an example--it's a
good benchmark for short-term bond yields. Its yield went from 6.11% on December
1, 1999, to 6.77% by mid-February before falling back to 6.06% in April. But by
the middle of May, the yield was back up to 6.81%. Portfolio managers who made
big bets on interest rates likely saw their relative performance fluctuate
sharply during that period.
YOU MENTIONED THAT YOU MADE SOME CHANGES TO THE FUND'S MATURITY STRUCTURE. CAN
YOU EXPLAIN THAT?
One way to add return is to position the portfolio to benefit from changes
in the shape of the municipal yield curve (you can see how the municipal yield
curve changed in the last year on page 4). Late last year, the short end of the
municipal yield curve was relatively steep--meaning there was a pronounced
difference between the yields of one-year bonds and those of five-year bonds.
But with the Federal Reserve raising interest rates, short-term bond yields rose
faster than longer-term yields. That caused the yield curve to flatten in 2000.
[right margin]
YIELDS AS OF MAY 31, 2000
30-DAY SEC YIELD 4.69%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 6.51%
31.0% TAX BRACKET 6.80%
36.0% TAX BRACKET 7.33%
39.6% TAX BRACKET 7.76%
PORTFOLIO AT A GLANCE
5/31/00 5/31/99
NUMBER OF SECURITIES 35 40
WEIGHTED AVERAGE
MATURITY 3.7 YRS 3.5 YRS
AVERAGE DURATION 3.1 YRS 3.0 YRS
EXPENSE RATIO 0.51% 0.51%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
AAA 63% 66%
AA 10% 10%
A 18% 10%
BBB 9% 14%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 40
for more information.
Investment terms are defined in the Glossary on pages 42-43.
www.americancentury.com 7
Limited-Term Tax-Free--Q&A
--------------------------------------------------------------------------------
(Continued)
When the yield curve flattens, a "barbell" maturity structure performs
best. A barbell concentrates a portfolio around two maturities--one shorter and
one longer. We maintained a barbell late last year and in early 2000 by
concentrating the portfolio in bonds with two- to three-year maturities on the
one hand and five- to seven-year maturities on the other. That helped
Limited-Term Tax-Free hold up better because our longer-term bonds were hurt
less by rising rates.
CAN YOU GIVE AN EXAMPLE OF HOW INDIVIDUAL SECURITY SELECTION HELPED RETURNS?
We were able to boost our yield and return by adding a modest number of
"forward settlements." In a forward settlement, we agree to buy a bond at some
future date. Forward settlements pay additional yield to compensate for the risk
that interest rates will rise sharply in the interim.
We bought securities with settlement dates about two months out. We think
that's a reasonable amount of time for the extra yield we were able to pick up.
For instance, we were able to earn an additional 20 basis points (or 0.20%) in
yield by agreeing to purchase a bond for settlement in two months. We think
we've done a good job of weighing the additional yield these securities offer
versus the additional risk they present over a limited time.
WHAT CHANGES DID YOU MAKE TO THE FUND'S SECTOR WEIGHTINGS?
There were few big sector winners in the municipal market last year; on the
other hand, health care bonds were the clear losers. We lightened our weighting
in these bonds throughout the past year. This sector performed poorly for a
couple of reasons. First, problems among a handful of health care bond issuers
tarred the entire sector, resulting in credit rating downgrades. Second, the IRS
reviewed some recent hospital issues to see if they actually qualify for
tax-exempt status. Being underweight in hospital bonds helped our return.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET?
Our outlook is mildly positive. In the last year, the Fed raised interest
rates six times in an effort to rein in economic growth. Recent data show the
U.S. economy slowing, so we think the Fed's work is largely done. As a result,
we think interest rates are probably nearing their peak. In addition, yields on
tax-free municipal bonds are attractive when measured against yields on fully
taxable investments, such as Treasurys.
However, we may continue to see interest rate volatility until the market
gets a clearer picture on the economy and rates. All the rate volatility has
also made for a mixed supply and demand outlook for municipal bonds. Given that
uncertainty, we're likely to maintain our neutral stance on interest rates in
the near term and try to add value through individual security selection.
[left margin]
"WE'RE LIKELY TO MAINTAIN OUR NEUTRAL STANCE ON INTEREST RATES IN THE NEAR TERM
AND TRY TO ADD VALUE THROUGH INDIVIDUAL SECURITY SELECTION."
TOP FIVE STATES (AS OF 5/31/00)
% OF FUND INVESTMENTS
COLORADO 15.8%
OKLAHOMA 10.0%
TEXAS 9.2%
WASHINGTON 8.7%
NEW YORK 7.1%
TOP FIVE STATES (AS OF 11/30/99)
% OF FUND INVESTMENTS
TEXAS 9.7%
MICHIGAN 8.9%
FLORIDA 6.6%
ILLINOIS 6.4%
PUERTO RICO 5.8%
8 1-800-345-2021
Limited-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 95.7%
ALASKA -- 2.9%
$1,000 Alaska Energy Auth. Power Rev.,
Series 2000-4, (Bradley Lake),
5.50%, 7/1/05 (FSA) $ 1,013
-------
ARIZONA -- 3.6%
715 Coconino County Unified School
District No. 1 Flagstaff GO,
5.25%, 7/1/03 (FSA) 719
525 Maricopa County COP, 5.625%,
6/1/00 525
-------
1,244
-------
COLORADO -- 15.8%
1,000 Denver City & County Airport Rev.,
Series 1996 B, 5.25%,
11/15/02 (MBIA) 1,003
500 Denver Health & Hospital Rev.,
Series 1998 A, 4.75%,
12/1/01 495
1,000 Highlands Ranch Metropolitan
District #2 GO, 6.00%,
6/15/02 (FSA) 1,019
1,000 Regional Transportation District
COP, Series 2000 A, (Transit
Vehicles), 5.25%, 6/1/04
(MBIA) 1,005
2,000 Superior Metropolitan District
No. 1 Water & Sewer Rev.,
Series 2000 A, (Refunding &
Improvement), 5.45%, 12/1/04
(LOC: Banque Nationale de
Paris S.A.) 1,968
-------
5,490
-------
FLORIDA -- 5.4%
705 Atlantic Beach Health Care
Facilities Rev., (Fleet Landing),
5.00%, 10/1/02 (ACA) 700
200 Escambia County Housing
Finance Auth. Single Family
Mortgage Rev., Series 1998 A,
(Multi-County Program), 4.70%,
10/1/05 (GNMA/FNMA) 194
1,000 Florida Rural Utility Financing
Community Rev., (Public Projects
Construction), 5.25%, 9/1/01 1,005
-------
1,899
-------
HAWAII -- 5.7%
1,000 Hawaii Airport System Rev.,
Series 1994-3, 5.70%, 7/1/07
(AMBAC) 1,010
1,000 Hawaii Harbor System Rev.,
Series 2000 A, 5.125%,
7/1/05 (FSA) 987
-------
1,997
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
ILLINOIS -- 5.8%
$1,000 Illinois State GO, 5.125%,
12/1/05 (FGIC) $ 998
1,000 University of Illinois COP, (Utility
Infrastructure), 5.75%, 8/15/08
(MBIA) 1,024
-------
2,022
-------
MICHIGAN -- 4.6%
600 Detroit GO, Series 1995 A,
6.10%, 4/1/03 611
1,000 Michigan Hospital Finance Auth.
Rev., Series 1999 A,
(Ascension Health Credit),
5.25%, 11/15/05 (MBIA) 989
-------
1,600
-------
MISSISSIPPI -- 4.3%
1,490 Walnut Grove Correctional Auth.
COP, 5.25%, 11/1/04
(AMBAC) 1,492
-------
NEBRASKA -- 5.7%
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
1,000 Douglas County School District
No. 17 GO, Series 1994 A,
(Millard), 5.05%, 5/15/01
(MBIA) 1,000
-------
2,000
-------
NEW YORK -- 7.1%
1,000 New York City GO, Series
1998 H, 5.00%, 8/1/03 994
500 New York State Dormitory Auth.
Rev., Series 1998 I, (New York
Downtown Hospital), 4.80%,
2/15/06 479
1,000 New York State Urban
Development Corp. Rev., Series
1993-4, (Correctional Facilities),
5.20%, 1/1/04 994
-------
2,467
-------
OKLAHOMA -- 10.0%
2,400 Moore GO, 6.00%, 4/1/04
(MBIA) 2,472
1,000 Tulsa Public Facilities Auth.
Solidwaste Steam & Electric
Rev., Series 1994 A, (Ogden
Martin System), 5.25%,
11/1/02 (AMBAC) 1,001
-------
3,473
-------
SOUTH CAROLINA -- 2.5%
855 Piedmont Municipal Power
Agency Electric Rev., Series
1991 A, 6.00%, 1/1/02
(FGIC) 868
-------
See Notes to Financial Statements www.americancentury.com 9
Limited-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TENNESSEE -- 2.7%
$1,000 Knox County Health, Educational
& Housing Facilities Board Rev.,
(University Health System Inc.),
5.10%, 4/1/07 $ 932
-------
TEXAS -- 9.2%
1,000 Corpus Christi Utility System Rev.,
5.50%, 7/15/07 (FSA) 1,011
685 Denison Hospital Auth. Rev.,
(Texoma Medical Center),
5.00%, 8/15/00 684
1,000 Houston Airport System Rev.,
Series 1998 A, (Sub Lien),
5.50%, 7/1/04 (FGIC) 1,007
500 Houston Water & Sewer System
Rev., Series 1992 C, (Junior
Lien), 5.90%, 12/1/05 (MBIA) 517
-------
3,219
-------
WASHINGTON -- 8.7%
1,000 Clark County Public Utility District
No. 1 Electric Rev., 6.20%,
1/1/03 (FGIC) 1,023
2,000 Port Seattle GO, 5.50%, 5/1/06 2,008
-------
3,031
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
WISCONSIN -- 1.7%
$ 600 Milwaukee GO, Series 1999 O,
4.75%, 6/15/03 $ 593
-------
TOTAL MUNICIPAL SECURITIES 33,340
-------
(Cost $33,570)
SHORT-TERM MUNICIPAL SECURITIES -- 4.3%
MASSACHUSETTS
1,500 Koch Certificates Trust Rev.,
Series 1999-4, VRDN, 4.94%,
6/1/00 (AMBAC) (SBBPA:
State Street Bank & Trust Co.)
(Acquired 5/31/00, Cost
$1,500)(1) 1,500
-------
(Cost $1,500)
TOTAL INVESTMENT SECURITIES -- 100.0% $34,840
=======
(Cost $35,070)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
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.
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, 2000.
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at May 31, 2000, was $1,500 (in
thousands) which represented 4.6% of net assets.
10 1-800-345-2021 See Notes to Financial Statements
Intermediate-Term Tax-Free--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 2000
LEHMAN 5-YEAR INTERMEDIATE MUNICIPAL
INTERMEDIATE-TERM MUNICIPAL DEBT FUNDS(2)
TAX-FREE GO INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.18% 0.58% 0.33% --
1 YEAR 0.44% 0.65% -1.04% 10 OUT OF 125
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.00% 4.13% 3.35% 8 OUT OF 115
5 YEARS 4.48% 4.64% 4.12% 23 OUT OF 100
10 YEARS 5.80% 6.05% 5.84% 13 OUT OF 24
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 40-42 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 5/31/00
Intermediate-Term Tax-Free $17,573
Lehman 5-Year Municipal
GO Index $17,997
Intermediate-Term Lehman 5-Year
Tax-Free Municipal GO Index
DATE VALUE VALUE
5/31/1990 $10,000 $10,000
5/31/1991 $10,915 $10,933
5/31/1992 $11,815 $11,899
5/31/1993 $12,840 $13,017
5/31/1994 $13,189 $13,420
5/31/1995 $14,118 $14,345
5/31/1996 $14,699 $15,025
5/31/1997 $15,624 $15,938
5/31/1998 $16,811 $17,046
5/31/1999 $17,496 $17,881
5/31/2000 $17,573 $17,997
$10,000 investment made 5/31/90
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
Lehman 5-Year Municipal 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 ENDED MAY 31)
Intermediate-Term Lehman 5-Year
Tax-Free Municipal GO Index
DATE RETURN RETURN
5/31/1991 9.15% 9.33%
5/31/1992 8.25% 8.84%
5/31/1993 8.67% 9.39%
5/31/1994 2.72% 3.10%
5/31/1995 7.04% 6.89%
5/31/1996 4.12% 4.74%
5/31/1997 6.29% 6.08%
5/31/1998 7.60% 6.95%
5/31/1999 4.07% 4.90%
5/31/2000 0.44% 0.65%
www.americancentury.com 11
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 THE YEAR ENDED MAY 31, 2000?
Intermediate-Term Tax-Free continued to outpace the majority of its peers,
though rising interest rates (see page 4) dampened absolute performance. The
fund returned 0.44% for the year, compared with the -1.04% average return of the
125 funds in Lipper Inc.'s "Intermediate Municipal Debt Funds" category.
Based on that performance, Intermediate-Term Tax-Free ranked in the top 10%
of its Lipper group for the year ended May 31, 2000, as well as for the
three-year period ended the same. The fund's benchmark, the Lehman 5-Year
Municipal GO Index, returned 0.65% for the 12 months. (See the previous page for
further performance comparisons.)
In addition, Intermediate-Term Tax-Free's 30-day SEC yield of 5.03% on May
31, 2000 compared very favorably with the 4.60% average yield of the fund's
Lipper category.
WHAT WERE SOME OF THE REASONS BEHIND THE FUND'S ONGOING SUCCESS?
Duration management and strategic positioning of the portfolio's bond
maturity structure played a big part in helping the fund outperform.
Low expenses were another important factor. As of May 31, 2000, fund
expenses were only 0.51%, compared with the 0.91% average expense ratio charged
by the fund's Lipper peers.
CAN YOU ELABORATE ON YOUR DURATION MANAGEMENT?
We generally keep the fund's duration--a measure of the portfolio's price
sensitivity to changes in interest rates--fairly close to that of its Lipper
peers. That's important because making large duration bets can lead to
unpredictable returns. It's extremely difficult to gauge how much interest rates
will rise or fall at any given time, let alone for a protracted period. A wrong
duration bet can quickly erase other hard-earned gains.
However, we began increasing duration a little toward the end of May by
adding longer-term discount bonds--bonds with coupons below prevailing market
interest rates--that had become attractive relative to shorter-term bonds.
By the end of May, Intermediate-Term Tax-Free had a slightly longer
duration than its peers. That position ultimately proved beneficial when
municipal bonds rallied in late May and June.
HOW ELSE DID YOU BOOST PERFORMANCE?
Intermediate-Term Tax-Free's bond maturity structure also helped. Six
months ago, the fund was barbelled--heavily weighted at the ends of the fund's
maturity spectrum, with little in between. We concentrated our holdings in the
two- to four-year, and 10-plus year areas. That paid off when the municipal
yield curve flattened--short-term bond yields rose more than long-term ones.
Recently, we've begun to unwind the barbell, but the portfolio is still modestly
barbelled and will likely remain so for the near future.
[left margin]
YIELDS AS OF MAY 31, 2000
30-DAY SEC YIELD 5.03%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 6.99%
31.0% TAX BRACKET 7.29%
36.0% TAX BRACKET 7.86%
39.6% TAX BRACKET 8.33%
PORTFOLIO AT A GLANCE
5/31/00 5/31/99
NUMBER OF SECURITIES 99 109
WEIGHTED AVERAGE
MATURITY 9.9 YRS 8.7 YRS
AVERAGE DURATION 5.6 YRS 5.5 YRS
EXPENSE RATIO 0.51% 0.51%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
AAA 75% 80%
AA 8% 12%
A 10% 5%
BBB 7% 3%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 40
for more information.
Investment terms are defined in the Glossary on pages 42-43.
12 1-800-345-2021
Intermediate-Term Tax-Free--Q&A
--------------------------------------------------------------------------------
(Continued)
Our ability to capitalize on supply and demand imbalances in various states
was another factor that enhanced returns. We often buy a particular state's
municipals when supply is relatively heavy (and prices tend to be cheaper), sell
when supply is low (and prices tend to be higher), and avoid states when their
bonds seem overpriced.
For example, California municipal bonds have been relatively expensive in
recent months. Strong demand from wealthy stock market beneficiaries in search
of diversification and tax-free investments has been a key driver, often causing
California municipals to yield as much as 40 basis points (or 0.40%--a basis
point equals 0.01%) less than similar municipals issued by other states. So we
looked for better opportunities in states such as Arizona and Texas, where we
found higher yields and lower prices, especially in May.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We're adopting a wait-and-see approach for now, but wouldn't be overly
surprised if the Federal Reserve raised rates one or two more times this year.
Although the Fed has already raised rates six times over the past year, signs of
slowing economic growth are only beginning to appear and are still somewhat
sporadic. In addition, inflation is still a concern. Oil prices are close to
nine-year highs, and consumer prices are rising much faster this year than they
did during 1998 or 1999.
And even though second-quarter economic growth is expected to slow from its
5.5% annualized first-quarter pace, that slowdown may just be a seasonal
phenomenon. During 1998 and 1999, second-quarter growth also slowed, only to
rebound with a vengeance during the third quarter.
WITH THAT PERSPECTIVE IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
We will probably keep duration slightly long relative to the fund's peers
for now. We've chosen that approach because the municipal market's prospects are
looking brighter, thanks to an expected supply and demand imbalance in the near
future.
Although demand has fluctuated over the last six months, it should increase
significantly in July. That's because July is a big month for municipal
securities--many bonds will mature or pay interest to investors. Even though not
all of that money will necessarily work its way back into the municipal market,
a good portion should. Add that cash influx to the fairly low issuance we've
seen this year and the result should spell good news for the municipal market
over the next couple of months.
[right margin]
"OUR ABILITY TO CAPITALIZE ON SUPPLY AND DEMAND IMBALANCES IN VARIOUS STATES WAS
ANOTHER FACTOR THAT ENHANCED RETURNS."
TOP FIVE STATES (AS OF 5/31/00)
% OF FUND INVESTMENTS
TEXAS 12.2%
WASHINGTON 8.5%
NEW YORK 7.6%
UTAH 6.1%
COLORADO 5.7%
TOP FIVE STATES (AS OF 11/30/99)
% OF FUND INVESTMENTS
NEW YORK 11.2%
WASHINGTON 9.7%
TEXAS 6.6%
MASSACHUSETTS 5.8%
GEORGIA 4.7%
www.americancentury.com 13
Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 100%
ALABAMA -- 1.5%
$1,000 Alabama Board of Education Rev.,
(Shelton State Community
College), 6.00%, 10/1/09
(MBIA) $ 1,034
1,165 Lauderdale County and Florence
Healthcare Auth. Rev. GO,
Series 1999 A, (Coffee Health
Group), 4.50%, 7/1/02 (MBIA) 1,145
--------
2,179
--------
ALASKA -- 1.9%
1,670 Alaska Energy Auth. Power Rev.,
Series 2000-4, (Bradley Lake),
5.50%, 7/1/04 (FSA) 1,690
1,055 Alaska Industrial Development &
Export Auth. Power Rev., Series
1998-1, (Snettisham), 5.25%,
1/1/04 (AMBAC) 1,050
75 Alaska Industrial Development &
Export Auth. Power Rev., Series
1998-1, (Snettisham), 5.25%,
1/1/04 (AMBAC)(1) 75
--------
2,815
--------
ARIZONA -- 5.0%
1,110 Arizona COP, Series 1992 B,
5.90%, 9/1/02 (AMBAC) 1,132
1,000 Mesa Utility System Rev., 5.25%,
7/1/16 (FGIC) 947
1,925 Phoenix Industrial Development
Auth. Single Family Mortgage
Rev., Series 1998 A, 6.60%,
12/1/29
(GNMA/FNMA/FHLMC) 1,998
2,000 Pima County Unified School
District No. 1 GO, Series
1993 E, (Tucson), 5.25%,
7/1/08 (FGIC) 2,002
1,420 Tucson GO, 5.00%, 7/1/19 1,267
--------
7,346
--------
CALIFORNIA -- 4.1%
1,855 Alisal Unified School District,
Series 2000 A, (Capital
Appreciation), 6.37%,
5/1/23 (FGIC)(2) 443
1,010 California Housing Finance
Agency Home Mortgage Rev.,
Series 1996 A, 5.60%, 8/1/09
(MBIA) 1,011
1,100 California Public Works Board
Lease Rev., Series 1994 A,
(Various University of California
Projects), 6.15%, 11/1/04 1,166
1,200 El Centro Financing Auth. Water
& Wastewater Rev., Series
1997 A, 5.125%, 10/1/27
(AMBAC) 1,058
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$2,000 Orange County Water District
COP, Series 1999 A, 5.25%,
8/15/22 $ 1,827
1,550 Placer Unified High School
District GO, Series 2000 A,
(Capital Appreciation), 6.28%,
8/1/18 (FGIC)(2)(3) 526
--------
6,031
--------
COLORADO -- 5.7%
1,000 Denver Sales Tax Rev., Series
1991 A, (Major League
Baseball Stadium District),
6.10%, 10/1/01 (FGIC) 1,016
3,410 Regional Transportation District
COP, Series 2000 A, (Transit
Vehicles), 5.25%, 6/1/04
(MBIA) 3,428
4,000 Superior Metropolitan District
No. 1 Water & Sewer Rev.,
Series 2000 B, 5.45%,
12/1/20 (LOC: Allied Irish
Bank PLC) 3,936
--------
8,380
--------
DISTRICT OF COLUMBIA -- 2.4%
1,000 District of Columbia Hospital Rev.,
Series 1993 A, (Medlantic
Health Care Group), 5.25%,
8/15/02 (MBIA)(1) 1,004
1,155 District of Columbia Rev.,
(Gonzaga College High School),
5.20%, 7/1/12 (FSA) 1,099
1,275 Metropolitan Washington D.C.
Airports Auth. Rev., Series
1992 A, 6.30%, 10/1/03
(MBIA) 1,319
--------
3,422
--------
FLORIDA -- 2.3%
2,000 Florida Rural Utility Financing
Community Rev., (Public
Projects Construction), 5.25%,
9/1/01 2,009
1,000 Florida Turnpike Auth. Rev., Series
1993 A, (Department of
Transportation), 5.00%, 7/1/16
(FGIC) 932
345 Pinellas County Educational
Facilities Auth. Rev., (Barry
University), 4.35%, 10/1/00 344
--------
3,285
--------
GEORGIA -- 3.6%
1,000 Atlanta Airport Facilities Rev.,
7.00%, 1/1/01 1,013
1,000 Atlanta Water and Sewer Rev.,
(Second Lien), 6.00%, 1/1/05
(FGIC)(1) 1,036
2,120 Georgia State GO, Series 1999 D,
5.80%, 11/1/05 2,191
14 1-800-345-2021 See Notes to Financial Statements
Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$1,000 Metropolitan Atlanta Rapid Transit
Auth. Sales Tax Rev., Series
1991 M, 6.05%, 7/1/01(4) $ 1,013
--------
5,253
--------
HAWAII -- 1.8%
2,000 Hawaii Airport System Rev.,
Series 2000 B, 6.625%,
7/1/17 (FGIC) 2,100
500 Maui County GO, Series 2000 A,
6.50%, 3/1/18 (FGIC) 523
--------
2,623
--------
ILLINOIS -- 3.1%
1,185 Chicago Wastewater Transmission
Rev., (Second Lien), 5.00%,
1/1/02 (MBIA) 1,184
1,000 Illinois Rural Bond Bank Public
Projects Construction Notes,
5.25%, 11/1/01 1,005
2,250 Illinois State GO, 6.00%, 10/1/01 2,283
--------
4,472
--------
INDIANA -- 5.4%
1,000 Center Grove High School
Building Corp. Rev., 3.90%,
1/5/03 (FSA) 956
1,900 Indiana Health Facilities Financing
Auth. Hospital Rev., (Holy Cross
Health System Corp.), 5.375%,
12/1/12 (MBIA) 1,822
5,000 Indianapolis Airport Auth. Rev.,
(Special Facilities-Federal
Express Corp.), 7.10%, 1/15/17 5,134
--------
7,912
--------
KANSAS -- 0.3%
500 Kansas Department of
Transportation Highway Rev.,
5.375%, 3/1/13 486
--------
MISSISSIPPI -- 1.8%
1,200 Mississippi Development Special
Obligation Rev., (Mississippi
Natural Gas), 4.125%, 1/1/06
(MBIA) 1,083
1,510 Walnut Grove Correctional Auth.
COP, 5.25%, 11/1/03
(AMBAC) 1,513
--------
2,596
--------
MISSOURI -- 2.0%
3,000 Missouri Health & Educational
Facilities Auth. Rev., Series
1998 A, (Park Lane Medical
Center), 5.60%, 1/1/15 (MBIA) 2,969
--------
NEVADA -- 0.6%
1,000 Clark County School District GO,
Series 1997 B, (Building &
Renovation), 5.25%, 6/15/17
(FGIC) 927
--------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
NEW JERSEY -- 2.8%
$1,030 Atlantic City Board of Education
GO, 6.00%, 12/1/02,
Prerefunded at 102% of Par
(AMBAC)(1) $ 1,073
1,410 New Jersey Educational Facilities
Auth. Rev., Series 1994 A,
(New Jersey Institute of
Technology), 5.90%, 7/1/08
(MBIA) 1,456
1,600 New Jersey Health Care Facilities
Financing Auth. Rev., (Rahway
Hospital Obligation Group),
5.00%, 7/1/05 (ACA) 1,553
--------
4,082
--------
NEW MEXICO -- 0.7%
1,000 New Mexico Mortgage Finance
Auth. Rev., Series 1999 D-2,
(Single Family Mortgage),
6.75%, 9/1/29
(GNMA/FNMA/FHLMC) 1,045
--------
NEW YORK -- 7.6%
1,650 New York City Municipal Water
Finance Auth. Water & Sewer
System Rev., Series 1996 A,
5.625%, 6/15/19 (MBIA) 1,599
1,500 New York State Dormitory Auth.
Rev., Series 1995 A, (State
University Educational Facilities),
6.50%, 5/15/04 1,564
1,000 New York State Dormitory Auth.
Rev., Series 1995 A, (State
University Educational Facilities),
6.50%, 5/15/06 1,054
1,000 New York State Dormitory Auth.
Rev., Series 1996 E, (Mental
Health Service Facility), 6.00%,
8/15/04 (AMBAC) 1,033
635 New York State Dormitory Auth.
Rev., Series 1998 I, (New York
Downtown Hospital), 4.80%,
2/15/06 609
1,000 New York State Thruway Auth.
Service Contract Rev., 5.30%,
4/1/04 999
1,000 New York State Thruway Auth.
Service Contract Rev., 5.50%,
4/1/04 1,006
1,160 New York State Thruway Auth.
Service Contract Rev., 5.50%,
4/1/06 1,162
1,000 New York State Urban
Development Corp. Rev., Series
1996 A, 6.25%, 4/1/05
(MBIA) 1,045
1,000 Niagara Falls Bridge Commission
Toll Rev., Series 1993 B, 5.25%,
10/1/15 (FGIC) 965
--------
11,036
--------
See Notes to Financial Statements www.americancentury.com 15
Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
NORTH CAROLINA -- 1.4%
$2,000 North Carolina Eastern Municipal
Power Agency System Rev.,
Series 1993 B, 6.00%, 1/1/06
(FSA) $ 2,067
--------
OHIO -- 3.9%
1,200 Ohio Higher Educational Facility
Commission Rev., (University of
Dayton), 5.55%, 12/1/07
(FGIC) 1,220
3,320 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
6.00%, 12/1/05 (MBIA) 3,456
1,000 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
5.625%, 12/1/06 (MBIA) 1,024
--------
5,700
--------
OKLAHOMA -- 1.8%
2,500 Oklahoma Industrial Auth. Health
System Rev., Series 1995 C,
7.00%, 8/15/04 (AMBAC)(1) 2,675
--------
OREGON -- 2.0%
1,805 Lane County School District
No. 19 GO, (Springfield),
6.375%, 10/15/04 (MBIA) 1,911
1,000 Multnomah County Educational
Facilities Rev., (University of
Portland), 6.00%, 4/1/20 971
--------
2,882
--------
PENNSYLVANIA -- 2.8%
1,500 Pennsylvania State Turnpike
Commission Rev., Series
1991 L, 6.25%, 6/1/01
(AMBAC) 1,522
2,500 Philadelphia Water and
Wastewater Rev., 5.15%,
6/15/04 (FGIC) 2,487
--------
4,009
--------
PUERTO RICO -- 3.2%
2,500 Puerto Rico Commonwealth
Aqueduct & Sewer Auth. Rev.,
Series 1985 A, 9.00%, 7/1/05,
Prerefunded at 100% of Par
(FSA)(1) 2,851
2,000 Puerto Rico Electric Power Auth.
Rev., Series 1997 AA, 5.375%,
7/1/27 (MBIA) 1,851
--------
4,702
--------
RHODE ISLAND -- 0.7%
1,000 Cranston GO, 6.375%, 11/15/17
(FGIC) 1,041
--------
SOUTH CAROLINA -- 1.3%
1,700 Florence Water & Sewer Rev.,
7.50%, 3/1/18 (AMBAC) 1,936
--------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TENNESSEE -- 0.9%
$1,600 Knox County Health, Educational
& Housing Facilities Board Rev.,
(University Health System Inc.),
5.625%, 4/1/24 $ 1,338
--------
TEXAS -- 12.2%
1,000 Dallas-Fort Worth Regional
Airport Rev., Series 1994 A,
5.90%, 11/1/08 (MBIA) 1,021
1,000 Denison Hospital Auth. Rev.,
(Texoma Medical Center),
5.90%, 8/15/07 (ACA) 996
2,000 Houston Water & Sewer System
Rev., Series 1992 A, 6.375%,
12/1/22 (MBIA) 2,067
3,000 Houston Water & Sewer System
Rev., Series 1997 C, (Junior
Lien), 5.375%, 12/1/27
(FGIC) 2,707
1,000 North East Independent School
District Texas GO, 4.50%,
2/1/16 (PSF) 833
500 North Texas Higher Education
Student Loan Rev., 6.875%,
4/1/02 (AMBAC) 510
3,000 Nueces River Auth. Water Supply
Rev., (Facilities-Corpus Christi
Lake), 5.50%, 3/1/27 (FSA) 2,791
2,315 Richardson Hospital Auth. Rev.,
6.75%, 12/1/23 2,126
1,325 Spring Independent School
District GO, Series 1998 A,
4.60%, 8/15/13 (PSF) 1,178
2,000 Texas Municipal Power Agency
Rev., 5.75%, 9/1/02 (MBIA) 2,031
1,500 Texas Public Finance Auth.
Building Rev., (Technical
College), 6.25%, 8/1/09
(MBIA) 1,582
--------
17,842
--------
UTAH -- 6.1%
1,000 Intermountain Power Agency
Power Supply Rev., Series
1993 A, 5.40%, 7/1/08
(MBIA) 1,001
1,700 Salt Lake City Municipal Building
Auth. Lease Rev., Series
1999 B, 5.50%, 10/15/14
(AMBAC) 1,664
1,000 Salt Lake County Municipal
Building Auth. Lease Rev.,
Series 1994 A, 6.00%,
10/1/07 (MBIA) 1,027
1,290 Utah GO, Series 1998 A, 5.00%,
7/1/04 1,286
3,340 Utah GO, Series 1998 A, 5.00%,
7/1/06 3,311
16 1-800-345-2021 See Notes to Financial Statements
Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 575 Utah Housing Finance Agency
Single Family Mortgage Rev.,
5.65%, 7/1/06 $ 576
--------
8,865
--------
WASHINGTON -- 8.5%
1,000 Pierce County School District
No. 320 GO, 5.75%, 12/1/02 1,014
1,000 Port of Seattle Rev., Series
1997 B, 5.10%, 10/1/03
(FGIC) 994
2,000 Snohomish County Public Utility
District No. 1 Electric Rev.,
5.625%, 1/1/05 (FGIC) 2,030
1,000 Snohomish County School District
No. 15 GO, 6.125%, 12/1/03 1,016
1,000 Tacoma Electric System Rev.,
6.10%, 1/1/07 (FGIC) 1,033
1,000 Washington Public Power Supply
System Rev., Series 1990 B,
(Nuclear Project No. 1), 7.10%,
7/1/01 (FGIC) 1,022
1,000 Washington Public Power Supply
System Rev., Series 1990 C,
(Nuclear Project No. 2), 7.30%,
7/1/00 1,002
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 500 Washington Public Power Supply
System Rev., Series 1990 C,
(Nuclear Project No. 2), 7.00%,
7/1/01 (FGIC) $ 511
1,000 Washington Public Power Supply
System Rev., Series 1993 A,
(Nuclear Project No. 1), 5.50%,
7/1/04 1,007
3,000 Washington State COP,
(Convention and Trade Center),
5.125%, 7/1/12 (MBIA) 2,830
--------
12,459
--------
WISCONSIN -- 2.6%
2,590 Wisconsin Health and Educational
Facilities Rev., (Aurora Medical
Group), 6.00%, 11/15/10
(FSA) 2,666
1,060 Wisconsin Health and Educational
Facilities Rev., Series 1991 B,
(Wausau Hospital), 6.30%,
8/15/00 (AMBAC) 1,063
--------
3,729
--------
TOTAL INVESTMENT SECURITIES -- 100.0% $146,104
========
(Cost $146,873)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHLMC = Federal Home Loan Mortgage Corporation
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.
PSF = Permanent School Fund
(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 its value at maturity.
(3) When-issued security.
(4) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
See Notes to Financial Statements www.americancentury.com 17
Long-Term Tax-Free--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 2000
LEHMAN LONG-TERM
LONG-TERM MUNICIPAL GENERAL MUNICIPAL DEBT FUNDS(2)
TAX-FREE BOND INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.31% 0.92% 0.29% --
1 YEAR -2.38% -4.45% -3.29% 82 OUT OF 272
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 3.43% 3.64% 2.93% 56 OUT OF 223
5 YEARS 4.57% 5.04% 3.99% 35 OUT OF 183
10 YEARS 6.36% 7.26% 6.22% 30 OUT OF 84
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 40-42 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 5/31/00
Long-Term Tax-Free $18,518
Lehman Long-Term Municipal
Bond Index $20,152
Long-Term Lehman Long-Term
Tax-Free Municipal Bond Index
DATE VALUE VALUE
5/31/1990 $10,000 $10,000
5/31/1991 $10,951 $11,071
5/31/1992 $12,076 $12,293
5/31/1993 $13,356 $14,062
5/31/1994 $13,660 $14,187
5/31/1995 $14,813 $15,758
5/31/1996 $15,420 $16,453
5/31/1997 $16,737 $18,100
5/31/1998 $18,341 $20,212
5/31/1999 $18,972 $21,091
5/31/2000 $18,518 $20,152
$10,000 investment made 5/31/00
The graph at left shows the growth of a $10,000 investment in the fund 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 ENDED MAY 31)
Long-Term Lehman Long-Term
Tax-Free Municipal Bond Index
DATE RETURN RETURN
5/31/1991 9.51% 10.71%
5/31/1992 10.27% 11.04%
5/31/1993 10.60% 14.39%
5/31/1994 2.28% 0.89%
5/31/1995 8.44% 11.07%
5/31/1996 4.10% 4.41%
5/31/1997 8.54% 10.01%
5/31/1998 9.58% 11.67%
5/31/1999 3.44% 4.35%
5/31/2000 -2.38% -4.45%
18 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 LONG-TERM TAX-FREE PERFORM DURING THE YEAR ENDED MAY 31, 2000?
The fund outperformed most of its peers in a difficult period for municipal
bond funds. Long-Term Tax-Free returned -2.38%, beating the -3.29% average
return of the 272 "General Municipal Debt Funds" tracked by Lipper Inc.
The fund's longer-term results were also better than those of most of its
peers. For the three-, five-, and 10-year periods ended May 31, 2000, the fund
ranked in the top 36% of its peer group (see the previous page for more fund
performance comparisons).
Additionally, Long-Term Tax-Free produced more federal tax-free income than
its peers. The fund's 30-day SEC yield as of May 31, 2000 was 5.46%, compared
with the 4.86% average yield of the Lipper category. The fund's yield translated
into a tax-equivalent yield of 9.04% for investors in the highest (39.6%)
federal income tax bracket (see the table at right).
WHY DID THE FUND BEAT ITS PEER AVERAGES DURING THE PAST 12 MONTHS?
A key factor in the fund's outperformance was its below-average expenses.
For the year ended May 31, 2000, the fund's expense ratio was 0.51%, compared
with the 1.11% average for its Lipper category. All else being equal, lower
expenses mean higher yields and returns.
Another important factor that boosted the fund's performance was our
"coupon barbell" strategy, meaning we had larger-than-average weightings in
premium and discount bonds. Premiums trade above par (face value) and carry
interest payments above prevailing market rates. Discount bonds trade below par
and carry interest payments below prevailing market rates.
We favored premium coupon bonds for their higher yield. The discount bond
side of the barbell resulted when we bought discounts in early 1999 because we
expected falling interest rates and global economic weakness. We thought the
discount bonds would give the portfolio "call protection" if interest rates fell
and "calls" (bond redemptions by issuers before maturity) became prevalent. This
call protection lengthened the duration (heightened the interest rate
sensitivity) of the portfolio last year.
The increasingly long duration of our discount bond holdings detracted from
performance when interest rates and bond yields rose. Even so, we were reluctant
to sell our discount bonds at distressed prices and walk away from a strategy we
believed ultimately would benefit the fund.
WAS YOUR PATIENCE REWARDED?
Yes. As interest rates continued to climb in 2000, the duration of par
bonds began to extend dramatically. Meanwhile, discount bonds' duration--which
had already extended significantly several months earlier--remained relatively
steady and the duration of premium bonds extended less than par bonds. As a
result, both discounts and premiums outperformed par bonds and helped the fund
outpace its peers.
[right margin]
YIELDS AS OF MAY 31, 2000
30-DAY SEC YIELD 5.46%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 7.58%
31.0% TAX BRACKET 7.91%
36.0% TAX BRACKET 8.53%
39.6% TAX BRACKET 9.04%
PORTFOLIO AT A GLANCE
5/31/00 5/31/99
NUMBER OF SECURITIES 68 76
WEIGHTED AVERAGE
MATURITY 18.6 YRS 17.7 YRS
AVERAGE DURATION 9.0 YRS 8.6 YRS
EXPENSE RATIO 0.51% 0.51%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
AAA 62% 65%
AA 22% 28%
A 5% 5%
BBB 11% 2%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 40
for more information.
Investment terms are defined in the Glossary on pages 42-43.
www.americancentury.com 19
Long-Term Tax-Free--Q&A
--------------------------------------------------------------------------------
(Continued)
WHY DID YOU INCREASE THE FUND'S HOLDINGS IN BBB BONDS DURING THE PAST SEVERAL
MONTHS?
The spread--or yield difference--between bonds rated AAA and BBB widened
significantly. In other words, BBB bonds offered a growing yield advantage over
higher-rated bonds and gave us the opportunity to add more yield to the fund. In
March 2000, for example, a typical 30-year BBB bond offered 50 basis points
(0.50%) more yield than a AAA security with a comparable maturity. In our view,
this additional yield more than adequately compensated us for the additional
credit risk associated with BBB bonds.
Although these additions brought the fund's stake in BBB bonds to about 11%
of fund investments, we maintained a high-quality focus. At the end of the
period, about 89% of fund investments remained invested in bonds rated A or
higher. The average credit quality of the portfolio was AA.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND BONDS?
Upward pressure on interest rates may continue over the short-term. A spate
of recent reports--from job growth to consumer spending to housing
starts--suggests that economic activity might finally be cooling off. That said,
Federal Reserve officials have registered skepticism about whether the six
interest rate hikes they've implemented so far will be sufficient to restrain
inflation. It could be months before the Fed is ready to declare an end to its
rate increase campaign.
Given those factors, it wouldn't surprise us to see further rate hikes this
summer. Beyond that, we're cautiously optimistic because we believe that the
past year's interest rate activity will eventually cool the economy and stave
off inflation.
Municipal supply and demand also offer reasons for optimism. Given
municipal issuers' reduced debt issuance needs and the debt deterrent caused by
higher interest rates, we expect the supply of municipals to remain relatively
low. If demand remains as strong as it has been over the past couple of months,
municipal bond prices should rise.
GIVEN YOUR OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS?
We're likely to keep the fund's duration slightly longer than that of its
peers as long as our long-term outlook for interest rates is favorable. As for
credit quality, we're comfortable with the fund's current positioning, with the
vast majority of our holdings invested in securities rated A or higher. As
always, we'll continue to adhere to our preference for bonds that offer good
value since that's the philosophy that's helped lead to our long-term success.
[left margin]
"WE'RE CAUTIOUSLY OPTIMISTIC BECAUSE WE BELIEVE THAT THE PAST YEAR'S INTEREST
RATE ACTIVITY WILL EVENTUALLY COOL THE ECONOMY AND STAVE OFF INFLATION."
TOP FIVE STATES (AS OF 5/31/00)
% OF FUND INVESTMENTS
TEXAS 27.1%
ILLINOIS 8.0%
MASSACHUSETTS 7.0%
INDIANA 6.7%
CALIFORNIA 6.7%
TOP FIVE STATES (AS OF 11/30/99)
% OF FUND INVESTMENTS
TEXAS 15.1%
MASSACHUSETTS 11.2%
ILLINOIS 10.2%
CALIFORNIA 7.9%
NEW YORK 6.8%
20 1-800-345-2021
Long-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 100%
CALIFORNIA -- 6.7%
$1,000 California Public Works Board
Lease Rev., Series 1994 A,
(Various California State
University Projects), 6.20%,
10/1/08 $ 1,058
2,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1996 Q,
5.375%, 12/1/27 (MBIA) 1,838
1,500 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 1,582
1,850 Northern California Power Agency
Public Power Rev., Series
1992 A, (Hydroelectric Project
No.1), 6.25%, 7/1/12 (MBIA) 1,925
-------
6,403
-------
CONNECTICUT -- 2.0%
1,880 Connecticut Development Auth.
Rev., Series 1994 A, 6.375%,
10/15/24(1) 1,927
-------
FLORIDA -- 5.6%
1,150 Broward County Resource
Recovery Facility Rev., (South),
7.95%, 12/1/08 1,187
2,585 Florida Board Regent University
System Improvement Rev.,
4.50%, 7/1/23 (AMBAC) 2,037
1,000 Orlando Utilities Commission
Water & Electric Rev., Series
1989 D, 6.75%, 10/1/17 1,114
1,000 St. Petersburg Health Auth. Rev.,
(Allegany Health), 7.00%,
12/1/01, Prerefunded at 102%
of Par (MBIA)(2) 1,045
-------
5,383
-------
GEORGIA -- 1.1%
745 Georgia Municipal Electric Power
Auth. Rev., Series 1991 V,
6.50%, 1/1/12 (MBIA) 809
255 Georgia Municipal Electric Power
Auth. Rev., Series 1991 V,
6.50%, 1/1/12 (MBIA)(2) 278
-------
1,087
-------
ILLINOIS -- 8.0%
2,000 Illinois Dedicated Tax Rev., (Civic
Center), 6.25%, 12/15/20
(AMBAC) 2,078
1,000 Illinois Development Finance Auth.
Waste Disposal Rev., (Armstrong
World Industries), 5.95%,
12/1/24 891
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 700 Illinois Health Facilities Auth. Rev.,
Series 1992 C, (Evangelical
Hospital), 6.75%, 4/15/02,
Prerefunded at 102% of Par(2) $ 734
1,140 Illinois Health Facilities Auth. Rev.,
Series 1992 C, (Evangelical
Hospital), 6.75%, 4/15/12(2) 1,239
1,000 Illinois Regional Transportation
Auth. Rev., Series 1990 A,
7.20%, 11/1/20 (AMBAC) 1,155
1,500 Illinois State GO, 6.25%,
10/1/06 1,551
-------
7,648
-------
INDIANA -- 6.7%
1,000 Avon Community School Building
Corp., (First Mortgage), 5.25%,
1/1/22 (AMBAC) 895
1,000 Indiana Transportation Financing
Auth. Highway Rev., Series
1990 A, 7.25%, 6/1/15 1,150
3,500 Indianapolis Airport Auth. Rev.,
(Special Facilities-Federal
Express Corp.), 7.10%,
1/15/17 3,595
1,000 Indianapolis Airport Auth. Rev.,
(Special Facilities-Federal
Express Corp.), 5.50%, 5/1/29 823
-------
6,463
-------
KANSAS -- 1.1%
325 Kansas City Utility System Rev.,
6.375%, 9/1/04, Prerefunded
at 102% of Par (FGIC)(2) 346
675 Kansas City Utility System Rev.,
6.375%, 9/1/23 (FGIC) 691
-------
1,037
-------
KENTUCKY -- 1.1%
1,000 Carroll County Pollution Control
Rev., Series 1992 A, (Kentucky
Utilities Company), 7.45%,
9/15/16 1,057
-------
MASSACHUSETTS -- 7.0%
1,000 Massachusetts Health and
Educational Facilities Auth. Rev.,
Series 1992 F, 6.25%, 7/1/12
(AMBAC)(1) 1,066
1,690 Massachusetts Housing Finance
Agency Rev., Series 1993 H,
6.75%, 11/15/12 (FNMA) 1,743
2,000 Massachusetts Water Pollution
Abatement Rev., Series 1998 A,
(New Bedford), 4.75%, 2/1/26
(FGIC) 1,631
2,800 Massachusetts Water Resource
Auth. Rev., Series 1993 C,
4.75%, 12/1/23 (MBIA) 2,300
-------
6,740
-------
See Notes to Financial Statements www.americancentury.com 21
Long-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MICHIGAN -- 2.8%
$2,000 Detroit City School District GO,
Series 1998 C, 5.25%, 5/1/25
(FGIC) $ 1,799
1,000 Michigan Hospital Finance Auth.
Rev., Series 1998 A, (Botsford
Obligated Group), 5.00%,
2/15/18 (MBIA) 866
-------
2,665
-------
NEVADA -- 1.9%
2,045 Clark County Passenger Facility
Charge Rev., (Las Vegas
McCarran International), 5.00%,
7/1/18 (MBIA) 1,812
-------
NEW YORK -- 2.7%
2,000 New York City Transitional
Finance Auth. Rev., Series
1998 B, 4.50%, 11/15/27 1,544
1,000 New York State Local
Government Assistance Corp.
Rev., Series 1991 D, 6.75%,
4/1/02, Prerefunded at 102%
of Par(2) 1,051
-------
2,595
-------
NORTH CAROLINA -- 1.1%
1,000 North Carolina Municipal Power
Agency No.1 Rev., (Catawba
Electric), 6.00%, 1/1/10
(MBIA) 1,036
-------
NORTH DAKOTA -- 1.5%
1,500 Grand Forks Health Care System
Rev., (Altru Health System
Obligation Group), 7.125%,
8/15/24 1,467
-------
OHIO -- 0.8%
750 Ohio Higher Educational Facility
Rev., Series 1990 B, (Case
Western Reserve University),
6.50%, 10/1/20 811
-------
PENNSYLVANIA -- 2.8%
3,000 Pennsylvania Higher Educational
Facilities Auth. Rev., Series
1998 P, 5.00%, 6/15/19
(AMBAC) 2,642
-------
PUERTO RICO -- 3.6%
500 Puerto Rico Commonwealth GO,
6.45%, 7/1/04, Prerefunded at
101.5% of Par(2) 537
3,000 Puerto Rico Commonwealth
Highway & Transportation Auth.
Rev., Series 2000 B, 6.00%,
7/1/39(3) 2,953
-------
3,490
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
RHODE ISLAND -- 4.8%
$1,100 Rhode Island Clean Water Safe
Drinking Rev., 6.70%, 1/1/15
(AMBAC) $ 1,174
2,000 Rhode Island Depositors
Economic Protection Corp.
Special Obligation Rev., Series
1993 A, 6.25%, 8/1/16
(MBIA)(2) 2,110
1,300 Rhode Island Depositors
Economic Protection Corp.
Special Obligation Rev., Series
1993 B, 6.00%, 8/1/17
(MBIA)(2) 1,310
-------
4,594
-------
SOUTH CAROLINA -- 2.8%
1,500 Piedmont Municipal Power
Agency Electric Rev., 6.75%,
1/1/19 (FGIC) 1,654
860 Piedmont Municipal Power
Agency Electric Rev., Series
1991 A, 6.50%, 1/1/16
(FGIC) 929
140 Piedmont Municipal Power
Agency Electric Rev., Series
1991 A, 6.50%, 1/1/16
(FGIC)(2) 152
-------
2,735
-------
TENNESSEE -- 0.8%
940 Knox County Health, Educational
& Housing Facilities Board Rev.,
(University Health System Inc.),
5.625%, 4/1/24 786
-------
TEXAS -- 27.1%
1,000 Alliance Airport Auth. Special
Facilities Rev., (American
Airlines), 7.00%, 12/1/11 1,047
3,000 Dallas Fort Worth International
Airport Rev., Series 2000 A,
5.75%, 11/1/30 (FGIC) 2,810
1,000 Denton Utility System Rev., Series
1996 A, 5.95%, 12/1/14
(MBIA) 1,012
1,000 Frisco Independent School District
GO, Series 1998
A, 4.50%, 8/15/29 (Guaranteed:
PSF) 764
2,000 Houston Water & Sewer System
Rev., Series 1997 A, (Junior
Lien), 5.375%, 12/1/27
(FGIC) 1,804
2,000 Houston Water & Sewer System
Rev., Series 1997 C, (Junior
Lien), 5.375%, 12/1/27
(FGIC) 1,804
1,860 Lubbock GO, 5.25%, 2/15/19 1,699
1,400 Lubbock Health Facilities
Development Corp. Rev., (St.
Joseph Health System), 5.25%,
7/1/13 1,285
22 1-800-345-2021 See Notes to Financial Statements
Long-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$2,000 Nueces River Auth. Water Supply
Rev., (Facilities-Corpus Christi
Lake), 5.50%, 3/1/27 (FSA) $ 1,861
2,300 Richardson Hospital Auth. Rev.,
6.75%, 12/1/23 2,112
2,000 San Antonio Electric and Gas Rev.,
7.10%, 2/1/09 (FGIC)(4) 1,237
1,000 Tarrant County Health Facility
Development Corp. Health
System Rev., (Ft. Worth
Osteopathic), 6.00%, 5/15/11
(MBIA) 1,033
2,500 Texas Municipal Power Agency
Rev., Series 1991 A, 6.75%,
9/1/12 (AMBAC) 2,600
2,000 Texas Southern University Rev.,
Series 1998 B, 4.50%,
11/1/23 (AMBAC) 1,576
1,765 Travis County GO, 4.50%, 3/1/19 1,436
2,000 Travis County Health Facilities
Development Corp. Rev., Series
1999 A, (Ascension Health
Credit), 5.875%, 11/15/24
(AMBAC) 1,927
-------
26,007
-------
UTAH -- 1.2%
1,000 Salt Lake City Hospital Rev.,
Series 1988 A, (Intermountain
Health Corp.), 8.125%,
5/15/15(2) 1,194
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
VIRGINIA -- 1.1%
$1,000 Hampton Industrial Development
Auth. Rev., Series 1994 A,
(Sentara General Hospital),
6.50%, 11/1/12 $ 1,040
-------
WASHINGTON -- 2.2%
1,000 Washington GO, Series 1990 A,
6.75%, 2/1/15 1,113
1,000 Washington Public Power Supply
System Rev., Series 1996 A,
(Nuclear Project No. 1), 5.75%,
7/1/12 (MBIA) 1,004
-------
2,117
-------
WISCONSIN -- 3.5%
1,180 Winneconne Community School
District GO, 6.75%, 4/1/06,
Prerefunded at 100% of Par
(FGIC) 1,272
1,900 Wisconsin Clean Water Rev.,
6.875%, 6/1/11 2,118
-------
3,390
-------
TOTAL INVESTMENT SECURITIES -- 100.0% $96,126
=======
(Cost $96,726)
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
MBIA = MBIA Insurance Corp.
PSF = Permanent School Fund
(1) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(2) Escrowed to maturity in U.S. government securities or state and local
government securities.
(3) When-issued security.
(4) Security is a zero-coupon municipal bond. The yield to maturity at purchase
is indicated. Zero-coupon securities are purchased at a substantial
discount from its value at maturity.
See Notes to Financial Statements www.americancentury.com 23
High-Yield Municipal--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF MAY 31, 2000
LEHMAN LONG-TERM HIGH YIELD
HIGH-YIELD MUNICIPAL MUNICIPAL DEBT FUNDS(2)
MUNICIPAL BOND INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) -0.26% 0.92% -1.46% --
1 YEAR -2.81% -4.45% -4.98% 9 OUT OF 56
================================================================================
AVERAGE ANNUAL RETURNS
LIFE OF FUND 2.30%(3) 0.51% -0.32% 2 OUT OF 51(3)
The fund's inception date was 3/31/98.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Management fees were waived through 4/30/99. Expenses were added monthly at
a rate of 0.10% of average daily closing net assets until 10/31/99. Returns
and rankings would have been lower if fees had not been waived.
See pages 40-42 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 5/31/00
High-Yield Municipal $10,506
Lehman Long-Term Municipal Bond Index $10,111
High-Yield Lehman Long-Term
Municipal Municipal Bond Index
DATE VALUE VALUE
3/31/1998 $10,000 $10,000
4/30/1998 $9,994 $9,946
5/31/1998 $10,181 $10,141
6/30/1998 $10,276 $10,187
7/31/1998 $10,300 $10,210
8/31/1998 $10,469 $10,393
9/30/1998 $10,607 $10,537
10/31/1998 $10,563 $10,503
11/30/1998 $10,608 $10,556
12/31/1998 $10,660 $10,567
1/31/1999 $10,760 $10,670
2/28/1999 $10,741 $10,625
3/31/1999 $10,757 $10,656
4/30/1999 $10,826 $10,666
5/31/1999 $10,810 $10,582
6/30/1999 $10,685 $10,389
7/31/1999 $10,700 $10,384
8/31/1999 $10,574 $10,170
9/30/1999 $10,542 $10,117
10/31/1999 $10,435 $9,880
11/30/1999 $10,533 $10,018
12/31/1999 $10,443 $9,862
1/31/2000 $10,349 $9,756
2/29/2000 $10,418 $9,963
3/31/2000 $10,577 $10,327
4/30/2000 $10,569 $10,205
5/31/2000 $10,506 $10,111
$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, while the graph below shows the fund's year-by-year performance. 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED MAY 31)
High-Yield Lehman Long-Term
Municipal Municipal Bond Index
DATE RETURN RETURN
5/31/1998* 1.81% 1.41%
5/31/1999 6.18% 4.35%
5/31/2000 -2.81% -4.45%
* From 3/31/98 (the fund's inception date) to 5/31/98.
24 1-800-345-2021
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 YEAR ENDED MAY 31, 2000?
Although rising interest rates and heavy tax-loss selling put pressure on
the performance of high-yield municipal bonds, the fund outperformed most of its
peers. The fund returned -2.81%, beating the -4.98% average total return of 56
"High Yield Municipal Debt Funds" tracked by Lipper Inc.
The portfolio's below-average expenses aided this outperformance. For the
year ended May 31, 2000, the fund's expense ratio was 0.52% after a fee waiver
(see the footnote below the "Portfolio at a Glance" table at right), compared
with the 1.20% average for its Lipper group. All else being equal, lower
expenses mean higher yields and returns.
WHAT WERE THE OTHER FACTORS THAT HELPED THE FUND OUTPACE ITS PEER GROUP AVERAGE
DURING THE PAST 12 MONTHS?
There were three other factors. First, our credit research team
successfully steered us away from bonds that experienced downgrades and
devaluation during the year due to deteriorating credit quality.
Second, the fund was underweighted in health care bonds, which performed
poorly during the period. They were beset by a variety of ills. The possible
bankruptcy of a large, well-known HMO in Boston cast a pall over the entire
national municipal health care sector. In addition, concerns about cutbacks in
federal Medicare and Medicaid payments--an outgrowth of the Balanced Budget Act
of 1997--spread like a virus through the health care sector, raising questions
about the industry's long-term profitability.
Among our few health care holdings, we emphasized hospitals and other care
providers that face little or no competition within their immediate geographic
regions. We also concentrated on those that receive limited federal payments,
have a history of good financial performance, and a strong management team.
WHAT WAS THE THIRD FACTOR THAT HELPED THE FUND OUTPERFORM ITS PEERS?
For most of the past 12 months, the fund's duration--a measure of its
sensitivity to changes in interest rates--was a bit shorter than the average of
its peer group. As interest rates climbed, having a shorter duration was
beneficial for performance. As always, we made only modest adjustments to the
fund's duration, generally keeping it within 10% of the duration of the fund's
peer group.
DOES THE RELATIVELY POOR PERFORMANCE OF THE HIGH-YIELD MUNICIPAL BOND MARKET
OVER THE PAST 12 MONTHS SUGGEST THAT ITS FUNDAMENTAL CREDIT QUALITY IS
DETERIORATING?
No, quite the contrary. Outside of the health care sector, the overall
credit quality of the high-yield sector continued to strengthen. Thanks to the
nation's strong economy, defaults by municipal bond issuers fell dramatically
[right margin]
YIELDS AS OF MAY 31, 2000
30-DAY SEC YIELD 5.81%
30-DAY TAX-EQUIVALENT YIELDS
28.0% TAX BRACKET 8.07%
31.0% TAX BRACKET 8.42%
36.0% TAX BRACKET 9.08%
39.6% TAX BRACKET 9.62%
PORTFOLIO AT A GLANCE
5/31/00 5/31/99
NUMBER OF SECURITIES 25 39
WEIGHTED AVERAGE
MATURITY 16.8 YRS 15.9 YRS
AVERAGE DURATION 7.5 YRS 6.3 YRS
EXPENSE RATIO
(NET OF WAIVER) 0.52%* 0.01%*
* The manager waived fund expenses through 4/30/99. Expenses were added monthly
at a rate of 0.10% of average daily closing net assets until 10/31/99.
Expenses in absence of the waiver would have been 0.64% for both periods.
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
5/31/00 11/30/99
AAA 18% 28%
BBB 4% 10%
BB 6% 5%
UNRATED 72% 57%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 40
for more information.
Investment terms are defined in the Glossary on pages 42-43.
www.americancentury.com 25
High-Yield Municipal--Q&A
--------------------------------------------------------------------------------
(Continued)
over the past 12 months. The nation enjoyed significant gains in job growth and
personal wealth, which translated into a big jump in tax receipts for municipal
issuers at the local, county, and state levels across the country. Despite all
this good news, the unfavorable interest rate backdrop, coupled with late 1999
and early 2000 "tax-loss selling," overwhelmed the improvement in credit quality
for high-yield municipal bonds.
WHERE DID YOU FIND ATTRACTIVE VALUES?
We identified opportunities where we could swap bonds issued when interest
rates and bond coupons were lower--in the high 5% range--for comparable bonds
with coupons at current market rates--in the high 7% to low 8% range.
One area that presented compelling opportunities for us to swap lower
coupons for higher was land-secured bonds, which typically are used to finance
real estate development. Housing supply, demand, and pricing trends are the
strongest they've been in many years, which we believe will provide a favorable
backdrop for land-secured bonds.
We found other attractive values outside the land-secured sector. For
instance, we purchased project finance bonds issued to expand an air cargo
facility at the Hartford, Connecticut airport.
WHAT IS YOUR MARKET OUTLOOK AND HOW WILL IT AFFECT YOUR STRATEGY?
Because of our long-term value orientation, we focus primarily on the
strength of the economy, the financial health of high-yield municipal bond
issuers, and the economic viability of the projects they're financing. As a
result, we're bullish on the high-yield market--municipal supply and demand
factors will come and go, but the underlying economic and financial fundamentals
of the bonds we're buying still appear strong.
We intend to keep High-Yield Municipal's duration neutral, avoiding a
significant bet on the direction of interest rates. Instead, we'll aim to add
value through our security selection process, picking the bonds we think have
the best long-term credit fundamentals and offer the most appealing yields. This
is the same strategy that has been successful for us since the fund's inception
As long as economic growth remains solid, which appears likely, we'll
continue to emphasize land-secured bonds. If, however, the economy appears
headed toward a sustained period of weakness, we would try to reduce our
holdings in these bonds. At the same time, we'd likely increase our holdings in
essential service revenue bonds--such as water and sewer bonds--which are
typically affected less by the ebbs and flows of the economy.
[left margin]
"WE'RE BULLISH ON THE HIGH-YIELD MARKET-- MUNICIPAL SUPPLY AND DEMAND FACTORS
WILL COME AND GO, BUT THE UNDERLYING ECONOMIC AND FINANCIAL FUNDAMENTALS OF THE
BONDS WE'RE BUYING STILL APPEAR STRONG."
TOP FIVE STATES (AS OF 5/31/00)
% OF FUND INVESTMENTS
PENNSYLVANIA 17.3%
NEW JERSEY 12.2%
FLORIDA 8.0%
ARIZONA 7.4%
CALIFORNIA 7.2%
TOP FIVE STATES (AS OF 11/30/99)
% OF FUND INVESTMENTS
FLORIDA 17.7%
PENNSYLVANIA 13.9%
NEW JERSEY 13.8%
ARIZONA 8.9%
WASHINGTON 7.9%
26 1-800-345-2021
High-Yield Municipal--Schedule of Investments
--------------------------------------------------------------------------------
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 100%
ALASKA -- 1.2%
$ 410 Alaska Industrial Development &
Export Auth. Power Rev., (Upper
Lynn Canal Regional Power),
5.80%, 1/1/18 $ 344
-------
ARIZONA -- 7.4%
2,245 Gilbert Industrial Development
Nonprofit Auth. Rev., Series
1999 A, (Southwest Student
Services), 5.25%, 2/1/10 2,054
-------
CALIFORNIA -- 7.2%
1,000 California Educational Facilities
Auth. Rev., Series 2000 B,
(Pooled College & University),
6.75%, 6/1/30(1) 1,000
1,000 California Statewide Communities
Development Auth. COP, Series
1999 A, (Windsor Terrace
Healthcare), 7.875%, 10/1/29
(Acquired 10/26/99, Cost
$1,000)(2) 975
-------
1,975
-------
COLORADO -- 4.5%
1,280 Colorado Health Facilities Auth.
Rev., Series 1998 A,
(Volunteers), 5.00%, 7/1/03 1,239
-------
CONNECTICUT -- 3.6%
1,000 Connecticut Development Auth.
Industrial Rev., (Afco Cargo
BDL-LLC), 8.00%, 4/1/30 996
-------
FLORIDA -- 8.0%
465 Arbor Greene Community
Development District Special
Assessment Rev., 5.75%,
5/1/06 452
500 Arbor Greene Community
Development District Special
Assessment Rev., 6.50%,
5/1/07 495
1,295 Heritage Isles Community
Development District Special
Assessment Rev., Series
1998 A, 5.75%, 5/1/05 1,260
-------
2,207
-------
HAWAII -- 1.9%
500 Maui County, Series 2000 A,
6.50%, 3/1/18 (FGIC) 523
-------
MARYLAND -- 4.4%
1,250 Anne Arundel County Special
Obligation Rev., (Arundel Mills),
7.10%, 7/1/29 1,221
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MASSACHUSETTS -- 3.3%
$1,000 Massachusetts Health and
Educational Facilities Auth. Rev.,
Series 1999 A, 5.25%, 7/1/07 $ 917
-------
MISSOURI -- 5.2%
1,385 Missouri Housing Development
Commission Mortgage Rev.,
Series 1998 B-2, (Single
Family), 6.40%, 9/1/29
(GNMA/FNMA) 1,428
-------
NEVADA -- 3.6%
1,000 Clark County Improvement District
No. 121, (Southern Highlands
Area), 7.50%, 12/1/19 983
-------
NEW JERSEY -- 12.2%
2,500 New Jersey Economic
Development Auth. Rev., Series
1998 A, (Kapkowski Road
Landfill), 6.375%, 4/1/31 2,332
1,000 New Jersey Economic
Development Auth. Rev., Series
1999 A, (Transportation
Sublease), 6.00%, 5/1/16
(FSA)(3) 1,022
-------
3,354
-------
OREGON -- 4.4%
1,415 Oregon Health Housing
Educational & Cultural Facilities
Auth. Rev., 4.50%, 10/1/06 1,229
-------
PENNSYLVANIA -- 17.3%
2,200 Dauphin County General Auth.
Rev., (Hyatt Regency Hotel &
Conference Center), 6.20%,
1/1/29 1,928
1,360 New Morgan Municipal Auth.
Office Rev., Series 1999 A,
(Commonwealth Office),
5.375%, 6/1/08 1,291
1,695 Susquehanna Area Regional
Airport Auth. Rev., (Aero
Harrisburg LLC), 5.25%,
1/1/09 1,548
-------
4,767
-------
RHODE ISLAND -- 1.9%
500 Cranston GO, 6.375%,
11/15/17 (FGIC) 520
-------
TEXAS -- 3.6%
1,045 Abia Development Corp. Airport
Facilities Rev., (Aero Austin LP),
6.75%, 1/1/11 1,000
-------
UTAH -- 6.4%
1,845 Bountiful Hospital Rev., (South
Davis Community Hospital),
5.125%, 12/15/05 1,757
-------
See Notes to Financial Statements www.americancentury.com 27
High-Yield Municipal--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
WASHINGTON -- 3.7%
$1,000 Tacoma Electric System Rev.,
6.25%, 1/1/15 (FGIC) $ 1,024
-------
WYOMING -- 0.2%
45 Wyoming Community
Development Auth. Rev., Series
1990 B, (Single Family
Mortgage), 8.125%, 6/1/21
(FHA) 46
-------
TOTAL INVESTMENT SECURITIES -- 100.0% $27,584
=======
(Cost $28,842)
NOTES TO SCHEDULE OF INVESTMENTS
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHA = Federal Housing Authority
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
(1) When-issued security.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at May 31, 2000 was $975 (in
thousands) which represented 3.5% of net assets.
(3) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
28 1-800-345-2021 See Notes to Financial Statements
Statements of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
<TABLE>
<CAPTION>
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM HIGH-YIELD
MAY 31, 2000 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 $35,070,
$146,873, $96,726 and
$28,842, respectively)
(Note 3) ....................... $34,840 $146,104 $96,126 $27,584
Cash ............................. 82 -- 1,167 1,113
Receivable for investments
sold ........................... -- 2,106 209 --
Interest receivable .............. 443 2,730 1,810 523
------------ ------------- ------------- ------------
35,365 150,940 99,312 29,220
------------ ------------- ------------- ------------
LIABILITIES
Disbursements in excess of
demand deposit cash ............ -- 759 -- --
Payable for investments
purchased ...................... 2,988 505 2,911 994
Accrued management fees
(Note 2) ....................... 14 64 41 15
Dividends payable ................ 20 100 66 22
Payable for trustees' fees
and expenses ................... -- 1 -- --
------------ ------------- ------------- ------------
3,022 1,429 3,018 1,031
------------ ------------- ------------- ------------
Net Assets ....................... $32,343 $149,511 $96,294 $28,189
============ ============= ============= ============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .......... 3,296 15,059 9,931 3,025
============ ============= ============= ============
Net Asset Value Per Share ........ $9.81 $9.93 $9.70 $9.32
============ ============= ============= ============
NET ASSETS CONSIST OF:
Capital paid in .................. $32,973 $152,305 $99,845 $31,059
Accumulated undistributed
net realized loss on
investment transactions ........ (400) (2,025) (2,951) (1,612)
Net unrealized depreciation
on investments (Note 3) ........ (230) (769) (600) (1,258)
------------ ------------- ------------- ------------
$32,343 $149,511 $96,294 $28,189
============ ============= ============= ============
See Notes to Financial Statements www.americancentury.com 29
Statements of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM HIGH-YIELD
YEAR ENDED MAY 31, 2000 TAX-FREE TAX-FREE TAX-FREE MUNICIPAL
INVESTMENT INCOME (In Thousands)
Income:
Interest ......................... $1,760 $8,356 $6,208 $1,964
------------ ------------- ------------- ------------
Expenses (Note 2):
Management fees .................. 190 804 540 214
Trustees' fees and expenses ...... 2 10 7 2
------------ ------------- ------------- ------------
Total expenses ................. 192 814 547 216
Amount waived .................... -- -- -- (40)
------------ ------------- ------------- ------------
Net expenses ................... 192 814 547 176
------------ ------------- ------------- ------------
Net investment income ............ 1,568 7,542 5,661 1,788
------------ ------------- ------------- ------------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments . (400) (2,025) (2,672) (1,610)
Change in net unrealized
appreciation on investments .... (750) (4,774) (6,002) (1,337)
------------ ------------- ------------- ------------
Net realized and unrealized
loss on investments ........... (1,150) (6,799) (8,674) (2,947)
------------ ------------- ------------- ------------
Net Increase (Decrease) in
Net Assets Resulting
from Operations ................ $418 $743 $(3,013) $(1,159)
============ ============= ============= ============
30 1-800-345-2021 See Notes to Financial Statements
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MAY 31, 2000 AND MAY 31, 1999
LIMITED-TERM TAX-FREE INTERMEDIATE-TERM TAX-FREE
Increase (Decrease)
in Net Assets .................. 2000 1999 2000 1999
OPERATIONS (In Thousands)
Net investment income ............ $1,568 $1,584 $7,542 $6,575
Net realized gain (loss)
on investments ................. (400) 188 (2,025) 765
Change in net unrealized
appreciation (depreciation)
on investments ................. (750) (139) (4,774) (1,787)
------------ ------------ ------------ -----------
Net increase (decrease) in
net assets resulting
from operations ................ 418 1,633 743 5,553
------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ....... (1,586) (1,584) (7,542) (6,575)
From net realized gains on
investment transactions ........ -- (138) -- (1,057)
In excess of net realized
gains on investment
transactions ................... (86) -- (361) --
------------ ------------ ------------ -----------
Decrease in net assets
from distributions ............. (1,672) (1,722) (7,903) (7,632)
------------ ------------ ------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........ 11,709 20,609 72,975 50,409
Proceeds from reinvestment
of distributions ............... 1,383 1,504 6,574 6,300
Payments for shares redeemed ..... (20,612) (19,317) (72,556) (42,859)
------------ ------------ ------------ -----------
Net increase (decrease) in
net assets from capital
share transactions ............. (7,520) 2,796 6,993 13,850
------------ ------------ ------------ -----------
Net increase (decrease) in
net assets ..................... (8,774) 2,707 (167) 11,771
NET ASSETS
Beginning of period .............. 41,117 38,410 149,678 137,907
------------ ------------ ------------ -----------
End of period .................... $32,343 $41,117 $149,511 $149,678
============ ============ ============ ===========
Undistributed net investment
income ......................... -- $18 -- --
============ ============ ============ ===========
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ............................. 1,177 2,019 7,218 4,768
Issued in reinvestment
of distributions ............... 139 147 654 595
Redeemed ......................... (2,076) (1,892) (7,219) (4,060)
------------ ------------ ------------ -----------
Net increase (decrease) .......... (760) 274 653 1,303
============ ============ ============ ===========
See Notes to Financial Statements www.americancentury.com 31
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
(Continued)
YEARS ENDED MAY 31, 2000 AND MAY 31, 1999
LONG-TERM TAX-FREE HIGH-YIELD MUNICIPAL
Increase (Decrease)
in Net Assets .................... 2000 1999 2000 1999
OPERATIONS (In Thousands)
Net investment income .............. $5,661 $ 5,808 $1,788 $1,955
Net realized gain (loss)
on investments ................... (2,672) 411 (1,610) 169
Change in net unrealized
appreciation (depreciation)
on investments ................... (6,002) (2,257) (1,337) (83)
------------ ------------ ------------ -----------
Net increase (decrease) in
net assets resulting
from operations .................. (3,013) 3,962 (1,159) 2,041
------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ......... (5,661) (5,832) (1,788) (1,955)
From net realized gains on
investment transactions .......... -- (1,702) - (136)
In excess of net realized gains
on investment transactions ....... -- (278) (19) --
------------ ------------ ------------ -----------
Decrease in net assets
from distributions ............... (5,661) (7,812) (1,807) (2,091)
------------ ------------ ------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .......... 43,100 75,568 12,842 42,114
Proceeds from reinvestment
of distributions ................. 4,419 6,209 1,368 1,678
Payments for shares redeemed .......(60,135) (76,958) (25,123) (20,462)
------------ ------------ ------------ -----------
Net increase (decrease) in
net assets from capital
share transactions ...............(12,616) 4,819 (10,913) 23,330
------------ ------------ ------------ -----------
Net increase (decrease)
in net assets ....................(21,290) 969 (13,879) 23,280
NET ASSETS
Beginning of period ................117,584 116,615 42,068 18,788
------------ ------------ ------------ -----------
End of period ......................$ 96,294 $117,584 $28,189 $42,068
============ ============ ============ ===========
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ............................... 4,348 6,983 1,320 4,137
Issued in reinvestment
of distributions ................. 447 574 142 164
Redeemed ........................... (6,086) (7,119) (2,595) (2,007)
------------ ------------ ------------ -----------
Net increase (decrease) ............ (1,291) 438 (1,133) 2,294
============ ============ ============ ===========
</TABLE>
32 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
MAY 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Municipal Trust (the trust), is registered
under the Investment Company Act of 1940 (the 1940 Act) as an open-end
management investment company. 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) (the funds) are four of
the eight funds issued by the trust. The funds, except High-Yield, 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'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 invests primarily in lower-rated debt securities, which
are subject to greater credit risk and consequently offer higher yield.
Securities of this type are subject to substantial risks including price
volatility, liquidity risk and default risk. The 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
policies 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.
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.
At May 31, 2000, Limited-Term, Intermediate-Term, Long-Term and High-Yield,
had accumulated net realized capital loss carryovers for federal income tax
purposes of $86,077, $1,309,972, $1,257,475 and $784,042 (all expiring in 2008),
respectively, which may be used to offset future taxable gains.
For the seven months ended May 31, 2000, Limited-Term, Intermediate-Term,
Long-Term and High-Yield incurred net capital losses of $314,371, $716,537,
$1,694,290 and $828,532, respectively. The funds have elected to treat such
losses as having been incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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), under which ACIM 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 the
trustees who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses will be paid by ACIM. The
fee is 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 range from 0.2925% to 0.4100%. Rates for the Complex Fee range from
0.2900% to 0.3100%. For the year ended May 31, 2000, the effective annual
management fee was 0.51% for Limited-Term, Intermediate-Term and Long-Term. ACIM
voluntarily agreed to pay all expenses of High-Yield through April 30, 1999. In
May 1999, ACIM began adding expenses at a rate of 0.10% of average daily closing
net assets per month until October 31, 1999. As a result, the effective annual
management fee for the year ended May 31, 2000 was 0.52%. The effective annual
management fee would have been 0.64% without the waiver.
Effective March 13, 2000, American Century Services, Inc. (ACIS), became a
distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
www.americancentury.com 33
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MAY 31, 2000
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, were as follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM HIGH-YIELD
TAX-FREE TAX-FREE TAX-FREE MUNICIPAL
PURCHASES (In Thousands)
Municipal Debt
Obligations ...... $47,709 $173,502 $60,893 $19,992
PROCEEDS FROM SALES (In Thousands)
Municipal Debt
Obligations ...... $56,386 $167,089 $72,542 $32,978
On May 31, 2000, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM HIGH-YIELD
TAX-FREE TAX-FREE TAX-FREE MUNICIPAL
(In Thousands)
Appreciation ....... $31 $993 $2,465 $12
Depreciation ....... (261) (1,762) (3,065) (1,270)
------------ ------------- ------------ ------------
Net ................ $(230) $(769) $(600) $(1,258)
============ ============= ============ ============
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
The funds, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
year ended May 31, 2000.
34 1-800-345-2021
Limited-Term Tax-Free--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), EXPENSE RATIO (operating expenses as a percentage of average net
assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
2000 1999 1998(1) 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .............. $10.14 $10.16 $10.11 $10.08 $10.09 $9.95
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............ 0.42 0.40 0.24 0.41 0.43 0.44
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ..................... (0.31) 0.01 0.05 0.10 (0.01) 0.14
-------- -------- -------- -------- -------- --------
Total From Investment Operations . 0.11 0.41 0.29 0.51 0.42 0.58
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ....... (0.42) (0.40) (0.24) (0.41) (0.43) (0.44)
From Net Realized Gains
on Investment Transactions ....... -- (0.03) -- (0.07) -- --
In Excess of Net Realized Gains
on Investment Transactions ....... (0.02) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions .............. (0.44) (0.43) (0.24) (0.48) (0.43) (0.44)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ..... $9.81 $10.14 $10.16 $10.11 $10.08 $10.09
======== ======== ======== ======== ======== ========
Total Return(2) .................. 1.14% 4.15% 2.87% 5.22% 4.26% 5.95%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.51% 0.52%(3) 0.59% 0.38%(4) --(4)
Ratio of Net Investment Income
to Average Net Assets ............ 4.16% 3.93% 4.04%(3) 4.05% 4.28% 4.38%
Portfolio Turnover Rate ............ 129% 41% 28% 74% 68% 78%
Net Assets, End of Period
(in thousands) ..................$32,343 $41,117 $38,410 $36,437 $49,866 $58,837
(1) 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%.
See Notes to Financial Statements www.americancentury.com 35
Intermediate-Term Tax-Free--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), EXPENSE RATIO (operating expenses as a percentage of average net
assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
2000 1999 1998(1) 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
Beginning of Period .............. $10.39 $10.52 $10.46 $10.35 $10.45 $10.01
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............ 0.48 0.48 0.28 0.49 0.48 0.49
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ..................... (0.44) (0.05) 0.08 0.21 (0.03) 0.52
-------- -------- -------- -------- -------- --------
Total From Investment Operations . 0.04 0.43 0.36 0.70 0.45 1.01
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ....... (0.48) (0.48) (0.28) (0.49) (0.48) (0.49)
From Net Realized Gains
on Investment Transactions ....... -- (0.08) (0.02) (0.10) (0.07) (0.08)
In Excess of Net Realized Gains
on Investment Transactions ....... (0.02) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions .............. (0.50) (0.56) (0.30) (0.59) (0.55) (0.57)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ..... $9.93 $10.39 $10.52 $10.46 $10.35 $10.45
======== ======== ======== ======== ======== ========
Total Return(2) .................. 0.44% 4.07% 3.50% 6.88% 4.47% 10.41%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.51% 0.51%(3) 0.58% 0.60% 0.60%
Ratio of Net Investment Income
to Average Net Assets ............ 4.75% 4.52% 4.62%(3) 4.71% 4.66% 4.77%
Portfolio Turnover Rate ............ 107% 32% 17% 35% 39% 32%
Net Assets, End of Period
(in thousands) ...................$149,511 $149,678 $137,907 $132,416 $80,568 $80,248
(1) 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.
36 1-800-345-2021 See Notes to Financial Statements
Long-Term Tax-Free--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), EXPENSE RATIO (operating expenses as a percentage of average net
assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
2000 1999 1998(1) 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
Beginning of Period .............. $10.48 $10.81 $10.75 $10.58 $10.54 $9.75
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............ 0.52 0.52 0.31 0.55 0.53 0.53
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ..................... (0.78) (0.15) 0.13 0.33 0.04 0.83
-------- -------- -------- -------- -------- --------
Total From Investment Operations . (0.26) 0.37 0.44 0.88 0.57 1.36
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ....... (0.52) (0.52) (0.31) (0.55) (0.53) (0.53)
From Net Realized Gains on
Investment Transactions .......... -- (0.16) (0.07) (0.16) -- (0.04)
In Excess of Net Realized
Gains on Investment
Transactions ..................... -- (0.02) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions .............. (0.52) (0.70) (0.38) (0.71) (0.53) (0.57)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ..... $9.70 $10.48 $10.81 $10.75 $10.58 $10.54
======== ======== ======== ======== ======== ========
Total Return(2) .................. (2.38)% 3.44% 4.18% 8.59% 5.60% 14.45%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.51% 0.51%(3) 0.58% 0.59% 0.59%
Ratio of Net Investment Income
to Average Net Assets ............ 5.31% 4.86% 4.96%(3) 5.16% 5.06% 5.24%
Portfolio Turnover Rate ............ 58% 80% 47% 65% 60% 61%
Net Assets, End of Period
(in thousands) ..................$96,294 $117,584 $116,615 $108,868 $60,772 $57,997
(1) 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.
See Notes to Financial Statements www.americancentury.com 37
High-Yield Municipal--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net investment
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED)
2000 1999 1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ... $10.12 $10.08 $9.99
----------- ----------- ----------
Income From Investment Operations
Net Investment Income ................ 0.51 0.54 0.09
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .... (0.79) 0.07 0.09
----------- ----------- ----------
Total From Investment Operations ..... (0.28) 0.61 0.18
----------- ----------- ----------
Distributions
From Net Investment Income ........... (0.51) (0.54) (0.09)
From Net Realized Gain on
Investment Transactions .............. -- (0.03) --
In Excess of Net Realized Gains on
Investment Transactions .............. (0.01) -- --
----------- ----------- ----------
Total Distributions .................. (0.52) (0.57) (0.09)
----------- ----------- ----------
Net Asset Value, End of Period ......... $9.32 $10.12 $10.08
=========== =========== ==========
Total Return(2) ...................... (2.81)% 6.18% 1.81%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ............. 0.52% 0.01% --
Ratio of Net Investment Income
to Average Net Assets(3) ............. 5.31% 5.28% 5.38%(4)
Portfolio Turnover Rate ................ 60% 92% 44%
Net Assets, End of Period
(in thousands) ....................... $28,189 $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 May 1999, ACIM began adding expenses
at a rate of 0.10% of average daily closing net assets per month until
October 31, 1999. In absence of the waiver, the annualized ratio of
operating expenses to average net assets would have been 0.64% for all
three periods and the annualized ratio of net investment income to average
net assets would have been 5.19%, 4.66% and 4.74%, for the years ended May
31, 2000 and May 31, 1999 and the period March 31, 1998 through May 31,
1998, respectively.
(4) Annualized.
</TABLE>
38 1-800-345-2021 See Notes to Financial Statements
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Board of 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 (four of the funds constituting the American Century Municipal
Trust, hereafter referred to as the "Funds") at May 31, 2000, and the results of
each of their operations for the year then ended, the changes in their net
assets for the two years in the period then ended, and the financial highlights
for the two years in the period then ended, and the period November 1, 1997
through May 31, 1998 for the Limited-Term Tax-Free Fund, Intermediate-Term
Tax-Free Fund and Long-Term Tax-Free Fund and period March 31, 1998 through May
31, 1998 for the High-Yield Municipal Fund, in conformity with accounting
principles generally accepted in the United States. The financial highlights for
each of the two years in the period ended October 31, 1996, were audited by
other auditors, whose report, dated November 20, 1996, expressed an unqualified
opinion on those statements. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
July 14, 2000
www.americancentury.com 39
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 a high level of interest income exempt from
federal income taxes by investing in high-yielding municipal securities. 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.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. They are based on an issuer's financial strength
and ability to pay interest and principal in a timely manner.
Securities rated AAA, AA, A, or BBB are considered "investment-grade"
securities, meaning they are relatively safe from default. High-Yield Municipal
may invest more than 50% of its portfolio in securities that are below
investment grade or not rated. Here are the most common credit ratings and their
definitions:
* 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.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
[left 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
40 1-800-345-2021
Background Information
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(Continued)
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 (High-Yield Municipal) -- funds that invest
at least 50% of assets in lower-rated municipal debt issues.
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Glossary
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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 total returns, please refer to the "Financial
Highlights" on pages 35-38.
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%).
* COUPON -- the stated interest rate of a security.
* 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 measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* AVERAGE DURATION -- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF MUNICIPAL SECURITIES
* AMT PAPER -- instruments with income subject to the federal alternative
minimum tax.
* COPS/LEASES -- securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases.
* GO BONDS -- general obligation securities backed by the taxing power of the
issuer.
* LAND-SECURED BONDS -- securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
* PREREFUNDED BONDS/ETM BONDS --securities refinanced or escrowed to maturity by
the issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
* REVENUE BONDS -- securities backed by revenues from sales taxes or from a
specific project, system, or facility (such as a hospital, electric utility, or
water system).
42 1-800-345-2021
Glossary
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(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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.
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Notes
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44 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 Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE
COMPANIES
1-800-345-6488
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.
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P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0007 American Century Investment Services, Inc.
SH-ANN-21198 (c)2000 American Century Services Corporation
