[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
SHORT-TERM TREASURY
INTERMEDIATE-TERM TREASURY
LONG-TERM TREASURY
[american century logo (reg. sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
SHORT-TERM TREASURY
(BSTAX)
- ----------------------------------------
INTERMEDIATE-TERM TREASURY
(CPTNX)
- ----------------------------------------
LONG-TERM TREASURY
(BLAGX)
- ----------------------------------------
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
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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.
Strong economic growth and increasing inflation anxiety resulted in higher
interest rates during the six months ended September 30, 1999. The recovery of
overseas economies and unabated U.S. growth influenced the Federal Reserve (the
U.S. central bank) to raise short-term interest rates twice during the summer of
1999 to rein in the U.S. economy and reduce pressures on prices and wages.
In this hostile environment for U.S. bonds, American Century's Short-,
Intermediate-, and Long-Term Treasury funds continued to provide competitive
returns, either beating their benchmarks or their peer group averages. Fund
investors have benefited from our commitment to build and maintain a talented
fund management group. American Century's entire investment management team has
doubled in size over the past three years.
Turning to corporate matters, American Century has long been an active
supporter of the development and use of technologies that improve the
efficiencies of capital markets, lower the costs of trading securities, and
ultimately offer better returns for shareholders. Toward that end, we've made
strategic investments in several other financial services firms, including
Archipelago, Optimark, Tradepoint Financial Networks, W.R. Hambrecht, and, most
recently, WorldStreet Corporation. WorldStreet, located in Boston, is developing
a customized software application that marries portfolio holdings with real-time
market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature--part of the
personalized performance section -- as the key reason it ranked our statement
second out of 88 mutual fund company statements in the nation.
One final note--in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our diligence in this area
is very important to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
SHORT-TERM TREASURY
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Schedule of Investments ................................................ 7
INTERMEDIATE-TERM TREASURY
Performance Information ................................................ 8
Management Q&A ......................................................... 9
Portfolio at a Glance .................................................. 9
Schedule of Investments ................................................ 11
LONG-TERM TREASURY
Performance Information ................................................ 12
Management Q&A ......................................................... 13
Portfolio at a Glance .................................................. 13
Schedule of Investments ................................................ 15
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 16
Statements of Operations ............................................... 17
Statements of Changes
in Net Assets ....................................................... 18
Notes to Financial
Statements .......................................................... 19
Financial Highlights ................................................... 22
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 28
Background Information
Investment Philosophy
and Policies ..................................................... 29
Comparative Indices ................................................. 29
Lipper Rankings ..................................................... 29
Investment Team
Leaders .......................................................... 29
Glossary ............................................................... 30
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Rising interest rates led to disappointing returns for U.S. Treasury and
agency securities.
* Short-term securities, which are the least sensitive to interest rate
changes, produced modest gains, while intermediate- and long-term securities
suffered losses.
* Treasury inflation-indexed securities, whose prices and yields are less
vulnerable to inflation and rising interest rates, held up reasonably well.
* Recently issued "on-the-run" Treasurys generally outperformed older, slightly
less liquid "off-the-run" securities. However, the "off-the-runs" offered
higher yields.
SHORT-TERM TREASURY
* Short-Term Treasury's return was limited by rising interest rates; however,
the fund outperformed the average short Treasury fund, according to Lipper
(see page 4).
* For the six months, the portfolio's yield rose from 4.66% to 5.27%, which was
better than the 5.01% average yield of the funds in the Lipper group.
* The main reason Short-Term Treasury did well compared with the Lipper group
was that the fund had a relatively short duration. A shorter duration meant
the fund held up comparatively well despite higher interest rates.
* We have a cautious outlook for the market and interest rates, so we'll likely
continue to position the fund's duration conservatively going forward.
INTERMEDIATE-TERM TREASURY
* Rising interest rates hurt the fund's returns. However, the fund performed
better than the average return of its Lipper peer group (see page 8).
* The fund's yield benefited from investments in older Treasurys known as
"off-the-run" securities.
* Intermediate-Term Treasury also benefited from the strong relative
performance of Treasury inflation-indexed securities.
* We re-established the fund's position in agency securities after the
difference between Treasury and agency yields widened significantly during
the summer.
* Our generally bearish outlook led us to keep duration shorter than that of
the fund's peers for most of the period.
LONG-TERM TREASURY
* It was a difficult period for the U.S. bond market due to inflation fears and
rising interest rates. The fund's performance reflected that environment.
* Long-Term Treasury outperformed its benchmark index because it held Treasury
inflation-indexed securities.
* We also added Treasury zero-coupon bonds to the portfolio. If yields move
lower or remain stable, these securities should outperform similar-maturity
coupon-bearing Treasury securities.
* We'll continue to emphasize older "off-the-run" Treasury securities, which
are poised to do well under a proposed Treasury buyback program.
[left margin]
SHORT-TERM TREASURY(1)
(BSTAX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 1.21%(2)
1 Year 2.37%
30-DAY SEC YIELD: 5.27%
INCEPTION DATE: 9/8/92
NET ASSETS: $70.8 million(3)
INTERMEDIATE-TERM TREASURY(1)
(CPTNX)
TOTAL RETURNS: AS OF 9/30/99
6 Months -0.16%(2)
1 Year -1.92%
30-DAY SEC YIELD: 5.67%
INCEPTION DATE: 5/16/80
NET ASSETS: $379.7 million(3)
LONG-TERM TREASURY(1)
(BLAGX)
TOTAL RETURNS: AS OF 9/30/99
6 Months -2.57%(2)
1 Year -7.38%
30-DAY SEC YIELD: 6.01%
INCEPTION DATE: 9/8/92
NET ASSETS: $111.7 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on pages 4, 8, and 12.
Investment terms are defined in the Glossary on pages 30-31.
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
PERFORMANCE OVERVIEW
Rising interest rates led to disappointing returns for U.S. Treasury and
agency securities during the six months ended September 30, 1999 (see the return
table at right). Short-term securities, which are the least sensitive to
interest rate changes, produced modest gains, while intermediate- and long-term
securities suffered losses.
Treasury inflation-indexed securities (TIIS), whose prices and yields are
less vulnerable to inflation and rising interest rates, held up reasonably well.
For example, the 10-year TIIS yield rose from 3.91% to 4.07%, while the 10-year
Treasury bond yield increased from 5.28% to 6.00%.
BONDS PRESSURED BY INFLATION JITTERS
Stronger-than-expected economic growth fanned inflationary fears and raised
the specter of higher interest rates. Economies worldwide -- especially Japan's
- -- showed signs of rebounding, and the U.S. economy hummed along at a healthy
clip. Robust economic growth, coupled with a surprisingly strong inflation
report for April, pushed bond yields higher across the board.
By May, the bond market began to worry that the Federal Reserve (the U.S.
central bank) might raise short-term interest rates to slow the U.S. economy.
The Fed did in fact raise rates at the end of June and in late August by a total
of 50 basis points (0.50%).
LINGERING DOUBTS
The Fed characterized the two rate increases as a reversal of the rate cuts
it made in 1998 when global financial market instability threatened to derail
the U.S. economy. The Fed stated that its actions "should markedly diminish the
risk of rising inflation going forward."
But those words weren't enough to soothe the bond market. Signs of
continued economic strength and anecdotal evidence of rising wages were a source
of concern for bond investors. Yields continued to rise in anticipation of
another Fed rate hike before year's end.
As a result, U.S. government bonds gave their worst showing since 1994.
SHIFTING SPREAD RELATIONSHIPS
Changing supply patterns caused the yield difference (spread) between
Treasury and agency securities to widen during the summer, then snap back in the
fall. The supply of U.S. Treasurys fell as the government curtailed issuance in
response to the federal budget surplus. In contrast, various federal agencies
dramatically stepped up their issuance. By September, however, agency issuance
cooled off and spreads narrowed.
Thanks to continued strong demand for "liquid" bonds (those that are most
easily bought and sold), recently issued "on-the-run" Treasurys generally
outperformed older, slightly less liquid "off-the run" securities. However, the
"off-the-runs" offered higher yields.
[right margin]
"RISING INTEREST RATES LED TO DISAPPOINTING RETURNS FOR U.S. TREASURY AND
AGENCY SECURITIES."
BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
SALOMON BROTHERS 1- TO 3-YEAR
TREASURY/AGENCY INDEX 1.85%
SALOMON BROTHERS 3- TO 10-YEAR
TREASURY INDEX -0.01%
SALOMON BROTHERS LONG-TERM
TREASURY/AGENCY INDEX -2.76%
Source: Russell/Mellon Analytical Services and Bloomberg Financial Markets.
[line graph - data below]
RISING & FLATTENING TREASURY YIELD CURVE
3/31/99 9/30/99
YEARS TO
MATURITY
1 4.72% 5.19%
2 4.99% 5.60%
3 5.03% 5.65%
4 5.07% 5.70%
5 5.10% 5.76%
6 5.13% 5.78%
7 5.16% 5.80%
8 5.19% 5.82%
9 5.22% 5.84%
10 5.24% 5.87%
11 5.26% 5.88%
12 5.28% 5.89%
13 5.30% 5.90%
14 5.32% 5.91%
15 5.34% 5.92%
16 5.36% 5.93%
17 5.38% 5.94%
18 5.40% 5.95%
19 5.42% 5.96%
20 5.44% 5.97%
21 5.46% 5.98%
22 5.48% 5.99%
23 5.50% 6.00%
24 5.52% 6.01%
25 5.54% 6.01%
26 5.56% 6.02%
27 5.58% 6.02%
28 5.60% 6.03%
29 5.62% 6.04%
30 5.63% 6.05%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Short-Term Treasury--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 9/8/92) ADVISOR CLASS (INCEPTION 10/6/97)
SHORT-TERM SALOMON 1- TO 3-YR. SHORT U.S. TREASURY FUNDS(2) SHORT-TERM SALOMON 1- TO 3-YR.
TREASURY TREAS./AGENCY INDEX AVERAGE RETURN FUND'S RANKING TREASURY TREAS./AGENCY INDEX
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 1.21% 1.85% 1.18% -- 1.09% 1.85%
1 YEAR 2.37% 3.25% 1.80% 12 OUT OF 25 2.12% 3.25%
===================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.35% 6.00% 5.40% 8 OUT OF 19 -- --
5 YEARS 5.61% 6.35% 5.88% 11 OUT OF 15 -- --
LIFE OF FUND 4.78% 5.39%(3) 4.92%(3) 6 OUT OF 8(3) 4.52% 5.42%(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 9/30/92, the date nearest the class's inception for which data are
available.
(4) Since 10/31/97, the date nearest the class's inception for which data are
available.
See pages 28-30 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND Value on 9/30/99 Salomon 1- to 3-Year
Treasury/Agency Index $14,444
Short-Term Treasury $13,863
Short-Term Salomon 1- to 3-Year
Treasury Treasury/Agency Index
DATE VALUE VALUE
9/30/1992 $10,000 $10,000
12/31/1992 $9,992 $10,022
3/31/1993 $10,247 $10,237
6/30/1993 $10,355 $10,352
9/30/1993 $10,480 $10,499
12/31/1993 $10,525 $10,563
3/31/1994 $10,468 $10,511
6/30/1994 $10,466 $10,515
9/30/1994 $10,553 $10,616
12/31/1994 $10,541 $10,619
3/31/1995 $10,872 $10,967
6/30/1995 $11,187 $11,313
9/30/1995 $11,334 $11,476
12/31/1995 $11,589 $11,760
3/31/1996 $11,602 $11,808
6/30/1996 $11,689 $11,929
9/30/1996 $11,862 $12,127
12/31/1996 $12,066 $12,354
3/31/1997 $12,138 $12,438
6/30/1997 $12,381 $12,709
9/30/1997 $12,604 $12,958
12/31/1997 $12,803 $13,176
3/31/1998 $12,974 $13,367
6/30/1998 $13,160 $13,572
9/30/1998 $13,546 $13,990
12/31/1998 $13,627 $14,096
3/31/1999 $13,700 $14,182
6/30/1999 $13,704 $14,263
3/31/1999 $13,863 $14,444
$10,000 investment made 9/30/92(3)
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
Salomon 1- to 3-Year Treasury/Agency Index is provided for comparison in each
graph. Short-Term Treasury'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. The graphs are based on Investor Class shares only;
performance for other classes will vary due to differences in fee structures
(see the Total Returns table above). 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 SEPTEMBER 30)
Short-Term Salomon 1- to 3-Year
Treasury Treasury/Agency Index
DATE RETURN RETURN
9/30/1993 4.77% 4.94%
9/30/1994 0.69% 1.14%
9/30/1995 7.40% 8.18%
9/30/1996 4.65% 5.67%
9/30/1997 6.26% 6.89%
9/30/1998 7.48% 7.93%
9/30/1999 2.37% 3.25%
4 1-800-345-2021
Short-Term Treasury--Q&A
- --------------------------------------------------------------------------------
[photo of Newlin Rankin]
An interview with Newlin Rankin, a portfolio manager on the Short-Term
Treasury fund investment team.
HOW DID SHORT-TERM TREASURY PERFORM IN THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
The portfolio's performance reflected the difficult investment climate for
short-term government bonds through September 30, 1999, when higher interest
rates limited returns (see page 3). For the six months, Short-Term Treasury had
a return of 1.21%, which compares favorably with the 1.18% average return of the
26 Short U.S. Treasury funds tracked by Lipper Inc.*
However, the fund's return since late last year is even better on a
relative basis. For the 12 months ended September 30, Short-Term Treasury
returned 2.37%, while the average short U.S. Treasury fund returned 1.80% (see
the previous page for additional performance comparisons).
WHAT ABOUT THE PORTFOLIO'S YIELD? HOW DOES IT COMPARE?
We manage Short-Term Treasury to try to give shareholders higher yields
than a money market fund but without the price volatility of a longer-term bond
fund. Not only are we delivering on that goal, but we're also providing more
income than the average short Treasury fund. On September 30, our fund had a
30-day SEC yield of 5.27%, while the Lipper group had an average yield of 5.01%.
And shareholders should keep in mind that the majority of the portfolio's income
is free from state and local taxes, so your after-tax income may be even higher.
SHORT-TERM TREASURY'S YIELD INCREASED SIGNIFICANTLY IN THE PAST SIX MONTHS. WHY
Yields on short-term securities rose primarily because the Federal Reserve
raised interest rates twice in the last six months (see page 3 for more details)
. Yields on two- to five-year Treasurys tend to be very responsive to rate
changes. From March to September, the yield on two-year Treasurys rose about 60
basis points (a basis point equals 0.01%, so 60 basis points equal 0.60%).
Because the fund operates within that maturity spectrum, higher yields at the
short end of the Treasury yield curve pushed the fund's yield from 4.66% on
March 31 to 5.27% on September 30.
WHY DID SHORT-TERM TREASURY OUTPERFORM THE LIPPER GROUP AVERAGE?
The key to understanding the fund's performance relative to the Lipper
group is duration. Duration measures a bond portfolio's sensitivity to changes
in interest rates. The longer a fund's duration, the more its share price gains
when rates fall, and the more its price declines when rates rise. Conversely, a
shorter duration means a bond portfolio's price fluctuates less when rates
change. So, ideally, you want to lengthen duration when interest rates are
falling and shorten duration when rates are rising.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"WE SHORTENED DURATION FROM 2.1 YEARS IN MARCH TO 1.7 YEARS AT THE END OF
SEPTEMBER TO HELP REDUCE THE PORTFOLIO'S EXPOSURE TO RISING RATES."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 5 8
WEIGHTED AVERAGE
MATURITY 1.9 YRS 2.2 YRS
AVERAGE DURATION 1.7 YRS 2.1 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.51%
* Annualized.
YIELD AS OF SEPTEMBER 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.27% 5.02%
Investment terms are defined in the Glossary on pages 30-31.
www.americancentury.com 5
Short-Term Treasury--Q&A
- --------------------------------------------------------------------------------
(Continued)
Because we try to deliver a pure play on the short end of the government
bond market, Short-Term Treasury typically has a shorter duration than the
Lipper group average. That means the portfolio often outperforms when rates rise
and underperforms when rates decline.
HOW DID YOU MANAGE DURATION OVER THE LAST SIX MONTHS?
We shortened duration from 2.1 years in March to 1.7 years at the end of
September to help reduce the portfolio's exposure to rising rates. That shorter
duration helped the fund hold up relatively well, despite the big increase in
short-term interest rates in recent months.
WHAT OTHER CHANGES DID YOU MAKE TO THE PORTFOLIO?
We made some modest adjustments to the portfolio's composition, adding
short-term cash-equivalent investments (about 5% of assets). We think holding a
modest cash position gave us two advantages. First, it helped us shorten
duration. Second, cash helps improve the fund's liquidity, which should allow us
to take advantage of buying opportunities at year's end and meet any redemptions
without selling higher-yielding portfolio securities.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We're somewhat cautious because we think rates could still move a little
higher. The Federal Reserve's been pretty clear about its intention to take back
the three interest rate cuts it made last year. We've seen two rate hikes so far
this year and expect we'll get a third before year's end.
Also consider that economic growth remains surprisingly strong--the economy
grew at a 4.8% annual rate in the third quarter. And wages had their largest
monthly gain in 16 years during September. That's important because the Fed
cited wage inflation as one of its primary concerns. So even though big gains in
worker productivity have kept inflation in check so far, we think the Fed will
do the prudent thing and take out a little more insurance against inflation.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
Because we think rates are likely to rise modestly, we'll continue to
position the fund conservatively. That means we'll probably keep duration
shorter than two years to help limit the fund's exposure to rate changes. In
terms of portfolio composition, we'll look for an opportunity to invest our cash
position in attractively valued Treasury or government agency securities.
[left margin]
"WE MADE SOME MODEST ADJUSTMENTS TO THE PORTFOLIO'S COMPOSITION, ADDING
SHORT-TERM CASH-EQUIVALENT INVESTMENTS."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Treasury Notes 75%
Agency Notes 19%
Repos 5%
Agency Discount Notes 1%
AS OF MARCH 31, 1999
Treasury Notes 78%
Agency Notes 16%
Agency Discount Notes 5%
STRIPS 1%
Investment terms are defined in the Glossary on pages 30-31.
6 1-800-345-2021
Short-Term Treasury--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 74.9%
$50,000,000 U.S. Treasury Notes, 7.50%,
11/15/01 $51,800,770
-----------
(Cost $52,447,229)
U.S. GOVERNMENT AGENCY SECURITIES -- 18.7%
1,000,000 FFCB MTN, 6.125%, 10/22/99 1,000,384
3,000,000 FFCB MTN, 8.90%, 6/6/00 3,064,184
9,100,000 FHLB, 4.875%, 1/22/02 8,858,730
-----------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 12,923,298
-----------
(Cost $12,937,628)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 1.3%
$ 916,000 FHLB Discount Notes, 5.17%,
10/1/99(1) $ 916,000
-----------
(Cost $916,000)
TEMPORARY CASH INVESTMENTS -- 5.1%
Repurchase Agreement, Goldman Sachs &
Co., Inc., (U.S. Treasury obligations), in a
joint trading account at 5.10%, dated
9/30/99, due 10/1/99 (Delivery value
$3,533,501) 3,533,000
-----------
(Cost $3,533,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $69,173,068
===========
(Cost $69,833,857)
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
MTN = Medium Term Note
(1) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 7
<TABLE>
Intermediate-Term Treasury--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 5/16/80) ADVISOR CLASS (INCEPTION 10/9/97)
SALOMON SALOMON
INTERMEDIATE-TERM 3- TO 10-YEAR INTERMEDIATE U.S. TREASURY FUNDS(2) INTERMEDIATE-TERM 3- TO 10-YEAR
TREASURY TREASURY INDEX AVERAGE RETURN FUND'S RANKING TREASURY TREASURY INDEX
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) -0.16% -0.01% -0.36% -- -0.29% -0.01%
1 YEAR -1.92% -1.53% -1.92% 5 OUT OF 14 -2.17% -1.53%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 6.12% 6.79% 5.89% 5 OUT OF 12 -- --
5 YEARS 6.55% 7.21% 6.65% 4 OUT OF 8 -- --
10 YEARS 7.09% 7.60% 7.07% 3 OUT OF 4 -- --
LIFE OF FUND 8.42% 9.41%(3) 8.42% 1 OUT OF 1 4.77% 5.19%(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 5/31/80, the date nearest the class's inception for which data are
available.
(4) Since 10/31/97, the date nearest the class's inception for which data are
available.
See pages 28-30 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 9/30/99
Salomon 3- to 10-Year
Treasury Index $20,797
Intermediate-Term Treasury $19,833
Intermediate-Term Salomon 3- to 10-Year
Treasury Treasury Index
DATE VALUE VALUE
9/30/1989 $10,000 $10,000
9/30/1990 $10,811 $10,840
9/30/1991 $12,213 $12,302
9/30/1992 $13,737 $13,841
9/30/1993 $14,735 $14,909
9/30/1994 $14,446 $14,682
9/30/1995 $15,836 $16,251
9/30/1996 $16,599 $17,077
9/30/1997 $17,963 $18,581
9/30/1998 $20,223 $21,119
9/30/1999 $19,833 $20,797
$10,000 investment made 9/30/89
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
Salomon 3- to 10-Year Treasury Index is provided for comparison in each graph.
Intermediate-Term Treasury'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. The graphs are based on Investor Class shares only;
performance for other classes will vary due to differences in fee structures
(see the Total Returns table above). 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 SEPTEMBER 30)
Intermediate-Term Salomon 3- to 10-Year
Treasury Treasury Index
DATE RETURN RETURN
9/30/1990 8.11% 8.40%
9/30/1991 12.97% 13.49%
9/30/1992 12.48% 12.51%
9/30/1993 7.26% 7.72%
9/30/1994 -1.96% -1.53%
9/30/1995 9.62% 10.69%
9/30/1996 4.82% 5.08%
9/30/1997 8.22% 8.80%
9/30/1998 12.58% 13.66%
9/30/1999 -1.92% -1.53%
8 1-800-345-2021
Intermediate-Term Treasury--Q&A
- --------------------------------------------------------------------------------
[photo of Bob Gahagan]
An interview with Bob Gahagan, a portfolio manager on the Intermediate-Term
Treasury fund investment team.
HOW DID INTERMEDIATE-TERM TREASURY PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER
30, 1999?
During what was one of the worst periods for U.S. bonds since 1994, the
fund returned -0.16%, beating the -0.36% average return of the 15 "Intermediate
U.S. Treasury Funds" tracked by Lipper Inc.* (See the previous page for
additional performance comparisons.)
WHY DID INTERMEDIATE-TERM TREASURY PERFORM BETTER THAN THE AVERAGE OF ITS
COMPETITORS?
There were several factors that helped the fund's performance, including
security selection, sector shifts, the positioning of the maturities of the
fund's investments, and its interest rate sensitivity. Looking first at security
selection, the portfolio benefited from its investments in older Treasurys,
known as "off-the-run" securities. Because they are older than more recently
issued "on-the-run" Treasurys, off-the-runs are a bit less attractive to
investors looking for maximum liquidity. As a result, they typically have
slightly higher yields and more attractive prices than newer issues. These
higher yields helped the fund's performance.
Intermediate-Term Treasury also benefited from the strong relative
performance of Treasury inflation-indexed securities (TIIS). TIIS are bonds with
built-in inflation protection--they offer a guaranteed rate of return above the
consumer price index (CPI). The principal values of inflation-indexed bonds are
adjusted regularly for changes in the CPI. TIIS became attractive to us because
of their defensive nature, and they paid off when they held their value better
than "plain vanilla" Treasurys as interest rates rose. We increased our TIIS
holdings to 6.4% of the portfolio by the end of the period.
HOW DID SECTOR WEIGHTING SHIFTS HELP THE FUND?
In February and March 1999, the fund benefited when we sold most of its
agency securities when agencies rallied. As the year progressed, yield
spreads--the difference between Treasury and agency yields--widened again,
beyond even where they had been in 1998 when Treasury demand peaked during the
panic over a possible global economic meltdown. Heavy issuance of agency debt
during the summer helped cause agency yields to soar well above Treasury yields.
In August, when yield spreads peaked--and agency yields and prices appeared
very attractive compared with Treasurys--we re-established our agency position.
That move helped performance because spreads have tightened since August,
indicating that agencies have outperformed Treasurys.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"OUR GENERALLY BEARISH OUTLOOK LED US TO KEEP THE PORTFOLIO'S DURATION SHORTER
THAN THAT OF THE FUND'S PEERS FOR MOST OF THE PERIOD."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 18 18
WEIGHTED AVERAGE
MATURITY 6.5 YRS 5.5 YRS
AVERAGE DURATION 4.3 YRS 4.1 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.51%
* Annualized.
YIELD AS OF SEPTEMBER 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.67% 5.42%
Investment terms are defined in the Glossary on pages 30-31.
www.americancentury.com 9
Intermediate-Term Treasury--Q&A
- --------------------------------------------------------------------------------
(Continued)
YOU MENTIONED THAT THE FUND'S MATURITY STRUCTURE AND INTEREST RATE SENSITIVITY
ALSO PROVED ADVANTAGEOUS. WHY?
Picture a Treasury yield curve such as those shown in the lower right-hand
corner of page 3. A yield curve is simply a line drawn through the yields of
different maturity Treasury securities on a certain date. As the graph on page 3
shows, the Treasury yield curve rose and flattened during the period--the
difference between short- and long-term yields shrank. We anticipated this move
and "barbelled" the portfolio. In other words, we concentrated our bond holdings
on the short and long ends of the yield curve. That structure performs well when
the yield curve flattens--you basically avoid the worst-performing section of
the curve.
When talking about interest rate sensitivity, we look at duration--a
measure of how price-sensitive the portfolio is to changes in interest rates. A
longer duration indicates more sensitivity, and a shorter duration indicates
less. Our generally bearish outlook -- the Federal Reserve appeared poised to
hike short-term interest rates, which it did at the end of June and again in
August--led us to keep the portfolio's duration shorter than that of the fund's
peers for most of the period. This conservative duration positioning helped
minimize price depreciation as interest rates rose.
WHAT'S YOUR OUTLOOK FOR THE U.S. BOND MARKET?
We remain somewhat bearish in the immediate future, less so as we approach
year end. This outlook is based on several factors. First, the U.S. economy grew
at a 4.8% annualized rate in the third quarter, well above what is considered to
be an inflationary level. As a result, we expect the Fed to raise short-term
interest rates at least once more to take back the last of the three rate cuts
it used to bolster the market in late 1998. In addition, foreign economies are
still growing, commodity prices have been rising, and we continue to see low
unemployment figures, which could lead to wage inflation, greater corporate
expenses, and higher prices for goods and services.
However, we think there are also reasons to be somewhat bullish on bonds,
particularly Treasury securities, as we approach January 2000. We believe
anxiety over Y2K should be beneficial to Treasurys because they'll benefit from
any flight to quality or attempts to boost liquidity. And given the absence of
inflation and the degree to which interest rates have risen in 1999, we believe
that interest rates are more likely to stabilize or decline in 2000 than go up
for a second straight year.
GIVEN THAT OUTLOOK, WHAT'S YOUR STRATEGY FOR THE FUND?
If the yields on five-year, 10-year, and 30-year Treasurys reach 6.25%,
6.30%, and 6.50%, respectively, we would seek to increase the fund's duration in
anticipation of an eventual decline in interest rates. However, we will remain
bearish and somewhat defensive in the immediate future until the Fed raises
interest rates again.
In addition, we do not expect to raise cash in anticipation of Y2K because
we believe Y2K concerns could increase the demand for the relative safety and
security of Treasurys. Looking more specifically at the fund's holdings, we
continue to find TIIS to be an attractive defensive hedge for the portfolio.
[left margin]
"INTERMEDIATE-TERM TREASURY ALSO BENEFITED FROM THE STRONG RELATIVE PERFORMANCE
OF TREASURY INFLATION-INDEXED SECURITIES."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Treasury Notes 60%
Treasury Bonds 27%
Treasury Inflation-
Indexed Notes 6%
Agency Bonds 5%
Repos 2%
AS OF MARCH 31, 1999
Treasury Notes 84%
Treasury Bonds 10%
Repos 6%
Investment terms are defined in the Glossary on pages 30-31.
10 1-800-345-2021
Intermediate-Term Treasury--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 93.0%
$14,500,000 U.S. Treasury Notes, 6.25%,
8/31/02 $ 14,698,888
29,000,000 U.S. Treasury Notes, 5.50%,
2/28/03 28,749,994
9,100,000 U.S. Treasury Notes, 5.50%,
3/31/03 9,017,504
19,500,000 U.S. Treasury Notes, 5.75%,
4/30/03 19,473,997
6,600,000 U.S. Treasury Notes, 7.875%,
11/15/04 7,156,270
34,900,000 U.S. Treasury Notes, 7.50%,
2/15/05 37,319,907
16,500,000 U.S. Treasury Notes, 6.50%,
5/15/05 16,911,043
29,800,000 U.S. Treasury Notes, 6.50%,
8/15/05 30,525,657
32,300,000 U.S. Treasury Notes, 7.00%,
7/15/06 33,928,614
26,800,000 U.S. Treasury Notes, 6.50%,
10/15/06 27,420,495
20,000,000 U.S. Treasury Bonds, 11.625%,
11/15/02 23,255,998
15,700,000 U.S. Treasury Bonds, 11.625%,
11/15/04 19,535,166
26,800,000 U.S. Treasury Bonds, 9.125%,
5/15/09 29,973,924
Principal Amount Value
- --------------------------------------------------------------------------------
$10,000,000 U.S. Treasury Bonds, 13.25%,
5/15/14 $ 14,947,065
10,800,000 U.S. Treasury Bonds, 8.75%,
8/15/20 13,611,501
24,392,640 U.S. Treasury Inflation Indexed
Notes, 3.875%, 1/15/09 24,019,128
------------
TOTAL U.S. TREASURY SECURITIES 350,545,151
------------
(Cost $361,778,194)
U.S. GOVERNMENT AGENCY SECURITIES -- 5.2%
10,000,000 FHLB, 6.00%, 8/15/02 9,942,068
10,000,000 FHLB, 5.125%, 9/15/03 9,593,887
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 19,535,955
------------
(Cost $19,576,075)
TEMPORARY CASH INVESTMENTS -- 1.8%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.25%, dated 9/30/99,
due 10/1/99 (Delivery value $6,906,007) 6,905,000
------------
(Cost $6,905,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $376,986,106
============
(Cost $388,259,269)
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
See Notes to Financial Statements www.americancentury.com 11
<TABLE>
Long-Term Treasury--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 9/8/92) ADVISOR CLASS (INCEPTION 1/12/98)
LONG-TERM SALOMON LONG-TERM GENERAL U.S. TREASURY FUNDS(2) LONG-TERM SALOMON LONG-TERM
TREASURY TREAS./AGENCY INDEX AVERAGE RETURN FUND'S RANKING TREASURY TREAS./AGENCY INDEX
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) -2.57% -2.76% -1.23% -- -2.70% -2.76%
1 YEAR -7.38% -7.73% -5.08% 13 OUT OF 20 -7.61% -7.73%
==================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 8.16% 8.40% 6.46% 1 OUT OF 18 -- --
5 YEARS 9.38% 9.94% 7.87% 3 OUT OF 14 -- --
LIFE OF FUND 7.29% 8.14%(3) 6.70%(3) 2 OUT OF 10(3) 1.06% 2.11%(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 9/30/92, the date nearest the class's inception for which data are
available.
(4) Since 1/31/98, the date nearest the class's inception for which data are
available.
See pages 28-30 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/99
Salomon Long-Term
Treasury/Agency Index $17,297
Long-Term Treasury $16,621
Long-Term Salomon Long-Term
Treasury Treasury/Agency Index
DATE VALUE VALUE
9/30/1992 $10,000 $10,000
12/31/1992 $10,109 $10,106
3/31/1993 $10,766 $10,772
6/30/1993 $11,319 $11,364
9/30/1993 $12,114 $12,071
12/31/1993 $11,892 $11,874
3/31/1994 $11,074 $11,145
6/30/1994 $10,691 $10,848
9/30/1994 $10,617 $10,766
12/31/1994 $10,792 $10,959
3/31/1995 $11,435 $11,662
6/30/1995 $12,633 $12,948
9/30/1995 $12,908 $13,244
12/31/1995 $13,950 $14,350
3/31/1996 $12,974 $13,389
6/30/1996 $12,951 $13,369
9/30/1996 $13,138 $13,576
12/31/1996 $13,759 $14,228
3/31/1997 $13,316 $13,787
6/30/1997 $14,037 $14,546
9/30/1997 $14,855 $15,384
12/31/1997 $15,790 $16,375
3/31/1998 $16,044 $16,634
6/30/1998 $16,735 $17,413
9/30/1998 $17,945 $18,749
12/31/1998 $17,803 $18,568
3/31/1999 $17,059 $17,788
6/30/1999 $16,653 $17,311
9/30/1999 $16,621 $17,297
$10,000 investment made 9/30/92(3)
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
Salomon Long-Term Treasury/Agency Index is provided for comparison in each
graph. Long-Term Treasury'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. The graphs are based on Investor Class shares only;
performance for other classes will vary due to differences in fee structures
(see the Total Returns table above). 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 SEPTEMBER 30)
Long-Term Salomon Long-Term
Treasury Treasury/Agency Index
DATE RETURN RETURN
9/30/1993 21.14% 20.71%
9/30/1994 -12.35% -10.81%
9/30/1995 21.57% 23.01%
9/30/1996 1.78% 2.40%
9/30/1997 13.08% 13.33%
9/30/1998 20.80% 21.87%
9/30/1999 -7.38% -7.73%
12 1-800-345-2021
Long-Term Treasury--Q&A
- --------------------------------------------------------------------------------
[photo of Dave Schroeder]
An interview with Dave Schroeder, a portfolio manager on the Long-Term
Treasury fund investment team.
HOW DID LONG-TERM TREASURY PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30,
1999?
It was a difficult period for the U.S. bond market, and the fund's
performance reflected that environment. Long-Term Treasury posted a -2.57%
return. That trailed the -1.23% average return of 20 "General U.S. Treasury
Funds" tracked by Lipper Inc.* However, the fund outperformed the Salomon
Brothers Long-Term Treasury/Agency Index, which returned -2.76%.
Despite this recent disappointing performance, the fund's longer-term
results remained solid. For the three- and five-year periods ended September 30,
1999, the fund ranked in the top quartile of its peer group.
WHY DID THE FUND LAG ITS LIPPER CATEGORY?
The fund is more interest rate sensitive--its duration is longer--than its
peer group. All else being equal, the value of a portfolio with a duration of 10
years--such as this fund--would fall approximately 10% when interest rates rise
1%. Contrast that with the value of portfolios with durations closer to 8 years,
such as the peer group average. Those portfolios would fall about 8% under the
same conditions. The shorter the duration, the less the share price of a bond
fund will rise or fall when rates change. Because interest rates rose
substantially, having a relatively long duration compared with our peers
detracted from performance.
We manage the fund to deliver a pure play on the long end of the government
bond market, keeping duration within 10% of the benchmark index. Consequently,
our duration will almost always exceed the average duration of our Lipper peer
group, which includes a mix of short-, intermediate-, and long-term funds.
HOW DID YOU OUTPERFORM THE SALOMON BROTHERS INDEX?
The primary reason was our use of Treasury inflation-indexed securities
(TIIS).
WHAT ARE TIIS AND HOW DID THEY HELP THE FUND'S PERFORMANCE?
TIIS are bonds with built-in inflation protection. They offer a guaranteed
rate of return above inflation as measured by the consumer price index (CPI).
TIIS generally outperform traditional Treasurys when interest rates rise because
their yields are about 75% less volatile than similar-maturity Treasurys.
We chose TIIS based on our defensive view that interest rates had hit a
cyclical low at the end of 1998 and would rise in 1999. We also anticipated that
the bond market would react negatively if monthly CPI reports showed even a
whiff of inflationary pressures.
Our strategy involved selling 30-year Treasury bonds and replacing them
with less-volatile 30-year TIIS. When the April CPI report fanned inflation
fears and sent bond yields shooting higher, our TIIS dramatically outperformed
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"IT WAS A DIFFICULT PERIOD FOR THE U.S. BOND MARKET, AND THE FUND'S PERFORMANCE
REFLECTED THAT ENVIRONMENT."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 10 9
WEIGHTED AVERAGE
MATURITY 19.3 YRS 20.5 YRS
AVERAGE DURATION 10.5 YRS 10.8 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.51%
* Annualized.
YIELD AS OF SEPTEMBER 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.01% 5.76%
Investment terms are defined in the Glossary on pages 30-31.
www.americancentury.com 13
Long-Term Treasury--Q&A
- --------------------------------------------------------------------------------
(Continued)
the bonds we sold. Later, we reversed the trade to lock in our TIIS returns. We
sold the TIIS after the Fed raised interest rates in June.
We generally limit this type of opportunistic trade to about 5-10% of the
portfolio's assets and do only four to six such trades a year. That way, we
avoid high portfolio turnover and its tax consequences.
WHAT ROLE DO STRIPS--TREASURY ZERO-COUPON BONDS--PLAY IN YOUR INVESTMENT
STRATEGY?
STRIPS (see the definition of zero- coupon bonds in the Glossary on page
31) let us anticipate the bond market's direction without lengthening the fund's
duration and exposing it to undue interest rate risk. With bond yields at or
nearing their 12-month highs, we believe their next significant move will be
downward in the next six months.
If yields do move lower or remain stable, we think STRIPS will outperform
similar-maturity coupon-bearing Treasury securities. STRIPS also position the
fund to take advantage of potential yield curve steepening, in which
intermediate-term bond yields fall faster than long-term bond yields.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND INFLATION?
Over the very near term, interest rates and bond yields are likely to move
higher if the Fed finishes reversing the three rate cuts it gave the market in
1998. However, we believe that inflation fears should eventually subside and
rates may start to move lower in 2000.
In his July testimony to Congress, Fed Chairman Alan Greenspan indicated
that the Fed believes that the U.S. economy can grow at a 3.5-3.75% annualized
rate without triggering higher inflation. Although U.S. growth currently exceeds
that target, we think the Fed will stay tolerant as long as inflation remains in
check. While gross CPI has exceeded Fed targets, core CPI--which excludes the
volatile energy and food sectors--continues on target at an annual rate of about
2%.
WHAT OTHER FACTORS MIGHT SHAPE THE BOND MARKET'S PERFORMANCE?
Supply and demand are also likely to affect the Treasury market's
performance. Y2K-related concerns may increase demand for Treasurys, which tend
to be viewed as safe-haven instruments during uncertain times. Meanwhile, a
proposed buyback of Treasurys--expected to take place in 2000--will likely
ultimately limit the supply of Treasurys and potentially stir demand for older,
higher-yielding securities.
GIVEN THAT OUTLOOK, WHAT'S YOUR CURRENT STRATEGY?
We'll continue to use STRIPS to position the portfolio to benefit in the
event of a steepening yield curve and falling bond yields. In addition, we'll
continue to emphasize older, "off-the-run" Treasury securities, which are poised
to do well under the proposed Treasury buyback program. Also, since we expect
that any Y2K-related problems will help, not hurt, the Treasury market, we're
likely to remain fully invested rather than sitting out on the sidelines with
cash.
[left margin]
"IF YIELDS MOVE LOWER OR REMAIN STABLE, WE THINK STRIPS WILL OUTPERFORM SIMILAR
MATURITY TREASURY SECURITIES."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Treasury Bonds 91%
STRIPS 9%
AS OF MARCH 31, 1999
Treasury Bonds 100%
Investment terms are defined in the Glossary on pages 30-31.
14 1-800-345-2021
Long-Term Treasury--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 99.7%
$18,700,000 U.S. Treasury STRIPS, 6.39%,
5/15/10(1) $ 9,547,319
1,000,000 U.S. Treasury Bonds, 13.25%,
5/15/14 1,494,706
10,300,000 U.S. Treasury Bonds, 11.25%,
2/15/15 15,113,875
13,300,000 U.S. Treasury Bonds, 7.25%,
5/15/16 14,388,130
10,000,000 U.S. Treasury Bonds, 8.875%,
2/15/19 12,646,164
10,000,000 U.S. Treasury Bonds, 8.125%,
8/15/19 11,847,604
12,700,000 U.S. Treasury Bonds, 8.50%,
2/15/20 15,610,690
6,500,000 U.S. Treasury Bonds, 8.75%,
8/15/20 8,192,107
Principal Amount Value
- --------------------------------------------------------------------------------
$17,000,000 U.S. Treasury Bonds, 6.875%,
8/15/25 $ 18,057,474
4,000,000 U.S. Treasury Bonds, 6.125%,
11/15/27 3,887,447
------------
TOTAL U.S. TREASURY SECURITIES 110,785,516
------------
(Cost $111,665,791)
TEMPORARY CASH INVESTMENTS -- 0.3%
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.10%, dated 9/30/99,
due 10/1/99 (Delivery value $358,051) 358,000
------------
(Cost $358,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $111,143,516
============
(Cost $112,023,791)
NOTES TO SCHEDULE OF INVESTMENTS
STRIPS = Separate Trading of Registered Interest and Principal of Securities
(1) Zero-coupon bond. The yield to maturity at purchase is indicated.
Zero-coupon bonds are purchased at a substantial discount from their value
at maturity.
See Notes to Financial Statements www.americancentury.com 15
<TABLE>
<CAPTION>
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. For each class of shares, 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).
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
SEPTEMBER 30, 1999 (UNAUDITED) TREASURY TREASURY TREASURY
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $69,833,857,
$388,259,269, and $112,023,791,
respectively) (Note 3) ............$ 69,173,068 $ 376,986,106 $ 111,143,516
Cash ................................ 63,811 -- --
Investment in affiliated money
market fund (Note 2) .............. 91,193 2,892 498
Interest receivables ................ 1,582,688 6,611,656 1,231,745
------------- ------------- -------------
70,910,760 383,600,654 112,375,759
------------- ------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ............ -- 3,373,981 513,115
Accrued management fees (Note 2) .... 28,573 156,818 45,258
Distribution fees payable (Note 2) .. 710 2,187 999
Service fees payable (Note 2) ....... 710 2,187 999
Dividends payable ................... 54,860 319,024 105,095
Payable for trustees' fees
and expenses ...................... 149 810 236
Accrued liabilities and
other expenses .................... 1,385 2,611 2,493
------------- ------------- -------------
86,387 3,857,618 668,195
------------- ------------- -------------
Net Assets ..........................$ 70,824,373 $ 379,743,036 $ 111,707,564
============= ============= =============
NET ASSETS CONSIST OF:
Capital paid in .....................$ 71,415,150 $ 395,418,623 $ 117,607,046
Accumulated undistributed
net realized gain (loss)
on investment transactions ........ 70,012 (4,402,424) (5,019,207)
Net unrealized depreciation
on investments (Note 3) ........... (660,789) (11,273,163) (880,275)
------------- ------------- -------------
$ 70,824,373 $ 379,743,036 $ 111,707,564
============= ============= =============
Investor Class
Net assets ..........................$ 67,296,904 $ 369,034,531 $ 106,655,097
Shares outstanding .................. 6,910,544 36,261,682 11,138,779
Net asset value per share ...........$ 9.74 $ 10.18 $ 9.58
Advisor Class
Net assets ..........................$ 3,527,469 $ 10,708,505 $ 5,052,467
Shares outstanding .................. 362,231 1,052,219 527,661
Net asset value per share ...........$ 9.74 $ 10.18 $ 9.58
</TABLE>
16 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
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.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
TREASURY TREASURY TREASURY
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest .................................$ 1,741,302 $ 11,011,397 $ 3,771,050
------------ ------------ ------------
Expenses (Note 2):
Management fees .......................... 166,123 1,018,287 300,921
Distribution fees -- Advisor Class ....... 3,951 11,638 4,813
Service fees -- Advisor Class ............ 3,951 11,638 4,813
Trustees' fees and expenses .............. 1,007 6,734 1,853
------------ ------------ ------------
175,032 1,048,297 312,400
------------ ------------ ------------
Net investment income .................... 1,566,270 9,963,100 3,458,650
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on investments .. 49,039 (6,168,826) (4,195,243)
Change in net unrealized
appreciation (depreciation)
on investments ......................... (763,570) (5,055,767) (2,730,551)
------------ ------------ ------------
Net realized and unrealized
loss on investments .................... (714,531) (11,224,593) (6,925,794)
------------ ------------ ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations .......$ 851,739 $ (1,261,493) $ (3,467,144)
============ ============ ============
</TABLE>
See Notes to Financial Statements www.americancentury.com 17
<TABLE>
<CAPTION>
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.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
SHORT-TERM TREASURY INTERMEDIATE-TERM TREASURY LONG-TERM TREASURY
Increase (Decrease) SEPT. 30, MARCH 31, SEPT. 30, MARCH 31, SEPT. 30, MARCH 31,
in Net Assets 1999 1999 1999 1999 1999 1999
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ....... $ 1,566,270 $ 2,579,012 $ 9,963,100 $ 20,995,387 $ 3,458,650 $ 7,222,769
Net realized gain (loss)
on investments ............ 49,039 211,046 (6,168,826) 9,269,222 (4,195,243) 5,981,743
Change in net unrealized
appreciation (depreciation)
on investments ............ (763,570) (65,450) (5,055,767) (7,602,642) (2,730,551) (7,972,679)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting
from operations ........... 851,739 2,724,608 (1,261,493) 22,661,967 (3,467,144) 5,231,833
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income:
Investor Class ............ (1,496,657) (2,463,442) (9,745,837) (20,921,594) (3,352,872) (7,164,769)
Advisor Class ............. (69,613) (115,570) (217,263) (73,793) (105,778) (58,000)
From net realized gains
on investment transactions:
Investor Class ............ -- -- -- (8,543,680) -- (7,472,735)
Advisor Class ............. -- -- -- (37,293) -- (48,402)
In excess of net realized
gains on investment
transactions:
Investor Class ............ -- -- -- -- -- (788,886)
Advisor Class ............. -- -- -- -- -- (35,078)
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets
from distributions ........ (1,566,270) (2,579,012) (9,963,100) (29,576,360) (3,458,650) (15,567,870)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net increase (decrease) in
net assets from capital
share transactions ........ 6,653,873 22,404,706 (50,644,025) 73,537,251 (21,505,971) 46,876,040
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ............ 5,939,342 22,550,302 (61,868,618) 66,622,858 (28,431,765) 36,540,003
NET ASSETS
Beginning of period ......... 64,885,031 42,334,729 441,611,654 374,988,796 140,139,329 103,599,326
------------- ------------- ------------- ------------- ------------- -------------
End of period ............... $ 70,824,373 $ 64,885,031 $ 379,743,036 $ 441,611,654 $ 111,707,564 $ 140,139,329
============= ============= ============= ============= ============= =============
</TABLE>
18 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 as an open-end management
investment company. The funds are diversified under the 1940 Act. Short-Term
Treasury Fund (Short-Term), Intermediate-Term Treasury Fund (Intermediate-Term),
and Long-Term Treasury Fund (Long-Term) (the funds) are three of the eight funds
issued by the trust. The funds seek to earn and distribute the highest level of
current income exempt from state income taxes as is consistent with the
conservation of assets. The funds intend to pursue this investment objective by
investing in securities issued or guaranteed by the U.S. government.
The funds are authorized to issue two classes of shares: the Investor Class
and the Advisor Class. The two classes of shares differ principally in their
respective shareholder servicing and distribution expenses and arrangements. All
shares of the funds represent an equal pro rata interest in the assets of the
class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. 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.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that the funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Trustees. Each repurchase agreement is recorded at cost.
The funds require that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the funds to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
funds under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the funds, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
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 capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
For the five month period ended March 31, 1999, Long-Term incurred net
capital losses of $623,702. The fund has elected to treat such losses as having
been incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
www.americancentury.com 19
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with ACIM, under which
ACIM provides the funds with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the funds, except brokerage, taxes, portfolio insurance,
interest, fees and expenses of the trustees who are not considered "interested
persons" as defined in the Investment Company Act of 1940 (including counsel
fees) and extraordinary expenses. The 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 (Investor Class) range from 0.2900% to 0.3100%. The Advisor Class is
0.2500% less at each point within the Complex Fee range. For the six months
ended September 30, 1999, the effective annual Investor Class management fee was
0.51% for Short-Term, Intermediate-Term, and Long-Term.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plan provides that the funds will pay ACIM an annual
distribution fee equal to 0.25% and service fee equal to 0.25%. The fees are
computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the funds. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred
under the plan for the six months ended September, 1999, were $7,902, $23,276,
and $9,626 for Short-Term, Intermediate-Term, and Long-Term, respectively.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, and the
trust's transfer agent, American Century Services Corporation.
As of September 30, 1999, Short-Term, Intermediate-Term and Long-Term
invested $91,193, $2,892 and $498, respectively, in shares of Capital
Preservation Fund, which is a series of American Century Government Income
Trust. The terms of the transaction were identical to those with nonrelated
entities except that, to avoid duplicate management fees, the funds did not pay
ACIM management fees with respect to assets invested in Capital Preservation
Fund.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended September 30, 1999, were as follows:
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
PURCHASES
U.S. Treasury & Agency
Obligations $21,553,682 $315,565,356 $113,148,176
PROCEEDS FROM SALES
U.S. Treasury & Agency
Obligations $17,347,613 $342,682,031 $134,304,975
On September 30, 1999, the composition of unrealized appreciation and
depreciaton of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
Appreciation $9,513 $54,149 $2,586,288
Depreciation (670,302) (11,327,312) (3,667,990)
---------------- ---------------- ---------------
Net $(660,789) $(11,273,163) $(1,081,702)
================ ================ ===============
Federal Tax Cost $69,833,857 $388,259,269 $112,225,218
================ ================ ===============
20 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (unlimited number of
shares authorized):
<TABLE>
<CAPTION>
SHORT-TERM TREASURY INTERMEDIATE-TERM TREASURY LONG-TERM TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
Six months ended
September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Sold ..................... 1,809,703 $ 17,692,880 12,388,593 $ 126,644,945 3,735,486 $ 36,882,503
Issued in reinvestment
of distributions ....... 125,167 1,221,228 828,173 8,477,898 307,044 3,000,461
Redeemed ................. (1,299,642) (12,718,076) (18,632,613) (190,577,832) (6,499,827) (64,049,894)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) .. 635,228 $ 6,196,032 (5,415,847) $ (55,454,989) (2,457,297) $ (24,166,930)
============= ============= ============= ============= ============= =============
Year ended
March 31, 1999
Sold ..................... 4,412,757 $ 43,591,614 29,173,347 $ 313,245,076 18,059,945 $ 197,964,116
Issued in reinvestment
of distributions ....... 193,505 1,909,855 2,435,272 26,094,427 1,331,429 14,361,980
Redeemed ................. (2,502,210) (24,728,630) (25,416,559) (271,906,811) (15,570,167) (167,958,607)
------------- ------------- ------------- ------------- ------------- -------------
Net increase ............. 2,104,052 $ 20,772,839 6,192,060 $ 67,432,692 3,821,207 $ 44,367,489
============= ============= ============= ============= ============= =============
ADVISOR CLASS
Six months ended
September 30, 1999
Sold ..................... 310,681 $ 3,024,408 612,133 $ 6,300,068 355,411 $ 3,471,120
Issued in reinvestment
of distributions ....... 6,588 64,285 18,510 189,098 8,260 80,393
Redeemed ................. (270,100) (2,630,852) (163,877) (1,678,202) (91,758) (890,554)
------------- ------------- ------------- ------------- ------------- -------------
Net increase ............. 47,169 $ 457,841 466,766 $ 4,810,964 271,913 $ 2,660,959
============= ============= ============= ============= ============= =============
Year ended
March 31, 1999
Sold ..................... 242,695 $ 2,387,821 591,748 $ 6,304,918 288,248 $ 3,097,845
Issued in reinvestment
of distributions ....... 11,505 113,552 9,556 101,937 11,707 126,039
Redeemed ................. (88,171) (869,506) (27,956) (302,296) (64,830) (715,333)
------------- ------------- ------------- ------------- ------------- -------------
Net increase ............. 166,029 $ 1,631,867 573,348 $ 6,104,559 235,125 $ 2,508,551
============= ============= ============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
5. BANK LOANS
The funds, along with certain other funds managed by ACIM, entered into an
unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.40%. The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The funds did not borrow from the line during the six
months ended September 30, 1999.
www.americancentury.com 21
<TABLE>
<CAPTION>
Short-Term Treasury--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 share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
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 MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $ 9.85 $ 9.80 $ 9.68 $ 9.84 $ 9.73 $ 9.86
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............. 0.23 0.49 0.53 0.52 0.53 0.50
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ........... (0.11) 0.05 0.12 (0.07) 0.11 (0.13)
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations .. 0.12 0.54 0.65 0.45 0.64 0.37
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ........ (0.23) (0.49) (0.53) (0.52) (0.53) (0.50)
From Net Realized Gains on
Investment Transactions ........... -- -- -- (0.09) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ............... (0.23) (0.49) (0.53) (0.61) (0.53) (0.50)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ...... $ 9.74 $ 9.85 $ 9.80 $ 9.68 $ 9.84 $ 9.73
========== ========== ========== ========== ========== ==========
Total Return(2) ................... 1.21% 5.60% 6.89% 4.62% 6.71% 3.85%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.51%(3) 0.51% 0.55% 0.61% 0.67% 0.67%
Ratio of Net Investment Income
to Average Net Assets ............. 4.65%(3) 4.92% 5.45% 5.26% 5.39% 5.22%
Portfolio Turnover Rate ............. 27% 138% 140% 234% 224% 141%
Net Assets, End of Period
(in thousands) .................... $ 67,297 $ 61,783 $ 40,874 $ 35,854 $ 35,648 $ 56,090
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(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.
22 1-800-345-2021 See Notes to Financial Statements
Short-Term Treasury--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1999 1998(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period .. $ 9.85 $ 9.80 $ 9.80
--------- --------- ---------
Income From Investment Operations
Net Investment Income ............... 0.21 0.46 0.25
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ... (0.11) 0.05 --
--------- --------- ---------
Total From Investment Operations .... 0.10 0.51 0.25
--------- --------- ---------
Distributions
From Net Investment Income .......... (0.21) (0.46) (0.25)
--------- --------- ---------
Net Asset Value, End of Period ........ $ 9.74 $ 9.85 $ 9.80
========= ========= =========
Total Return(3) ..................... 1.09% 5.34% 2.51%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.76%(4) 0.76% 0.78%(4)
Ratio of Net Investment Income
to Average Net Assets ............... 4.40%(4) 4.67% 5.20%(4)
Portfolio Turnover Rate ............... 27% 138% 140%
Net Assets, End of Period
(in thousands) ...................... $ 3,527 $ 3,102 $ 1,460
(1) Six months ended September 30, 1999 (unaudited).
(2) October 6, 1997 (commencement of sale) through March 31, 1998.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 23
<TABLE>
<CAPTION>
Intermediate-Term Treasury--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 share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
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 MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ...............$ 10.45 $ 10.56 $ 10.06 $ 10.24 $ 9.99 $ 10.18
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............. 0.25 0.54 0.59 0.58 0.58 0.53
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ........... (0.27) 0.10 0.50 (0.18) 0.25 (0.19)
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations .. (0.02) 0.64 1.09 0.40 0.83 0.34
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........ (0.25) (0.54) (0.59) (0.58) (0.58) (0.53)
From Net Realized Gains on
Investment Transactions ........... -- (0.21) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ............... (0.25) (0.75) (0.59) (0.58) (0.58) (0.53)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......$ 10.18 $ 10.45 $ 10.56 $ 10.06 $ 10.24 $ 9.99
=========== =========== =========== =========== =========== ===========
Total Return(2) ................... (0.16)% 6.09% 11.04% 4.05% 8.42% 3.54%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.51%(3) 0.51% 0.51% 0.51% 0.53% 0.53%
Ratio of Net Investment Income
to Average Net Assets ............. 4.88%(3) 5.01% 5.63% 5.72% 5.65% 5.35%
Portfolio Turnover Rate ............. 81% 221% 194% 110% 168% 92%
Net Assets, End of Period
(in thousands) ....................$ 369,035 $ 435,494 $ 374,861 $ 328,784 $ 311,020 $ 305,353
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(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.
24 1-800-345-2021 See Notes to Financial Statements
Intermediate-Term Treasury--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1999 1998(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period..$ 10.45 $ 10.56 $ 10.42
---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............. 0.24 0.51 0.26
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.27) 0.10 0.14
---------- ---------- ----------
Total From Investment Operations ... (0.03) 0.61 0.40
---------- ---------- ----------
Distributions
From Net Investment Income ......... (0.24) (0.51) (0.26)
From Net Realized Gains on
Investment Transactions ............ -- (0.21) --
---------- ---------- ----------
Total Distributions ................ (0.24) (0.72) (0.26)
---------- ---------- ----------
Net Asset Value, End of Period .......$ 10.18 $ 10.45 $ 10.56
========== ========== ==========
Total Return(3) .................... (0.29)% 5.83% 3.90%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.76%(4) 0.76% 0.77%(4)
Ratio of Net Investment Income
to Average Net Assets .............. 4.63%(4) 4.76% 5.28%(4)
Portfolio Turnover Rate .............. 81% 221% 194%
Net Assets, End of Period
(in thousands) .....................$ 10,709 $ 6,117 $ 128
(1) Six months ended September 30, 1999 (unaudited).
(2) October 9, 1997 (commencement of sale) through March 31, 1998.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 25
<TABLE>
<CAPTION>
Long-Term Treasury--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 share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
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 MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ...............$ 10.12 $ 10.58 $ 9.32 $ 9.67 $ 9.05 $ 9.38
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............. 0.28 0.58 0.61 0.60 0.60 0.60
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ........... (0.54) 0.11 1.26 (0.35) 0.62 (0.33)
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations .. (0.26) 0.69 1.87 0.25 1.22 0.27
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........ (0.28) (0.58) (0.61) (0.60) (0.60) (0.60)
From Net Realized Gains on
Investment Transactions ........... -- (0.52) -- -- -- --
In Excess of Net Realized Gains ... -- (0.05) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ............... (0.28) (1.15) (0.61) (0.60) (0.60) (0.60)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......$ 9.58 $ 10.12 $ 10.58 $ 9.32 $ 9.67 $ 9.05
=========== =========== =========== =========== =========== ===========
Total Return(2) ................... (2.57)% 6.33% 20.48% 2.65% 13.46% 3.25%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.51%(3) 0.51% 0.54% 0.60% 0.67% 0.67%
Ratio of Net Investment Income
to Average Net Assets ............. 5.71%(3) 5.37% 6.00% 6.28% 5.93% 6.84%
Portfolio Turnover Rate ............. 94% 105% 57% 40% 112% 147%
Net Assets, End of Period
(in thousands) ....................$ 106,655 $ 137,552 $ 103,381 $ 126,570 $ 110,741 $ 34,906
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(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.
26 1-800-345-2021 See Notes to Financial Statements
Long-Term Treasury--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1999 1998(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................$ 10.12 $ 10.58 $ 10.85
--------- --------- ---------
Income From Investment Operations
Net Investment Income .............. 0.27 0.56 0.12
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.54) 0.11 (0.27)
--------- --------- ---------
Total From Investment Operations ... (0.27) 0.67 (0.15)
--------- --------- ---------
Distributions
From Net Investment Income ......... (0.27) (0.56) (0.12)
From Net Realized Gains on
Investment Transactions ............ -- (0.34) --
In Excess of Net Realized Gains .... -- (0.23) --
--------- --------- ---------
Total Distributions ................ (0.27) (1.13) (0.12)
--------- --------- ---------
Net Asset Value, End of Period .......$ 9.58 $ 10.12 $ 10.58
========= ========= =========
Total Return(3) .................... (2.70)% 6.07% (1.34)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.76%(4) 0.76% 0.77%(4)
Ratio of Net Investment Income
to Average Net Assets .............. 5.46%(4) 5.12% 5.42%(4)
Portfolio Turnover Rate .............. 94% 105% 57%
Net Assets, End of Period
(in thousands) .....................$ 5,052 $ 2,587 $ 218
(1) Six months ended September 30, 1999 (unaudited).
(2) January 12, 1998 (commencement of sale) through March 31, 1998.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 27
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
INVESTOR CLASS shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
ADVISOR CLASS shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
28 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:
SHORT-TERM TREASURY seeks current income by investing primarily in
securities issued by the U.S. Treasury. The fund may also invest up to 35% of
its assets in securities issued by U.S. government agencies. The fund typically
maintains an average maturity of 1-3 years.
INTERMEDIATE-TERM TREASURY seeks current income by investing primarily in
securities issued by the U.S. Treasury. The fund may also invest up to 35% of
its assets in securities issued by U.S. government agencies. The fund typically
maintains an average maturity of 3-10 years.
LONG-TERM TREASURY seeks current income by investing primarily in
securities issued by the U.S. Treasury. The fund may also invest up to 35% of
its assets in securities issued by U.S. government agencies. The fund typically
maintains an average maturity of 20-30 years.
Fund shares are not guaranteed by the U.S. government.
COMPARATIVE INDICES
The indices listed below are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The SALOMON BROTHERS 1- TO 3-YEAR TREASURY/AGENCY INDEX is an index of U.S.
Treasury and government agency securities with remaining maturities between 1
and 3 years.
The SALOMON BROTHERS 3- TO 10-YEAR TREASURY INDEX is an index of U.S.
Treasury securities with remaining maturities between 3 and 10 years.
The SALOMON BROTHERS LONG-TERM TREASURY/AGENCY INDEX is an index of U.S.
Treasury and agency securities with remaining maturities greater than 10 years.
LIPPER RANKINGS
LIPPER INC. is an independent mutual fund ranking service that groups funds
according to their investment objective. 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 U.S. Treasury funds are:
SHORT U.S. TREASURY FUNDS (Short-Term Treasury) -- funds that invest at
least 65% of assets in U.S. Treasury bills, notes, and bonds with average
maturities of less than three years.
INTERMEDIATE U.S. TREASURY FUNDS (Intermediate-Term Treasury) -- funds that
invest at least 65% of assets in U.S. Treasury bills, notes, and bonds with
average maturities of 5-10 years.
GENERAL U.S. TREASURY FUNDS (Long-Term Treasury) -- funds that invest at
least 65% of assets in U.S. Treasury bills, notes, and bonds.
[right margin]
INVESTMENT TEAM LEADERS
Short-Term Treasury
NEWLIN RANKIN
Intermediate-Term Treasury
BOB GAHAGAN
Long-Term Treasury
DAVE SCHROEDER
www.americancentury.com 29
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 22-27.
YIELDS
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES -- the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* AVERAGE DURATION -- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio. As the
duration of a portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
INVESTMENT TERMS
* BASIS POINT -- one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal 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.
SECURITY TYPES
* REPURCHASE AGREEMENTS (REPOS) --short-term debt agreements in which a fund
buys a security at one price and simultaneously agrees to sell it back to the
seller at a slightly higher price on a specified date (usually within seven
days). The fund does not actually own the security; instead, the security serves
as collateral for the agreement.
* U.S. GOVERNMENT AGENCY SECURITIES -- debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
Some agency securities are backed by the full faith and credit of the U.S.
government, while others are guaranteed only by the issuing agency. Government
agency securities include discount notes (maturing in one year or less) and
medium-term notes, debentures, and bonds (maturing in three months to 50 years).
* U.S. TREASURY INFLATION-INDEXED SECURITIES -- debt securities issued by the
U.S. Treasury and backed by the direct "full faith and credit" pledge of the
U.S. government. Inflation-indexed bonds have lower interest rates than normal
Treasury bonds with similar maturities. But unlike ordinary bonds,
inflation-indexed bonds' principal value is adjusted regularly for inflation
based on the consumer price index. As a result, the amount of interest paid out
changes with the principal adjustments.
30 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years), and bonds (maturing in more than 10 years).
* ZERO-COUPON BONDS (ZEROS) -- bonds that make no periodic interest payments.
Instead, they are sold at a deep discount and then redeemed for their full face
value at maturity. When held to maturity, a zero's entire return comes from the
difference between its purchase price and its value at maturity. The funds
typically only invest in zeros issued by the U.S. Treasury (such as STRIPS).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 31
Notes
- --------------------------------------------------------------------------------
32 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
- --------------------------------------------------------------------------------
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc. is
9911 the distributor of American Century funds
SH-ANN-18626 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
CAPITAL PRESERVATION
GOVERNMENT AGENCY
[american century logo (reg. sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
CAPITAL PRESERVATION
(CPFXX)
- ----------------------------------------
GOVERNMENT AGENCY
(BGAXX)
- ----------------------------------------
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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OnePIN opens the door to services that help you stay in control of your
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Questions? Call 1-800-345-2021 or go to www.americancentury.com.
Our Message to You
- --------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
Strong economic growth and increasing inflation anxiety resulted in higher
money market yields during the six months ended September 30, 1999. The recovery
of overseas economies and unabated U.S. growth led the Federal Reserve (the U.S.
central bank) to raise short-term interest rates twice during the summer of
1999.
In this environment, the Capital Preservation and Government Agency funds
continued to shine, providing above-average yields and returns.
Fund investors have benefited from our commitment to build and maintain a
talented fund management group. American Century's entire investment management
team has doubled in size over the past three years.
In addition to strengthening our portfolio and research staff, we've made
strategic investments in several other financial services companies. American
Century has long been an active supporter of the development and use of
technologies that improve the efficiencies of capital markets, lower the costs
of trading securities, and ultimately offer better returns for shareholders.
Toward that end, we've recently made investments in several firms involved in
developing new electronic trading systems. They include Archipelago, Tradepoint
Financial Networks, W.R. Hambrecht, and, most recently, WorldStreet Corporation.
WorldStreet, located in Boston, is developing a customized software application
that marries portfolio holdings with real-time market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR Inc., an independent mutual fund research firm. DALBAR commends us
for meeting investors' needs with an attractive document that's easy to read and
understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature--part of the
personalized performance section --as the key reason it ranked our statement
second out of 88 mutual fund company statements in the nation.
One final note -- in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our diligence in this area
is very important to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Frequently Asked
Questions ........................................................... 3
CAPITAL PRESERVATION
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Types of Investments ................................................... 5
Schedule of Investments ................................................ 6
GOVERNMENT AGENCY
Performance Information ................................................ 7
Management Q&A ......................................................... 8
Types of Investments ................................................... 8
Schedule of Investments ................................................ 9
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 11
Statements of Operations ............................................... 12
Statements of Changes
in Net Assets ....................................................... 13
Notes to Financial
Statements .......................................................... 14
Financial Highlights ................................................... 16
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 19
Background Information
Investment Philosophy
and Policies ..................................................... 20
Comparative Indices ................................................. 20
Lipper Rankings ..................................................... 20
Portfolio Managers .................................................. 20
Glossary ............................................................... 21
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
CAPITAL PRESERVATION
* Capital Preservation turned in a solid performance for the six months ended
September 30, 1999, outpacing the average U.S. Treasury money market fund
while providing more income.
* Capital Preservation's yield increased over the six-month period as yields on
money market securities rose in the wake of two short-term interest rate
hikes by the Federal Reserve.
* We generally kept Capital Preservation's weighted average maturity (WAM--the
average time until the securities in the portfolio mature) a bit short
relative to its Lipper peers, especially during late June and August. By
maintaining such a conservative WAM when rates were rising, we were able to
more quickly add securities to the portfolio that reflected higher interest
rates.
GOVERNMENT AGENCY
* Government Agency performed well for the six months ended September 30, 1999,
outpacing the return of the average U.S. government money market fund while
providing more income.
* Yields on money market securities rose quite a bit over the six-month period,
which caused Government Agency's yield to rise. Two short-term interest rate
increases by the Federal Reserve were behind the higher rates; the Fed's rate
hikes drove an important overnight bank lending rate higher, and money market
rates followed suit.
* Government Agency's weighted average maturity (WAM--the average time until
the securities in the portfolio mature) was a bit long relative to its Lipper
peers early in the period but was closer to neutral by the end of September.
* By the end of the second quarter, the U.S. economy was proving surpisingly
robust and the chances of a Fed rate hike had increased. So we shortened the
fund's WAM by using the proceeds from some maturing agency discount notes to
purchase floating-rate government agency notes.
[left margin]
CAPITAL PRESERVATION
(CPFXX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 2.16%(2)
1 Year 4.39%
7-DAY CURRENT YIELD: 4.45%
INCEPTION DATE: 10/13/72
NET ASSETS: $3.3 billion
GOVERNMENT AGENCY(1)
(BGAXX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 2.30%(2)
1 Year 4.65%
7-DAY CURRENT YIELD: 4.77%
INCEPTION DATE: 12/5/89
NET ASSETS: $532.8 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on pages 4 and 7.
Investment terms are defined in the Glossary on pages 21-22.
2 1-800-345-2021
Money Market Funds--Frequently Asked Questions
- --------------------------------------------------------------------------------
CAN I MAKE DIRECT DEPOSITS INTO MY MONEY MARKET FUND ACCOUNT?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, Treasury Direct interest payment, military allotment, or payments from
other government agencies. Give us a call, and we will send you the necessary
information to set it up.
WHAT IS THE HOLDING PERIOD ON NEW DEPOSITS INTO MY ACCOUNT?
Generally, there is an eight-business-day holding period for deposited
funds (initial investments in a new account are held for 15 calendar days).
There is a one-business-day holding period for U.S. Treasury checks, money
orders, and travelers' checks.
IS THERE A LIMIT ON THE NUMBER OF CHECKS I CAN WRITE ON MY MONEY MARKET ACCOUNT?
No. You can write as many checks as you like at no charge, as long as each
check is for $100 or more.
IS THERE AN EASY WAY TO MOVE MONEY FROM MY MONEY MARKET FUND INTO A STOCK OR
BOND FUND?
Yes. Moving money between funds is called an exchange, and there is no
limit on the number of exchanges you can make out of a money market fund
account. However, there is a limit of six exchanges per calendar year out of
stock and bond fund accounts.
Exchanges can be made by:
* visiting our Web site at
www.americancentury.com*
* using our Automated Information Line (1-800-345-8765)*
* calling an Investor Relations Representative at 1-800-345-2021*
* writing us a letter
HOW DO I DECIDE WHETHER A TAXABLE MONEY MARKET FUND OR A TAX-FREE MONEY MARKET
FUND IS RIGHT FOR ME?
The most important factor to consider is your tax bracket. Tax-free money
market funds typically offer lower yields than taxable funds, but you pay no
federal income taxes on the income from a tax-free fund.
If you are in one of the higher federal income tax brackets, taxes will eat
up a big part of your income from a taxable money market fund, so a tax-free
investment may be better for you. If you're in a lower tax bracket, then you can
usually earn more in a taxable fund even after taxes are deducted.
We can help you figure it out. If you give us a call and tell us what tax
bracket you're in, we can tell you whether you're likely to earn more after-tax
income in a tax-free or a taxable money market fund.
IF YOU HAVE ANY QUESTIONS ABOUT OUR MONEY MARKET FUNDS, CALL US TOLL FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE, WWW.AMERICANCENTURY.COM.
* Before 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.
[right 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.
www.americancentury.com 3
Capital Preservation--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
CAPITAL 90-DAY TREASURY U.S. TREASURY MONEY MARKET FUNDS(2)
PRESERVATION BILL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 2.16% 2.30% 2.07% --
1 YEAR 4.39% 4.54% 4.17% 17 OUT OF 92
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.78% 4.93% 4.60% 15 OUT OF 80
5 YEARS 4.89% 5.12% 4.75% 16 OUT OF 70
10 YEARS 4.80% 5.02% 4.72% 6 OUT OF 21
The fund's inception date was 10/13/72.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 20-21 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 22 20
WEIGHTED AVERAGE
MATURITY 58 DAYS 64 DAYS
EXPENSE RATIO 0.47%* 0.48%
YIELDS AS OF SEPTEMBER 30, 1999
7-DAY CURRENT YIELD 4.45%
7-DAY EFFECTIVE YIELD 4.55%
* Annualized.
Investment terms are defined in the Glossary on pages 21-22.
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.
4 1-800-345-2021
Capital Preservation--Q&A
- --------------------------------------------------------------------------------
[photo of Beth Bunnell Hunter]
An interview with Beth Bunnell Hunter, a portfolio manager on the Capital
Preservation fund investment team. Beth replaced Amy O'Donnell, who left
American Century to pursue other interests.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
Capital Preservation turned in a solid performance. The fund returned 2.16%
for the six-month period, comparing favorably with the 2.07% average return of
the 92 "U.S. Treasury Money Market Funds" tracked by Lipper Inc. Longer-term
performance remained impressive--the fund's return ranked in the top 20% of its
peers on a one- and three-year basis. (See the previous page for other fund
performance comparisons.)
Capital Preservation also fared well against the average Treasury money
market fund based on income. Capital Preservation's 7-day effective yield of
4.55% as of September 30 was higher than the 4.38% average yield of its Lipper
peers.
SPEAKING OF YIELDS, INTEREST RATES ON MONEY MARKET SECURITIES ROSE DURING THE
SIX MONTHS. WHAT PROMPTED THE INCREASE?
Two short-term interest rate hikes by the Federal Reserve, which were made
in late June and August, fueled the higher rates. These increases drove the
federal funds target rate--an important overnight lending rate among banks--from
4.75% to 5.25%. Money market yields, which tend to closely track rate changes by
the Fed, rose quickly in response.
GIVEN THIS RISING-RATE ENVIRONMENT, HOW DID YOU MANAGE THE FUND?
We generally kept Capital Preservation's weighted average maturity (WAM
- --the average time until the securities in the portfolio mature) a bit short
relative to its Lipper peers, especially while the Fed was raising rates.
For instance, the fund's WAM was around eight or nine days shorter than its
peers' at the end of June and around seven days shorter during the Fed's second
rate increase in August. By maintaining such a conservative WAM when rates were
rising, we were able to more quickly add to the portfolio securities that
reflected the new higher interest rates. That translated into more income for
the fund and therefore a slightly better return.
WHAT IS YOUR OUTLOOK FOR SHORT-TERM INTEREST RATES GOING FORWARD AND HOW DO YOU
PLAN TO POSITION THE FUND?
The outlook for interest rates remains uncertain. U.S. economic growth has
remained robust, having grown 4.1% over the year ended September 30. That pace
may be a bit too unsettling for the Fed, which tries to maintain a sustainable
level of economic growth. However, inflation has been relatively well
behaved--consumer prices rose only 2.6% over the last year. Employment costs,
while rising, are not rapidly accelerating. So whether the Fed will raise
interest rates again at its mid-November meeting is far from certain.
Given that outlook, we will probably keep Capital Preservation's WAM
neutral for now, while managing assets very conservatively and trying to provide
the best possible yield for our shareholders.
[right margin]
"WE GENERALLY KEPT CAPITAL PRESERVATION'S WEIGHTED AVERAGE MATURITY A BIT SHORT
RELATIVE TO ITS LIPPER PEERS, ESPECIALLY WHILE THE FED WAS RAISING RATES."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Treasury Bills 61%
Treasury Notes 35%
Zero-Coupon U.S.
Treasury Securities 4%
AS OF MARCH 31, 1999
Treasury Bills 87%
Treasury Notes 13%
Investment terms are defined in the Glossary on pages 21-22.
www.americancentury.com 5
Capital Preservation--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's amortized cost, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS(1) -- 60.9%
$ 46,000,000 U.S. Treasury Bills, 4.47%-4.58%,
10/21/99 $ 45,884,072
45,000,000 U.S. Treasury Bills, 4.55%-4.61%,
10/28/99 44,846,438
200,000,000 U.S. Treasury Bills, 4.49%-4.59%,
11/4/99 199,139,989
150,000,000 U.S. Treasury Bills, 4.61%-4.80%,
11/12/99 149,183,917
350,000,000 U.S. Treasury Bills, 4.60%-4.67%,
11/18/99 347,844,166
50,000,000 U.S. Treasury Bills, 4.56%,
12/2/99 49,607,333
100,000,000 U.S. Treasury Bills, 4.68%-4.74%,
1/6/00 98,731,590
100,000,000 U.S. Treasury Bills, 4.73%,
1/13/00 98,633,555
150,000,000 U.S. Treasury Bills, 4.46%-4.47%,
1/20/00 147,935,707
50,000,000 U.S. Treasury Bills, 4.84%-4.94%,
1/27/00 49,207,597
50,000,000 U.S. Treasury Bills, 4.84%-4.90%,
2/17/00 49,065,611
35,000,000 U.S. Treasury Bills, 4.94%,
3/9/00 34,231,556
100,000,000 U.S. Treasury Bills, 4.90%-4.91%,
3/23/00 97,630,458
--------------
TOTAL U.S. TREASURY BILLS 1,411,941,989
--------------
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES(1) -- 34.9%
$ 20,000,000 U.S. Treasury Notes, 5.625%,
10/31/99 $ 20,010,173
200,000,000 U.S. Treasury Notes, 7.50%,
10/31/99 200,398,500
100,000,000 U.S. Treasury Notes, 5.625%,
11/30/99 100,098,599
132,000,000 U.S. Treasury Notes, 7.75%,
11/30/99 132,569,660
50,000,000 U.S. Treasury Notes, 5.625%,
12/31/99 50,059,245
155,000,000 U.S. Treasury Notes, 5.375%,
1/31/00 155,121,357
50,000,000 U.S. Treasury Notes, 7.75%,
1/31/00 50,422,320
100,000,000 U.S. Treasury Notes, 5.875%,
2/15/00 100,262,042
--------------
TOTAL U.S. TREASURY NOTES 808,941,896
--------------
ZERO-COUPON U.S. TREASURY SECURITIES(2) -- 4.2%
99,200,000 STRIPS -- PRINCIPAL, 5.625%,
12/31/99 98,058,329
--------------
TOTAL INVESTMENT SECURITIES -- 100.0% $2,318,942,214
==============
NOTES TO SCHEDULE OF INVESTMENTS
STRIPS = Separate Trading of Registered Interest and Principal of Securities
(1) The rates for U.S. Treasury Bills are the yield to maturity at purchase.
The rates for U.S. Treasury Notes are the stated coupon rates.
(2) Rates indicated are the yield to maturity at purchase. These securities are
purchased at a substantial discount from their value at maturity.
6 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Government Agency--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 12/5/89) ADVISOR CLASS (INCEPTION 4/12/99)
GOVERNMENT 90-DAY TREASURY U.S. GOVERNMENT MONEY MARKET FUNDS(2) GOVERNMENT 90-DAY TREASURY
AGENCY BILL INDEX AVERAGE RETURN FUND'S RANKING AGENCY BILL INDEX
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 2.30% 2.30% 2.16% -- -- --
1 YEAR 4.65% 4.54% 4.39% 19 OUT OF 121 -- --
=======================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.93% 4.93% 4.78% 25 OUT OF 105 -- --
5 YEARS 5.04% 5.12% 4.90% 21 OUT OF 88 -- --
LIFE OF FUND 4.95% 4.95%(3) 4.05%(3) 4 OUT OF 49(3) 2.03%(1) 1.93%(1)(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 12/31/89, the date nearest the class's inception for which data are
available.
(4) Since 4/30/99, the date nearest the class's inception for which data are
available.
See pages 19-21 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 41 37
WEIGHTED AVERAGE
MATURITY 55 DAYS 73 DAYS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.47%* 0.48%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS
7-DAY CURRENT YIELD 4.77%
7-DAY EFFECTIVE YIELD 4.88%
Investment terms are defined in the Glossary on pages 21-22.
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 7
Government Agency--Q&A
- --------------------------------------------------------------------------------
An interview with Beth Bunnell Hunter (pictured on page 5), a portfolio
manager on the Government Agency fund investment team. Beth replaced Amy
O'Donnell, who left American Century to pursue other interests.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
Government Agency performed well. The fund returned* 2.30% for the
six-month period, comparing favorably with the 2.16% average return of the 121
"U.S. Government Money Market Funds" tracked by Lipper Inc. (See the previous
page for other fund performance comparisons.) Government Agency also fared well
based on income. The fund's 7-day effective yield as of September 30 was 4.88%,
compared with the 4.62% average yield of its Lipper peers.
THE FUND'S YIELD FINISHED THE PERIOD QUITE A BIT HIGHER THAN WHERE IT STARTED.
WHAT PROMPTED THE INCREASE?
The Federal Reserve raised short-term interest rates twice during the
period, in late June and August, providing the catalyst for the fund's higher
yield. That's because the Fed's rate hikes drove an important overnight bank
lending rate--the federal funds target rate--from 4.75% to 5.25%. Money market
yields, which tend to closely track such rate changes, rose quickly in response.
HOW DID YOU POSITION THE FUND IN THAT ENVIRONMENT?
Government Agency's weighted average maturity (WAM--the average time until
the securities in the portfolio mature) was a bit long relative to its Lipper
peers early in the period, but was closer to neutral by the end of September.
The slightly longer WAM was mainly a result of the fund's agency discount note
holdings. These securities enhanced the fund's yield, but because they had
fairly long average maturities, they also extended the fund's WAM.
By the end of the second quarter, the U.S. economy was proving to be
surpisingly robust, and the possibility of a Fed rate increase became more
likely. So we shortened the fund's WAM by using the proceeds from some of the
maturing agency discount notes to purchase floating-rate agency notes
(floaters).
WHAT MADE THE FLOATERS SO APPEALING?
The floaters provided two main benefits. One, as just mentioned, was to
shorten the fund's WAM. In addition, the floaters that we purchased were tied to
three-month Treasury-bill rates and reset weekly. So they provided a good
vehicle to take advantage of any potential rise in interest rates.
SPEAKING OF INTEREST RATES, WHAT'S YOUR OUTLOOK FOR RATES GOING FORWARD AND HOW
DO YOU THINK YOU'LL POSITION THE FUND?
The outlook for interest rates remains uncertain. While we could see
another Fed rate hike as early as November, the Fed may elect to leave rates
unchanged if inflationary pressures remain subdued. In light of that uncertain
outlook, we will probably keep the fund's WAM conservatively positioned for now,
but we may extend a bit if attractive opportunities present themselves.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[left margin]
"THE OUTLOOK FOR INTEREST RATES REMAINS UNCERTAIN."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Government Agency Discount Notes 40%
Government Agency Notes 12%
Floating-Rate Agency Notes 48%
AS OF MARCH 31, 1999
Government Agency Discount Notes 68%
Treasury Bills 6%
Government Agency Notes 17%
Floating-Rate Agency Notes 9%
Investment terms are defined in the Glossary on pages 21-22.
8 1-800-345-2021
Government Agency--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's amortized cost, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES(1) -- 40.0%
$ 9,000,000 FFCB Discount Notes, 5.18%,
10/15/99 $ 8,981,870
11,500,000 FFCB Discount Notes, 5.21%,
10/27/99 11,456,728
7,000,000 FFCB Discount Notes, 5.00%,
11/10/99 6,961,111
5,000,000 FFCB Discount Notes, 5.19%,
11/16/99 4,966,842
7,941,000 FFCB Discount Notes, 5.53%,
2/11/00 7,778,763
1,200,000 FHLB Discount Notes, 5.17%,
10/1/99 1,200,000
25,000,000 FHLB Discount Notes, 5.04%,
10/6/99 24,982,518
30,500,000 FHLB Discount Notes,
4.71%-5.11%, 10/8/99 30,471,251
8,000,000 FHLB Discount Notes, 5.20%,
10/13/99 7,986,133
10,000,000 FHLB Discount Notes, 5.03%,
10/15/99 9,980,439
10,000,000 FHLB Discount Notes, 5.17%,
11/5/99 9,949,736
15,000,000 FHLB Discount Notes,
4.74%-4.81%, 11/10/99 14,920,534
8,000,000 FHLB Discount Notes, 5.24%,
11/12/99 7,951,093
26,000,000 FHLB Discount Notes,
5.17%-5.34%, 1/21/00 25,573,342
10,000,000 FHLB Discount Notes, 5.38%,
2/2/00 9,814,689
13,000,000 FHLB Discount Notes, 5.43%,
2/24/00 12,713,718
17,500,000 FHLB Discount Notes, 5.52%,
3/8/00 17,073,273
------------
TOTAL U.S. GOVERNMENT AGENCY
DISCOUNT NOTES 212,762,040
------------
U.S. GOVERNMENT AGENCY SECURITIES(1) -- 60.0%
10,000,000 FFCB MTN, 5.00%, 2/18/00 10,000,000
23,000,000 FFCB MTN, VRN, 5.35%,
10/1/99, resets monthly off
the 3-month T-Bill rate plus
0.36% with no caps 22,999,248
15,000,000 FFCB MTN, VRN, 5.31%,
10/2/99, resets quarterly off
the 3-month T-Bill rate plus
0.42% with no caps 15,003,419
2,000,000 FHLB, 4.84%, 1/28/00 1,994,080
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,500,000 FHLB, 5.45%, 2/25/00 $ 1,502,723
10,000,000 FHLB, 5.06%, 3/1/00 10,000,167
10,000,000 FHLB, 5.16%, 3/22/00 10,000,455
9,000,000 FHLB, 5.00%, 3/30/00 8,971,937
10,000,000 FHLB, 5.05%, 4/26/00 9,997,534
5,700,000 FHLB, 5.14%, 5/24/00 5,700,000
4,000,000 FHLB, 5.20%, 5/26/00 4,000,000
10,000,000 FHLB, 5.51%, 6/22/00 10,000,000
30,000,000 FHLB, VRN, 5.26%, 10/1/99,
resets daily off the Fed Funds
rate with no caps 30,000,190
9,000,000 FHLB, VRN, 5.32%, 10/6/99,
resets weekly off the 3-month
T-Bill rate plus 0.46% with
no caps 9,000,000
25,000,000 FHLB, VRN, 5.39%, 10/6/99,
resets weekly off the 3-month
T-Bill rate plus 0.53% with
no caps 24,981,496
5,000,000 FHLB, VRN, 4.78%, 11/12/99,
resets quarterly off
the 3-month LIBOR minus
0.225% with no caps 5,000,000
11,000,000 SLMA MTN, 4.93%, 2/8/00 10,996,129
12,000,000 SLMA MTN, VRN, 5.29%, 10/5/99,
resets weekly off
the 3-month T-Bill rate plus
0.43% with no caps 12,000,000
40,000,000 SLMA MTN, VRN, 5.36%,
10/5/99, resets weekly off
the 3-month T-Bill rate plus
0.50% with no caps 39,969,588
13,500,000 SLMA MTN, VRN, 5.46%, 10/5/99,
resets weekly off
the 3-month T-Bill rate plus
0.60% with no caps 13,510,092
11,000,000 SLMA, VRN, 5.49%, 10/4/99,
resets weekly off the 3-month
T-Bill rate plus 0.63% with
no caps 11,000,000
25,000,000 SLMA, VRN, 5.31%, 10/5/99,
resets weekly off the 3-month
T-Bill rate plus 0.45% with
no caps 24,997,301
25,500,000 SLMA, VRN, 5.36%, 10/5/99,
resets weekly off the 3-month
T-Bill rate plus 0.50% with
no caps 25,534,672
2,020,000 TVA, 8.38%, 10/1/99 2,020,000
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 319,179,031
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $531,941,071
============
See Notes to Financial Statements www.americancentury.com 9
Government Agency--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
SLMA = Student Loan Marketing Association
TVA= Tennessee Valley Authority
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Coupon rate indicated is
effective September 30, 1999.
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
(1) The rates for U.S. Government Agency Discount Notes are the yield to
maturity at purchase. The rates for U.S. Government Agency Securities are
the stated coupon rates.
10 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. For each class of shares, 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).
SEPTEMBER 30, 1999 (UNAUDITED)
CAPITAL GOVERNMENT
PRESERVATION AGENCY
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) ........ $ 2,318,942,214 $ 531,941,071
Cash .................................. 15,882,418 --
Receivable for investments sold ....... 991,335,176 --
Interest receivable ................... 19,974,511 2,760,932
--------------- ---------------
3,346,134,319 534,702,003
--------------- ---------------
LIABILITIES
Disbursements in excess
of demand deposit cash .............. -- 1,655,025
Accrued management fees
(Note 2) ............................ 1,297,209 206,747
Distribution and service
fees payable (Note 2) ............... -- 669
Payable for trustees'
fees and expenses ................... 7,070 3
Accrued expenses and
other liabilities ................... 11,290 1,840
--------------- ---------------
1,315,569 1,864,284
--------------- ---------------
Net Assets ............................ $ 3,344,818,750 $ 532,837,719
=============== ===============
NET ASSETS CONSIST OF:
Capital paid in ....................... $ 3,344,848,817 $ 532,837,446
Accumulated net investment loss ....... (13,664) --
Accumulated undistributed
net realized gain (loss) ............ (16,403) 273
--------------- ---------------
$ 3,344,818,750 $ 532,837,719
=============== ===============
Investor Class
Net assets ............................ $ 3,344,818,750 $ 531,389,809
Shares outstanding .................... 3,344,848,817 531,389,539
Net asset value per share ............. $ 1.00 $ 1.00
Advisor Class
Net assets ............................ N/A $ 1,447,910
Shares outstanding .................... N/A 1,447,907
Net asset value per share ............. N/A $ 1.00
See Notes to Financial Statements www.americancentury.com 11
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.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
CAPITAL GOVERNMENT
PRESERVATION AGENCY
INVESTMENT INCOME
Income:
Interest ................................... $77,619,444 $13,152,723
----------- -----------
Expenses (Note 2):
Management fees ............................ 7,781,096 1,236,599
Distribution fees -- Advisor Class ......... -- 2,490
Service fees -- Advisor Class .............. -- 2,490
Trustees' fees and expenses ................ 44,125 7,382
----------- -----------
7,825,221 1,248,961
----------- -----------
Net investment income ...................... 69,794,223 11,903,762
----------- -----------
NET REALIZED GAIN ON INVESTMENTS
Net realized gain on investments ........... 519,663 273
----------- -----------
Net Increase in Net Assets
Resulting from Operations ................ $70,313,886 $11,904,035
=========== ===========
12 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
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.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
CAPITAL PRESERVATION GOVERNMENT AGENCY
Increase in Net Assets SEPT. 30, 1999 MARCH 31, 1999 SEPT. 30, 1999 MARCH 31, 1999
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............. $ 69,794,223 $ 144,619,496 $ 11,903,762 $ 24,050,822
Net realized gain on investments .. 519,663 2,730,059 273 33,582
--------------- --------------- --------------- ---------------
Net increase in net assets
resulting from operations ....... 70,313,886 147,349,555 11,904,035 24,084,404
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .................. (69,807,887) (144,619,496) (11,860,873) (24,050,822)
Advisor Class ................... -- -- (42,889) --
From net realized gains
on investment transactions:
Investor Class .................. (536,066) (2,673,276) -- (11,109)
--------------- --------------- --------------- ---------------
Decrease in net assets from
distributions to shareholders ... (70,343,953) (147,292,772) (11,903,762) (24,061,931)
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS
(NOTE 3)
Net increase in net assets from
capital share transactions ...... 20,043,877 180,164,550 4,995,445 40,028,181
--------------- --------------- --------------- ---------------
Net increase in net assets ........ 20,013,810 180,221,333 4,995,718 40,050,654
NET ASSETS
Beginning of period ............... 3,324,804,940 3,144,583,607 527,842,001 487,791,347
--------------- --------------- --------------- ---------------
End of period ..................... $ 3,344,818,750 $ 3,324,804,940 $ 532,837,719 $ 527,842,001
--------------- --------------- --------------- ---------------
Accumulated net investment loss ... $ (13,664) -- -- --
=============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 as an open-end management
investment company. Capital Preservation Fund (Capital Preservation) and
Government Agency Money Market Fund (Government Agency) (the funds) are two of
the eight funds issued by the trust. Capital Preservation seeks maximum safety
and liquidity and intends to pursue its investment objectives by investing
exclusively in short-term U.S. Treasury securities guaranteed by the direct full
faith and credit pledge of the U.S. government. Government Agency seeks to
provide the highest rate of current return on its investments, consistent with
safety of principal and maintenance of liquidity by investing exclusively in
short-term obligations of the U.S. government and its agencies and
instrumentalities. The funds are authorized to issue two classes of shares: the
Investor Class and the Advisor Class. The two classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of the funds represent an equal pro rata interest
in the assets of the class to which such shares belong, and have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except for class specific expenses and exclusive rights to vote on
matters affecting only individual classes. Sale of the Advisor Class for
Government Agency commenced April 12, 1999. Sale of the Advisor Class for
Capital Preservation had not commenced as of September 30, 1999. 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 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.
FORWARD COMMITMENTS -- Periodically, the funds enter into purchase or sale
transactions on a forward commitment basis. In these transactions, the funds
sell a security and at the same time make a commitment to purchase the same
security at a future date at a specified price. Conversely, the funds may
purchase a security and at the same time make a commitment to sell the same
security at a future date at a specified price. These types of transactions are
executed simultaneously in what are known as forward commitments or "roll"
transactions. Capital Preservation had receivables on forward commitment
transactions of $942,540,912. The funds take possession of any security they
purchase in these transactions. The funds maintain segregated accounts
consisting of cash or liquid securities in an amount sufficient to meet the
purchase price.
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 -- Distributions from net investment income are declared and
credited daily and distributed monthly. The funds do not expect to realize any
long-term capital gains, and accordingly, do not expect to pay any long-term
capital gains distributions.
At March 31, 1999, Government Agency had accumulated net realized capital
loss carryovers of $22,788 (expiring in 2003 through 2006) which may be used to
offset future taxable gains.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
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 per class. The Agreement provides that all expenses of the funds,
except brokerage, taxes, portfolio insurance, interest, fees and expenses of the
trustees who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, 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 0.1370% to 0.2500% and the rates for the
Complex Fee (Investor Class) range from 0.2900% to 0.3100%. The Advisor Class is
0.2500% less at each point within the Complex Fee range. For the six months
ended September 30, 1999, the effective annual Investor Class management fee for
the funds was 0.47%.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plan provides that the fund will pay ACIM an annual
distribution fee equal to 0.25% and service fee equal to 0.25%. The fees are
computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred by
Government Agency under the plan during the six months ended September 30, 1999,
were $4,980.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, and the
trust's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (unlimited number of
shares authorized):
CAPITAL PRESERVATION GOVERNMENT AGENCY
SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
Six months ended
September 30, 1999
<S> <C> <C> <C> <C>
Sold .................... 1,202,857,251 $ 1,202,857,251 199,835,576 $ 199,835,576
Issued in reinvestment
of distributions ...... 67,259,003 67,259,003 11,417,672 11,417,672
Redeemed ................ (1,250,072,377) (1,250,072,377) (207,705,710) (207,705,710)
--------------- --------------- --------------- ---------------
Net increase ............ 20,043,877 $ 20,043,877 3,547,538 $ 3,547,538
=============== =============== =============== ===============
Year ended
March 31, 1999
Sold .................... 2,907,552,494 $ 2,907,552,494 431,797,001 $ 431,797,001
Issued in reinvestment
of distributions ...... 140,391,935 140,391,935 23,167,326 23,167,326
Redeemed ................ (2,867,779,879) (2,867,779,879) (414,936,146) (414,936,146)
--------------- --------------- --------------- ---------------
Net increase ............ 180,164,550 $ 180,164,550 40,028,181 $ 40,028,181
=============== =============== =============== ===============
ADVISOR CLASS
Period ended
September 30, 1999(1)
Sold .................... 11,035,651 $11,035,651
Issued in reinvestment
of distributions ...... 42,913 42,913
Redeemed ................ (9,630,657) (9,630,657)
--------------- ---------------
Net increase ............ 1,447,907 $1,447,907
=============== ===============
</TABLE>
(1) April 12, 1999 (commencement of sale) through September 30, 1999.
www.americancentury.com 15
<TABLE>
<CAPTION>
Capital Preservation--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 share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), and EXPENSE RATIO (operating
expenses as a percentage of average net assets).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ----------- ------------ ----------- -----------
Income From Investment Operations
Net Investment Income ......... 0.02 0.05 0.05 0.05 0.05 0.04
------------- ------------- ----------- ------------ ----------- -----------
Distributions
From Net Investment Income .... (0.02) (0.05) (0.05) (0.05) (0.05) (0.04)
------------- ------------- ----------- ------------ ----------- -----------
Net Asset Value, End of Period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= =========== ============ =========== ===========
Total Return(2) ............... 2.16% 4.72% 5.06% 4.82% 5.21% 4.31%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ...... 0.47%(4) 0.48% 0.49% 0.49% 0.51% 0.50%
Ratio of Net Investment Income
to Average Net Assets ......... 4.23%(4) 4.53% 4.90% 4.66% 5.07% 4.24%
Net Assets, End of Period
(in thousands) ................ $ 3,344,819 $ 3,324,805 $ 3,144,584 $ 2,978,015 $ 3,077,558 $ 2,883,350
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) The ratios for years ended March 31, 1997 and March 31, 1996 include
expenses paid through expense offset arrangements.
(4) Annualized.
16 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Government Agency--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 share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), and EXPENSE RATIO (operating
expenses as a percentage of average net assets).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ......... 0.02 0.05 0.05 0.05 0.05 0.04
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .... (0.02) (0.05) (0.05) (0.05) (0.05) (0.04)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
Total Return(2) ............... 2.30% 4.91% 5.14% 4.89% 5.35% 4.47%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ...... 0.47%(4) 0.48% 0.51% 0.57% 0.51% 0.50%
Ratio of Net Investment Income
to Average Net Assets ......... 4.54%(4) 4.79% 5.02% 4.76% 5.20% 4.35%
Net Assets, End of Period
(in thousands) ................ $ 531,390 $ 527,842 $ 487,791 $ 470,759 $ 503,328 $ 461,803
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) The ratios for years ended March 31, 1997 and March 31, 1996 include
expenses paid through expense offset arrangements.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 17
Government Agency--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Advisor Class
1999(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ........................ $ 1.00
---------
Income From Investment Operations
Net Investment Income ..................................... 0.02
---------
Distributions
From Net Investment Income ................................ (0.02)
---------
Net Asset Value, End of Period .............................. $ 1.00
=========
Total Return(2) ........................................... 2.03%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ........... 0.72%(3)
Ratio of Net Investment Income to Average Net Assets ........ 4.35%(3)
Net Assets, End of Period (in thousands) .................... $ 1,448
(1) April 12, 1999 (commencement of sale) through September 30, 1999
(unaudited).
(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.
18 1-800-345-2021 See Notes to Financial Statements
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the funds: Investor Class
and Advisor Class.
INVESTOR CLASS shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
ADVISOR CLASS shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares. The Advisor Class had not commenced as of September 30, 1999, for
Capital Preservation.
Both classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
www.americancentury.com 19
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:
CAPITAL PRESERVATION seeks to provide interest income exempt from state
taxes while maintaining a stable share price by investing in U.S. Treasury money
market securities.
GOVERNMENT AGENCY seeks to provide interest income exempt from state taxes
while maintaining a stable share price by investing in U.S. government money
market securities.
An investment in the funds is neither insured nor guaranteed by the FDIC or
any other government agency. Yields will fluctuate, and although the funds seek
to preserve the value of your investment at $1 per share, it is possible to lose
money by investing in the funds.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The 90-DAY TREASURY BILL INDEX is derived from secondary market interest
rates published by the Federal Reserve Bank.
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 U.S. Treasury and government money market
funds are:
U.S. TREASURY MONEY MARKET FUNDS (Capital Preservation) -- funds with
dollar-weighted average maturities of less than 90 days that intend to maintain
a stable net asset value and that invest principally in U.S. Treasury
obligations.
U.S. GOVERNMENT MONEY MARKET FUNDS (Government Agency) -- funds with
dollar-weighted average maturities of less than 90 days that intend to maintain
a stable net asset value and that invest principally in financial instruments
issued or guaranteed by the U.S. government, its agencies, or instrumentalities
[left margin]
PORTFOLIO MANAGERS
Capital Preservation
BETH BUNNELL HUNTER
Government Agency
BETH BUNNELL HUNTER
20 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 16-18.
YIELDS
* 7-DAY CURRENT YIELD is calculated based on the income generated by an
investment in the fund over a seven-day period and is expressed as an annual
percentage rate.
* 7-DAY EFFECTIVE YIELD is calculated similarly, although this figure is
slightly higher than the fund's 7-Day Current Yield because of the effects of
compounding. The 7-Day Effective Yield assumes that income earned from the
fund's investments is reinvested and generating additional income.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES --the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* 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 expensesand fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF MONEY MARKET SECURITIES
* FLOATING-RATE AGENCY NOTES (FLOATERS) -- debt securities issued by U.S.
government agencies (such as the Federal Home Loan Bank) whose interest rates
change when a designated base rate changes. The base rate is often the federal
funds rate, the 90-day Treasury bill rate, or the London Interbank Offered Rate
(LIBOR).
* U.S. GOVERNMENT AGENCY NOTES -- intermediate-term debt securities issued by
U.S. government agencies (such as the Federal Home Loan Bank). These notes are
issued with maturities ranging from three months to 30 years, but the funds
onlyinvest in those with remaining maturities of 13 months or less.
* U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- short-term debt securities issued by
U.S. government agencies (such as the Federal Home Loan Bank). These notes are
issued at a discount and achieve full value at maturity (typically one year or
less).
* U.S. TREASURY BILLS (T-BILLS) -- short-term debt securities issued by the U.S.
Treasury and backed by the direct "full faith and credit" pledge of the U.S.
government. T-bills are issued with maturities ranging from three months toone
year. * U.S. TREASURY NOTES (T-NOTES) -- intermediate-term debt securities
issued bythe U.S. Treasury and backed by the direct "full faith and credit"
pledge of theU.S. government. T-notes are issued with maturities ranging from
two to 10 years, but the funds only invest in those with remaining maturities of
13 monthsor less.
OTHER SHORT-TERM INVESTMENTS
* DOLLAR ROLLS -- short-term debt agreements in which a fund buys a security and
agrees to sell it back at a specific price and date (usually within seven days).
The fund actually takes possession and ownership of the security until the sale
date.
* REPURCHASE AGREEMENTS (REPOS) -- short-term debt agreements in which a fund
buys a security and agrees to sell it back at a specific price and date (usually
within seven days). The fund does not own the security; instead, the security
serves as collateral for the agreement.
www.americancentury.com 21
Glossary
- --------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
22 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 23
Notes
- --------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
- --------------------------------------------------------------------------------
[back cover]
[american century logo (reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc. is
9911 the distributor of American Century funds
SH-ANN-18625 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
SHORT-TERM GOVERNMENT
[american century logo (reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
SHORT-TERM GOVERNMENT
(TWUSX)
- ----------------------------------------
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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Questions? Call 1-800-345-2021 or go to www.americancentury.com.
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.
Strong economic growth and increasing inflation anxiety resulted in higher
interest rates during the six months ended September 30, 1999. The recovery of
overseas economies and unabated U.S. growth influenced the Federal Reserve (the
U.S. central bank) to raise short-term interest rates twice during the summer of
1999 to rein in the U.S. economy and reduce pressures on prices and wages.
This difficult environment for bonds limited Short-Term Government's
return; however, the portfolio's concentration in mortgage-backed securities
allowed the fund to provide a yield that beat its peer group average.
Fund investors should also benefit from our commitment to build and
maintain a talented fund management group. American Century's entire investment
management team has doubled in size over the past three years.
Turning to corporate matters, American Century has long been an active
supporter of the development and use of technologies that improve the
efficiencies of capital markets, lower the costs of trading securities, and
ultimately offer better returns for shareholders. Toward that end, we've made
strategic investments in several other financial services firms, including
Archipelago, Optimark, Tradepoint Financial Networks, W.R. Hambrecht, and, most
recently, WorldStreet Corporation. WorldStreet is developing a customized
software application that marries portfolio holdings with real-time market
information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature-- part of
the personalized performance section--as the key reason it ranked our statement
second out of 88 mutual fund company statements in the nation.
One final note--in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our diligence in this area
is very important to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
SHORT-TERM GOVERNMENT
Performance Information ................................................. 4
Management Q&A .......................................................... 5
Portfolio at a Glance ................................................... 5
Yields .................................................................. 5
Types of Investments .................................................... 6
Schedule of Investments ................................................. 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities .......................................................... 10
Statement of Operations ................................................. 11
Statements of Changes
in Net Assets ........................................................ 12
Notes to Financial
Statements ........................................................... 13
Financial Highlights .................................................... 16
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................. 18
Background Information
Investment Philosophy
and Policies ...................................................... 19
Comparative Indices .................................................. 19
Lipper Rankings ...................................................... 19
Investment Team
Leaders ........................................................... 19
Glossary ................................................................ 20
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Interest rates rose sharply in the six months ended September 30, 1999,
limiting returns for short-term government bonds. For the six months, the
Salomon Brothers 1- to 3-Year Treasury/Agency Index returned 1.85%.
* Rates rose in part because consumer prices experienced their biggest monthly
increase in almost nine years during April.
* To try to cool the economy and preempt future inflation, the Federal Reserve
raised interest rates twice during the summer.
* Signs of continued economic strength and the expectation of an additional Fed
rate hike pushed bond yields to their highest levels in two years by the end
of September.
* Government agency and mortgage-backed securities also endured a difficult six
months, though a strong September helped them outperform Treasurys.
MANAGEMENT Q&A
* American Century Short-Term Government's return was disappointing, reflecting
the poor investment climate for bonds.
* The portfolio underperformed the average short government fund early in 1999
for many of the same reasons it did so well in 1998--it had a longer duration
and was overweight in discount mortgages.
* Having a longer duration helped returns in 1998, when interest rates hit
record lows, but limited fund performance in the six months ended September
30, 1999.
* The fund's overweight in discount mortgages also detracted from performance.
Discount mortgages tend to be more sensitive than other mortgage-backed
securities to changes in interest rates.
* On the positive side, the portfolio generated more income than the average
short government fund. As of September 30, Short-Term Government's 30-day SEC
yield ranked in the top quarter of the Lipper group.
* We made some adjustments to the portfolio to try and improve performance
relative to the Lipper group. Those changes appear to be working so far--the
fund's return for the third quarter beat the Lipper group average.
[left margin]
SHORT-TERM GOVERNMENT(1)
(TWUSX)
TOTAL RETURNS: AS OF 9/30/99
6 Months 0.73%(2)
1 Year 1.67%
30-DAY SEC YIELD: 5.68%
INCEPTION DATE: 12/15/82
NET ASSETS: $803.0 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 20-21.
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
Higher interest rates limited returns for U.S. government securities for
the six months ended September 30, 1999. Short-term securities, which are least
sensitive to rate changes, held up better than long-term bonds (see the table at
right).
RISING RATES
Interest rates, which had been inching higher since hitting record lows in
late 1998, jumped dramatically in April and May. Rates shot higher because
consumer prices experienced their biggest monthly increase in almost nine years
during April. In addition, the Federal Reserve (the U.S. central bank) signaled
its willingness to raise interest rates to preempt future inflation.
True to its word, the Fed raised short-term rates twice, once during June
and again in August. The Fed characterized these rate increases as a reversal of
the rate cuts made late last year, and said that returning short-term rates to
mid-1998 levels would reduce the risk of future inflation.
Signs of continued economic strength and anecdotal evidence of rising wages
were a further source of concern for bond investors. And in September, the Fed
announced that it had adopted a bias toward raising interest rates further. As a
result, bond yields continued to rise in anticipation of a final rate hike
before year's end.
That pushed yields on two- to five-year Treasurys--which tend to be very
responsive to changes in Fed interest rate policy--higher (see the accompanying
graph). From March to September, the yield on two-year Treasurys rose about 60
basis points (a basis point equals 0.01%, so 60 basis points equal 0.60%). By
the end of September, Treasury bond yields had risen to their highest levels in
two years.
AGENCY AND MORTGAGE-BACKED SECURITIES
Government agency and mortgage-backed securities also produced
disappointing results for the six months, though they held up slightly better
than Treasurys because of their higher interest coupons.
Changes in the spread, or difference in yield, between these securities and
Treasurys also affected performance. The wider the spread, the better Treasurys
do relative to mortgages and agencys; the narrower the spread, the worse
Treasurys' relative performance.
Spreads widened dramatically early in 1999 because of supply and demand
factors. Mortgage supply was heavy thanks to record home sales and rapid
mortgage refinancing activity. While supply of these bonds was increasing,
Treasury bond supply actually declined because healthier federal budgets mean
less government borrowing.
But after a difficult second quarter of 1999, supply and demand for
mortgages and agencys improved in the third quarter. As a result, yield spreads
narrowed--particularly in September--and mortgages and agencys performed better.
[right margin]
"HIGHER INTEREST RATES LIMITED RETURNS FOR U.S. GOVERNMENT SECURITIES."
BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
SALOMON BROTHERS 1- TO 3-YEAR
TREASURY/AGENCY INDEX 1.85%
SALOMON BROTHERS 3- TO 10-YEAR
TREASURY INDEX -0.01%
SALOMON BROTHERS LONG-TERM
TREASURY/AGENCY INDEX -2.76%
Source: Russell/Mellon Analytical Services and Bloomberg Financial Markets
[line graph - data below]
RISING TREASURY YIELD CURVE
3/31/99 9/30/99
YEARS TO
MATURITY
1 4.72% 5.19%
2 4.99% 5.60%
3 5.03% 5.65%
4 5.07% 5.70%
5 5.10% 5.76%
6 5.13% 5.78%
7 5.16% 5.80%
8 5.19% 5.82%
9 5.22% 5.84%
10 5.24% 5.87%
11 5.26% 5.88%
12 5.28% 5.89%
13 5.30% 5.90%
14 5.32% 5.91%
15 5.34% 5.92%
16 5.36% 5.93%
17 5.38% 5.94%
18 5.40% 5.95%
19 5.42% 5.96%
20 5.44% 5.97%
21 5.46% 5.98%
22 5.48% 5.99%
23 5.50% 6.00%
24 5.52% 6.01%
25 5.54% 6.01%
26 5.56% 6.02%
27 5.58% 6.02%
28 5.60% 6.03%
29 5.62% 6.04%
30 5.63% 6.05%
Source: Bloomberg Financial Markets
www.americancentury.com 3
<TABLE>
<CAPTION>
Short-Term Government--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 12/15/82) ADVISOR CLASS (INCEPTION 7/8/98)
SHORT-TERM SALOMON 1- TO 3-YR. SHORT U.S. GOVERNMENT FUNDS(2) SHORT-TERM SALOMON 1- TO 3-YR.
GOVERNMENT TREAS./AGENCY INDEX AVERAGE RETURN FUND'S RANKING GOVERNMENT TREAS./AGENCY INDEX
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 0.73% 1.85% 1.29% -- 0.60% 1.85%
1 YEAR 1.67% 3.25% 2.44% 54 OUT OF 74 1.42% 3.25%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.02% 6.00% 5.01% 38 OUT OF 57 -- --
5 YEARS 5.53% 6.35% 5.44% 24 OUT OF 47 -- --
10 YEARS 5.73% 6.80% 5.95% 9 OUT OF 13 -- --
LIFE OF FUND 6.90% 8.03%(3) 7.16%(3) 2 OUT OF 3(3) 3.24% 5.05%(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 12/31/82, the date nearest the class's inception for which data are
available.
(4) Since 7/31/98, the date nearest the class's inception for which data are
available.
See pages 18-20 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS Value on 9/30/99 Salomon Salomon 1- to 3-Year
Treasury/Agency Index $19,316
Short-Term Government $17,456
Short-Term Salomon 1- to 3-Year
Government Treasury/Agency Index
DATE VALUE VALUE
9/30/1989 $10,000 $10,000
9/30/1990 $10,675 $10,934
9/30/1991 $11,839 $12,164
9/30/1992 $12,916 $13,377
9/30/1993 $13,356 $14,043
9/30/1994 $13,339 $14,200
9/30/1995 $14,370 $15,351
9/30/1996 $15,070 $16,225
9/30/1997 $16,003 $17,339
9/30/1998 $17,169 $18,708
9/30/1999 $17,456 $19,316
$10,000 investment made 9/30/89
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
Salomon 1- to 3-Year Treasury/ Agency Index is provided for comparison in each
graph. Short-Term Government'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. The graphs are based on Investor Class shares only;
performance for other classes will vary due to differences in fee structures
(see the Total Returns table above). 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 SEPTEMBER 30)
Short-Term Salomon 1- to 3-Year
Government Treasury/Agency Index
DATE RETURN RETURN
9/30/1990 6.75% 9.34%
9/30/1991 10.90% 11.25%
9/30/1992 9.10% 9.97%
9/30/1993 3.41% 4.98%
9/30/1994 -0.13% 1.12%
9/30/1995 7.73% 8.10%
9/30/1996 4.87% 5.70%
9/30/1997 6.19% 6.86%
9/30/1998 7.29% 7.90%
9/30/1999 1.67% 3.25%
4 1-800-345-2021
Short-Term Government--Q&A
- --------------------------------------------------------------------------------
[photo of Newlin Rankin]
An interview with Newlin Rankin, a portfolio manager on the Short-Term
Government fund investment team.
HOW DID SHORT-TERM GOVERNMENT PERFORM IN THE SIX MONTHS ENDED SEPTEMBER 30,
1999?
The portfolio's performance was disappointing, and reflects the difficult
investment climate for bonds so far in 1999 (see page 3). For the six months,
Short-Term Government returned 0.73%, compared with the 1.29% average return of
the 74 Short U.S. Government funds tracked by Lipper Inc.* (See the previous
page for additional performance comparisons.)
CAN YOU EXPLAIN THE PORTFOLIO'S PERFORMANCE RELATIVE TO THE LIPPER GROUP?
The portfolio underperformed for the first nine months in 1999 for the very
same reasons it did well in 1998--it had a longer duration and an overweight in
mortgage-backed securities, particularly discount mortgages. That strategy
helped performance in 1998, when interest rates hit record lows. But it hindered
performance this year as interest rates rose to two-year highs. In addition, the
spread-- or difference in yield--between Treasury and mortgage-backed securities
widened for much of the period before narrowing again in September. When the
yield spread widens, mortgages underperform Treasurys.
LET'S GO BACK TO DURATION. CAN YOU TELL US WHAT DURATION IS AND HOW YOU MANAGED
IT?
Sure. Duration measures a portfolio's sensitivity to changes in interest
rates. The longer a fund's duration, the more its price gains when rates fall,
and the more its price falls when rates rise. Conversely, a shorter duration
means a bond portfolio's price fluctuates less when rates change. So, ideally,
you want to have a longer duration when interest rates are falling and a shorter
duration when rates are rising. Our duration was a drag on performance because
it was slightly long in a rising rate environment. That's largely because the
duration of the mortgage-backed securities in the portfolio extended.
HOW DO MORTGAGE-BACKED SECURITIES RELATE TO DURATION?
The duration of mortgage-backed securities increases when interest rates
rise because homeowners are less likely to refinance their mortgages. This is
called "duration extension." You can see duration extension at work in the
portfolio--our duration lengthened from 1.9 to 2.2 years during the second
quarter of 1999, when rates rose sharply.
One reason the change in interest rates and duration had such an effect on
the portfolio in the second quarter was that we were overweight in "discount"
mortgages. Discount mortgages are securities that have interest coupons below
prevailing mortgage rates. They're less likely to be refinanced, so they helped
returns when rates were declining. But this positioning limited returns when
rates rose because discount securities have longer durations than premium
mortgages (securities with coupons higher than current mortgage rates).
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"THE PORTFOLIO UNDERPERFORMED FOR THE FIRST NINE MONTHS IN 1999 FOR THE VERY
SAME REASONS IT DID WELL IN 1998."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 102 107
WEIGHTED AVERAGE
MATURITY 2.7 YRS 2.9 YRS
AVERAGE DURATION 1.9 YRS 1.9 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.59%* 0.59%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.68% 5.43%
Investment terms are defined in the Glossary on pages 20-21.
www.americancentury.com 5
Short-Term Government--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT ARE SOME ADVANTAGES OF HOLDING A LARGE STAKE IN MORTGAGE-BACKED
SECURITIES?
Mortgage-backed securities typically offer yields that are significantly
higher than Treasury yields. In recent months, mortgages were as attractive
relative to Treasurys as they've been in about two years. So the silver lining
to the fund's recent performance is that Short-Term Government offers
shareholders a very attractive yield. On September 30, our fund had a 30-day SEC
yield of 5.68%, while the average short government fund had a yield of 5.18%,
according to Lipper. That yield ranks in the top quarter of the Lipper group.
OKAY, SO SHORT-TERM GOVERNMENT HAS AN ATTRACTIVE YIELD, BUT WHAT CHANGES DID YOU
MAKE TO TRY TO IMPROVE ITS TOTAL RETURN?
We brought duration down to 1.9 years by the end of September by reducing
our stake in collateralized mortgage obligations from 60% of assets at the end
of June to about 40%. We took that money and put it to work in more liquid
(easily bought and sold) mortgage pass-through securities and Treasurys. The
remaining 10% or so of assets we kept in cash. We're using that cash to offset
our longer-term securities and help keep duration low. Holding a modest amount
of cash and longer-term bonds has also positioned the fund to benefit from a
flattening of the short- to intermediate-term portion of the yield curve. That's
when the difference between short- and long-term bond yields diminishes, as
happened in the last six months (see page 3).
Finally, we exchanged some of our discount mortgage-backed securities for
premium mortgages. Premium mortgages tend to outperform discounts when interest
rates are stable or rising.
HAVE THESE CHANGES HAD A POSITIVE EFFECT ON THE PORTFOLIO YET?
Yes, we think so. Short-Term Government bounced back in the third quarter,
beating its Lipper group average. For the three months, Short-Term Government
returned 1.26%, while the return of the average short government fund was 0.93%,
according to Lipper.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We're somewhat cautious because we think rates could head a little higher
still. Economic growth remains very strong, while wages had their largest
monthly gain in 16 years during September. What's more, the Federal Reserve's
been pretty clear about its intention to take back the three interest rate cuts
it made last year--we've seen only two rate hikes this year. So we think the Fed
will do the prudent thing and take out a little more insurance against
inflation.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND?
Because we think rates are likely to rise modestly, we'll continue to
position the fund conservatively. That means we'll probably keep duration
relatively short, holding premium mortgage-backed securities as well as more
cash and Treasury securities. That positioning should help limit the fund's
exposure to rate changes, while providing some added liquidity as we head into
year's end.
[left margin]
"SHORT-TERM GOVERNMENT BOUNCED BACK IN THE THIRD QUARTER, BEATING ITS LIPPER
GROUP AVERAGE."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
Mortgage-Backed Securities 65%
U.S. Treasury Securities 23%
Temporary Cash Investments 12%
AS OF MARCH 31, 1999
Mortgage-Backed Securities 61%
U.S. Treasury Securities 34%
Temporary Cash Investments 5%
Investment terms are defined in the Glossary on pages 20-21.
6 1-800-345-2021
Short-Term Government--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 23.3%
$130,000 U.S. Treasury Notes, 5.50%,
8/31/01 $129,714
50,000 U.S. Treasury Bonds, 11.625%,
11/15/02 58,140
--------
TOTAL U.S. TREASURY SECURITIES 187,854
--------
(Cost $187,588)
ADJUSTABLE-RATE MORTGAGE SECURITIES(1) -- 5.0%
FHLMC -- 1.6%
9,294 FHLMC Pool #605188, 6.86%,
4/1/18 9,514
33 FHLMC Pool #635104, 6.60%,
8/1/18 34
368 FHLMC Pool #606095, 7.12%,
11/1/18 376
1,749 FHLMC Pool #755188, 6.74%,
9/1/20 1,798
322 FHLMC Pool #390263, 6.00%,
1/1/21 317
53 FHLMC Pool #775473, 6.86%,
6/1/21 52
646 FHLMC Pool #876559, 7.45%,
3/1/24 659
--------
12,750
--------
FNMA -- 3.3%
320 FNMA Pool #020155, 7.49%,
8/1/14 320
58 FNMA Pool #009781, 7.07%,
10/1/14 57
165 FNMA Pool #025432, 6.375%,
4/1/16 168
231 FNMA Pool #036922, 7.125%,
8/1/16 237
318 FNMA Pool #105843, 7.23%,
1/1/17 330
1,231 FNMA Pool #061401, 7.23%,
5/1/17 1,291
230 FNMA Pool #061392, 6.98%,
7/1/17 241
831 FNMA Pool #066415, 6.61%,
7/1/17 856
198 FNMA Pool #064708, 7.25%,
2/1/18 205
871 FNMA Pool #070030, 6.63%,
2/1/18 894
99 FNMA Pool #162880, 6.70%,
5/1/18 101
219 FNMA Pool #070186, 6.58%,
6/1/18 226
591 FNMA Pool #013786, 7.15%,
8/1/18 596
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 180 FNMA Pool #116473, 6.63%,
12/1/18 $ 185
407 FNMA Pool #244477, 6.48%,
8/1/19 418
2,402 FNMA Pool #142402, 6.72%,
9/1/19 2,478
897 FNMA Pool #070595, 6.40%,
1/1/20 917
9,957 FNMA Pool #313611, 6.53%,
12/1/20 10,169
397 FNMA Pool #336479, 7.14%,
3/1/21 411
343 FNMA Pool #129482, 6.20%,
8/1/21 336
656 FNMA Pool #145556, 6.50%,
1/1/22 674
902 FNMA Pool #163993, 6.89%,
5/1/22 929
319 FNMA Pool #334441, 6.70%,
5/1/22 324
423 FNMA Pool #169868, 6.83%,
6/1/22 435
320 FNMA Pool #173165, 6.81%,
7/1/22 328
136 FNMA Pool #178295, 7.03%,
9/1/22 139
106 FNMA Pool #328733, 7.03%,
1/1/23 109
194 FNMA Pool #220498, 7.13%,
6/1/23 201
142 FNMA Pool #222649, 7.14%,
7/1/23 147
391 FNMA Pool #190647, 6.92%,
8/1/23 402
1,620 FNMA Pool #303336, 6.66%,
8/1/23 1,657
159 FNMA Pool #318767, 7.32%,
10/1/25 163
71 FNMA Pool #062836, 6.23%,
4/1/26 70
129 FNMA Pool #062835, 6.39%,
1/1/27 126
142 FNMA Pool #070184, 6.80%,
1/1/27 147
246 FNMA Pool #070716, 6.26%,
1/1/29 242
137 FNMA Pool #091689, 6.24%,
2/1/29 140
--------
26,669
--------
GNMA -- 0.1%
100 GNMA Pool #008230, 6.38%,
5/20/17 101
279 GNMA Pool #008763, 6.88%,
2/20/21 286
186 GNMA Pool #008872, 6.625%,
11/20/21 191
See Notes to Financial Statements www.americancentury.com 7
Short-Term Government--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 7 GNMA Pool #008902, 6.375%,
1/20/22 $ 7
185 GNMA Pool #008964, 7.125%,
8/20/26 188
--------
773
--------
TOTAL ADJUSTABLE-RATE
MORTGAGE SECURITIES 40,192
--------
(Cost $40,492)
FIXED-RATE MORTGAGE SECURITIES(1) -- 20.2%
FHLMC -- 5.2%
5,266 FHLMC Pool #G40164, 6.50%,
11/1/02 5,264
4,262 FHLMC Pool #G10439, 6.50%,
1/1/11 4,213
7,029 FHLMC Pool #E64136, 6.50%,
5/1/11 6,936
13,797 FHLMC Pool #E00526, 6.00%,
12/1/12 13,333
12,663 FHLMC Pool #E00535, 6.00%,
2/1/13 12,237
--------
41,983
--------
FNMA -- 14.8%
8,309 FNMA Pool #356801, 6.00%,
12/1/08 8,094
5,006 FNMA Pool #332814, 6.00%,
7/1/09 4,877
9,979 FNMA Pool #313525, 7.50%,
5/1/12 10,151
9,804 FNMA Pool #313958, 6.50%,
1/1/13 9,651
11,205 FNMA Pool #418186, 6.50%,
5/1/13 11,019
25,067 FNMA Pool #190835, 7.00%,
6/1/14 25,000
25,000 FNMA Pool #516209, 7.50%,
8/1/14 25,415
25,000 FNMA Pool #252868, 7.50%,
10/1/14 25,409
--------
119,616
--------
GNMA -- 0.2%
2 GNMA Pool #127619, 12.50%,
6/15/00 2
8 GNMA Pool #126325, 11.50%,
8/15/00 8
189 GNMA Pool #001565, 5.50%,
1/20/09 179
70 GNMA Pool #179457, 9.00%,
12/20/16 73
85 GNMA Pool #199973, 9.00%,
12/20/16 89
343 GNMA Pool #220128, 9.00%,
8/20/17 360
134 GNMA Pool #220134, 9.50%,
8/20/17 142
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 77 GNMA Pool #234860, 9.50%,
10/20/17 $ 82
459 GNMA Pool #001291, 9.50%,
11/20/19 489
--------
1,424
--------
TOTAL FIXED-RATE MORTGAGE SECURITIES 163,023
--------
(Cost $164,655)
COLLATERALIZED MORTGAGE OBLIGATIONS(1) -- 39.2%
FHLMC -- 22.8%
1,006 FHLMC REMIC, Series 1528,
Class A, 6.50%, 12/15/00 1,006
4,804 FHLMC REMIC, Series 1587,
Class EB PAC-1, 5.50%,
5/15/07 4,798
6,490 FHLMC REMIC, Series 1678,
Class PE PAC, 5.60%,
7/15/07 6,481
34,300 FHLMC REMIC, Series 2034,
Class PC PAC, 6.00%,
11/15/18 33,933
6,372 FHLMC REMIC, Series 1861,
Class E SEQ, 6.50%, 8/15/20 6,366
27,165 FHLMC REMIC, Series 35,
Class PG PAC-1, 7.50%,
10/17/20 27,549
50,000 FHLMC REMIC, Series 2066,
Class PQ PAC, 6.15%,
3/15/21 49,522
15,731 FHLMC REMIC, Series 1652,
Class PH PAC-1, 6.35%,
7/15/21 15,709
4,407 FHLMC REMIC, Series 1934,
Class HB SEQ, 6.50%,
8/17/21 4,410
19,835 FHLMC REMIC, Series 1560,
Class PY PAC-1, 5.95%,
11/15/21 19,101
9,528 FHLMC REMIC, Series 1896,
Class C SEQ, 7.00%,
11/15/21 9,584
4,997 FHLMC REMIC, Series 1558,
Class A TAC, 6.00%, 5/15/22 4,934
--------
183,393
--------
FNMA -- 14.2%
9,845 FNMA REMIC, Series 1993-163,
Class PM, 7.00%, 3/25/04 9,949
8,486 FNMA REMIC, Series 1991-146,
Class Z PAC, 8.00%,
10/25/06 8,641
7,599 FNMA REMIC, Series 1994-7,
Class PD PAC-1, 6.05%,
7/25/07 7,602
6,903 FNMA REMIC, Series 1993-233,
Class J, 6.00%, 6/25/08 6,811
1,798 FNMA REMIC, Series 1996-10,
Class A SEQ, 6.50%,
11/25/17 1,797
8 1-800-345-2021 See Notes to Financial Statements
Short-Term Government--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 2,761 FNMA REMIC, Series 1996-12,
Class A SEQ, 6.50%,
12/25/17 $ 2,762
66 FNMA REMIC, Series G93-29,
Class A SEQ, 6.65%,
10/25/18 66
7,056 FNMA REMIC, Series 1996-64,
Class PB PAC, 6.50%,
1/18/19 7,062
7,000 FNMA REMIC, Series 1993-87,
Class G, 6.50%, 1/25/19 6,987
19,000 FNMA REMIC, Series 1993-120,
Class G PAC-1, 4.50%,
4/25/19 18,382
17,125 FNMA REMIC, Series 1993-116,
Class D PAC, 5.75%, 8/25/19 16,889
13,838 FNMA REMIC, Series 1997-20,
Class E SEQ, 7.00%, 6/17/20 13,821
14,000 FNMA REMIC, Series 1998-29,
Class AB SEQ, 6.40%,
8/20/23 13,769
--------
114,538
--------
GNMA -- 2.2%
1,653 GNMA REMIC, Series 1996-15,
Class K SEQ, 7.00%, 9/16/06 1,662
2,905 GNMA REMIC, Series 1996-15,
Class J SEQ, 7.00%, 1/16/07 2,924
13,081 GNMA REMIC, Series 1996-2,
Class B SEQ, 6.60%, 9/20/20 13,034
--------
17,620
--------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
PRIVATE LABEL(2)
$ 87 Dean Witter Trust I Floater,
Series I, Class A, Underlying
Collateral FHLMC, 6.00%,
10/20/99, resets quarterly off
the 1-month LIBOR plus 0.50%
with a 0.50% floor and a
13.00% cap, final maturity
4/20/18(3) $ 87
--------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS 315,638
--------
(Cost $318,182)
TEMPORARY CASH INVESTMENTS -- 12.3%
Repurchase Agreement, BA Security Services,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.21%, dated 9/30/99,
due 10/1/99 (Delivery value $40,053) 40,047
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations), in a
joint trading account at 5.20%, dated
9/30/99, due 10/1/99 (Delivery value
$18,841) 18,838
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 5.25%, dated 9/30/99,
due 10/1/99 (Delivery value $40,053) 40,047
--------
TOTAL TEMPORARY CASH INVESTMENTS 98,932
--------
(Cost $98,932)
TOTAL INVESTMENT SECURITIES -- 100.0% $805,639
========
(Cost $809,849)
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Category is less than 0.05% of total investment securities.
(3) Interest reset date is indicated. Rate shown is effective September 30,
1999.
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. For each class of shares, 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).
SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
(In Thousands Except Per-Share Amounts)
Investment securities, at value
(identified cost of $809,849) (Note 3) ................. $ 805,639
Cash ..................................................... 1,345
Receivable for investments sold .......................... 107
Interest receivable ...................................... 5,668
-------------
812,759
-------------
LIABILITIES
Payable for investments purchased ........................ 8,664
Accrued management fees (Note 2) ......................... 381
Dividends payable ........................................ 717
Payable for trustees' fees and expenses .................. 2
Accrued expenses and other liabilities ................... 23
-------------
9,787
-------------
Net Assets ............................................... $ 802,972
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) .................. $ 898,705
Accumulated net realized loss
on investment transactions ............................. (91,523)
Net unrealized depreciation
on investments (Note 3) ................................ (4,210)
-------------
$ 802,972
=============
Investor Class ($ and shares in full)
Net assets ............................................... $ 802,672,132
Shares outstanding ....................................... 86,434,124
Net asset value per share ................................ $ 9.29
Advisor Class ($ and shares in full)
Net assets ............................................... $ 299,453
Shares outstanding ....................................... 32,246
Net asset value per share ................................ $ 9.29
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 dividend and interest income, fees
and expenses, and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
INVESTMENT INCOME
(In Thousands)
Income:
Interest .................................................... $ 23,737
--------
Expenses (Note 2):
Management fees ............................................. 2,369
Trustees' fees and expenses ................................. 13
--------
2,382
--------
Net investment income ....................................... 21,355
--------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ............................ (11,985)
Change in net unrealized depreciation
on investments ............................................ (4,049)
--------
Net realized and unrealized
loss on investments ....................................... (16,034)
--------
Net Increase in Net Assets
Resulting from Operations ................................. $ 5,321
========
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.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
SEPTEMBER 30, MARCH 31,
Increase (Decrease) in Net Assets 1999 1999
OPERATIONS
(In Thousands)
Net investment income ............................ $ 21,355 $ 42,401
Net realized gain (loss) on investments .......... (11,985) 586
Change in net unrealized
depreciation on investments .................... (4,049) 287
--------- ---------
Net increase in net assets
resulting from operations ...................... 5,321 43,274
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ................................. (21,351) (42,400)
Advisor Class .................................. (4) (1)
--------- ---------
Decrease in net assets from distributions ........ (21,355) (42,401)
--------- ---------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from
capital share transactions ..................... (13,432) 23,101
--------- ---------
Net increase (decrease) in net assets ............ (29,466) 23,974
NET ASSETS
Beginning of period .............................. 832,438 808,464
--------- ---------
End of period .................................... $ 802,972 $ 832,438
========= =========
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 as an open-end management
investment company. Short-Term Government Fund (the fund) is one of the eight
funds issued by the trust. The fund is diversified under the 1940 Act. The
investment objective of the fund is to provide investors with a high level of
current income, consistent with stability of principal. The fund intends to
pursue this objective by investing in securities of the U.S. government and its
agencies.
The fund is authorized to issue two classes of shares: the Investor Class
and the Advisor Class. The two classes of shares differ principally in their
respective shareholder servicing and distribution expenses and arrangements. All
shares of the fund represent an equal pro rata interest in the assets of the
class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. 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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Trustees. Each repurchase agreement is recorded at cost.
The fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including interest, of the securities under
each repurchase agreement is equal to or greater than amounts owed to the fund
under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
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 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 in excess of available capital loss carryovers 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.
As of March 31, 1999, the fund had an accumulated net realized capital loss
carryover of $77,455,021 (expiring in 2001 through 2004), which may be used to
offset future taxable gains.
The fund has elected to treat $1,718,863 of net capital losses incurred in
the five month period ended March 31, 1999, as having been incurred in the
following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with ACIM, under which
ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the fund, except brokerage, taxes, portfolio insurance,
interest, fees and expenses of the trustees who are not considered "interested
persons" as defined in the Investment Company Act of 1940 (including counsel
fees) and extraordinary expenses, 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 0.2425% to 0.3600% and the
rates for the Complex Fee (Investor Class) range from 0.2900% to 0.3100%. The
Advisor Class is 0.2500% less at each point within the Complex Fee range. For
the six months ended September 30, 1999, the effective annual Investor Class
management fee was 0.59%.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plan provides that the fund will pay ACIM an annual
distribution fee equal to 0.25% and service fee equal to 0.25%. The fees are
computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred by
the fund under the plan during the six months ended September 30, 1999, were
$373.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, and the
trust's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of U.S. Government and Agency securities, excluding
short-term investments, for the six months ended September 30, 1999, were
$1,200,919,168 and $1,196,492,515, respectively.
On September 30, 1999, accumulated net unrealized depreciation was
$4,568,478, based on the aggregate cost of investments for federal income tax
purposes of $810,206,893, which consisted of unrealized appreciation of $907,456
and unrealized depreciation of $5,475,934.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows (unlimited number of shares
authorized):
SHARES AMOUNT
INVESTOR CLASS (In Thousands)
Six months ended September 30, 1999
Sold ............................................. 6,276 $ 58,205
Issued in reinvestment of distributions .......... 2,133 19,882
Redeemed ......................................... (9,865) (91,726)
--------- ---------
Net decrease ..................................... (1,456) $ (13,639)
========= =========
Year ended March 31, 1999
Sold ............................................. 18,555 $ 176,717
Issued in reinvestment of distributions .......... 4,159 39,563
Redeemed ......................................... (20,283) (193,273)
--------- ---------
Net increase ..................................... 2,431 $ 23,007
========= =========
ADVISOR CLASS (In Thousands)
Six months ended September 30, 1999
Sold ............................................. 31 $ 291
Issued in reinvestment of distributions .......... -- 3
Redeemed ......................................... (9) (87)
--------- ---------
Net increase ..................................... 22 $ 207
========= =========
July 8, 1998(1) through March 31, 1999
Sold ............................................. 12 $ 117
Issued in reinvestment of distributions .......... -- 1
Redeemed ......................................... (2) (24)
--------- ---------
Net increase ..................................... 10 $ 94
========= =========
(1) Commencement of sale of the Advisor Class.
- --------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.40%. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The fund did not borrow from the line during the six
months ended September 30, 1999.
www.americancentury.com 15
<TABLE>
<CAPTION>
Short-Term Government--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 share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
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 MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998(2) 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period ....... $ 9.47 $ 9.46 $ 9.49 $ 9.47 $ 9.51 $ 9.27 $ 9.67
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ... 0.24 0.49 0.21 0.52 0.51 0.52 0.40
Net Realized and
Unrealized Gain
(Loss) on Investment
Transactions ............ (0.18) 0.01 (0.03) 0.02 (0.04) 0.24 (0.40)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations .............. 0.06 0.50 0.18 0.54 0.47 0.76 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment
Income .................. (0.24) (0.49) (0.21) (0.52) (0.51) (0.52) (0.40)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period ........... $ 9.29 $ 9.47 $ 9.46 $ 9.49 $ 9.47 $ 9.51 $ 9.27
=========== =========== =========== =========== =========== =========== ===========
Total Return(3) ......... 0.73% 5.39% 1.95% 5.86% 5.09% 8.42% 0.07%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..... 0.59%(4) 0.59% 0.59%(4) 0.68% 0.70% 0.70% 0.81%
Ratio of Net
Investment Income
to Average Net Assets ..... 5.27%(4) 5.15% 5.43%(4) 5.53% 5.39% 5.53% 4.17%
Portfolio Turnover Rate ... 185% 196% 54% 293% 246% 128% 470%
Net Assets, End of Period
(in thousands) ............ $ 802,672 $ 832,344 $ 808,464 $ 519,332 $ 349,772 $ 391,331 $ 396,753
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) The fund's fiscal year end was changed from October 31 to March 31 resulting
in a five month reporting period. For years ended prior to 1998, the fund's
fiscal year end was October 31.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
16 1-800-345-2021 See Notes to Financial Statements
Short-Term Government--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Advisor Class
1999(1) 1999(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ...................... $ 9.47 $ 9.49
------- -------
Income From Investment Operations
Net Investment Income .................... 0.23 0.33
Net Realized and Unrealized Loss
on Investment Transactions ............... (0.18) (0.02)
------- -------
Total From Investment Operations ......... 0.05 0.31
------- -------
Distributions
From Net Investment Income ............... (0.23) (0.33)
------- -------
Net Asset Value, End of Period ............. $ 9.29 $ 9.47
======= =======
Total Return(3) .......................... 0.60% 3.37%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................... 0.84%(4) 0.84%(4)
Ratio of Net Investment Income
to Average Net Assets .................... 5.02%(4) 4.77%(4)
Portfolio Turnover Rate .................... 185% 196%
Net Assets, End of Period
(in thousands) ........................... $ 299 $ 94
(1) Six months ended September 30, 1999 (unaudited).
(2) July 8, 1998 (commencement of sale) through March 31, 1999.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 17
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
INVESTOR CLASS shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
ADVISOR CLASS shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the fund and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
18 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each fund's
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
SHORT-TERM GOVERNMENT seeks current income by investing in U.S. government
and agency securities. The fund maintains a weighted average maturity of three
years or less. Fund shares are not guaranteed by the U.S. government.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The SALOMON BROTHERS 1- TO 3-YEAR TREASURY/AGENCY INDEX is based on the
price fluctuations of U.S. Treasury and government agency notes with maturities
of 1-3 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 funds in Lipper's SHORT U.S. GOVERNMENT FUNDS category invest at least
65% of assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, with dollar-weighted average maturities of less
than three years.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Manager
NEWLIN RANKIN
www.americancentury.com 19
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 16-17.
YIELDS
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES -- the number of different securities held by the fund on
a given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* AVERAGE DURATION -- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio. As the
duration of the portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
INVESTMENT TERMS
* BASIS POINT -- one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%). Basis points are used to clearly
describe interest rate changes. For example, if a news report indicates that
interest rates rose by 1%, does that mean 1% of the previous rate or one
percentage point? It is more accurate to state that interest rates rose by 100
basis points.
* 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.
Most "normal" yield curves start in the lower left corner of the graph and rise
to the upper right corner, indicating that yields rise as maturities lengthen.
This upward sloping yield curve illustrates a normal risk/return
relationship--more return (yield) for more risk (a longer maturity). Conversely,
a "flat" yield curve provides little or no extra return for taking on more risk.
SECURITY TYPES
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans. Most mortgage-backed securities are structured as
"pass-throughs"--the monthly payments of principal and interest on the mortgages
in the pool are collected by the bank that is servicing the mortgages and are
"passed through" to investors. While the payments of principal and interest are
considered secure (many are backed by government agency guarantees), the cash
flow is less certain than in other fixed-income investments. Mortgages that are
paid off early reduce future interest payments from the pool.
20 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
* U.S. GOVERNMENT AGENCY SECURITIES -- debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
Some agency securities are backed by the full faith and credit of the U.S.
government, while others are guaranteed only by the issuing agency. Government
agency securities include discount notes (maturing in one year or less) and
medium-term notes, debentures, and bonds (maturing in three months to 50 years).
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years), and bonds (maturing in more than 10 years).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 21
Notes
- --------------------------------------------------------------------------------
22 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 23
Notes
- --------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[american century logo (reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc. is
9911 the distributor of American Century funds
SH-ANN-18627 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
GNMA
[american century logo (reg. sm)]
American
Century
[inside front cover]
GNMA
(BGNMX)
- ----------------------------------------
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
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
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Questions? Call 1-800-345-2021 or go to www.americancentury.com.
Our Message to You
- --------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
Strong economic growth and anxiety about inflation resulted in higher
interest rates during the six months ended September 30, 1999. The recovery of
overseas economies and unabated U.S. growth influenced the Federal Reserve (the
U.S. central bank) to raise short-term interest rates twice during the summer of
1999 to rein in the U.S. economy and reduce pressures on prices and wages.
The GNMA fund's relatively high yield and moderate interest rate
sensitivity helped cushion the decline in bond prices caused by rising interest
rates. We're also proud to report that the fund continued to provide
above-average yields and returns. Fund investors have benefited from our
commitment to build and maintain a talented fund management group. American
Century's entire investment management team has doubled in size over the past
three years.
Turning to corporate matters, American Century has long been an active
supporter of the development and use of technologies that improve the
efficiencies of capital markets, lower the costs of trading securities, and
ultimately offer better returns for shareholders. Toward that end, we've
recently made strategic investments in several other financial services firms,
including Archipelago, Optimark, Tradepoint Financial Networks, W.R. Hambrecht,
and, most recently, WorldStreet Corporation. WorldStreet, located in Boston, is
developing a customized software application that marries portfolio holdings
with real-time market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature--part of the
personalized performance section --as the key reason it ranked our statement
second out of 88 mutual fund company statements in the nation.
One final note -- in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our diligence in this area
is very important to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
GNMA
Performance Information ................................................. 4
Management Q&A .......................................................... 5
Portfolio at a Glance ................................................... 5
Yields .................................................................. 5
Types of Investments .................................................... 6
Schedule of Investments ................................................. 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities .......................................................... 9
Statement of Operations ................................................. 10
Statements of Changes
in Net Assets ........................................................ 11
Notes to Financial
Statements ........................................................... 12
Financial Highlights .................................................... 15
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................. 17
Background Information
Investment Philosophy
and Policies ...................................................... 18
Comparative Indices .................................................. 18
Lipper Rankings ...................................................... 18
Investment Team
Leaders ........................................................... 18
Glossary ................................................................ 19
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Interest rates rose sharply in the six months ended September 30, 1999.
* Higher rates limited returns for mortgage-backed securities. For the six
months, the Salomon Brothers 30-Year GNMA Index rose just 0.60%.
* Rates rose in part because consumer prices experienced their biggest monthly
increase in almost nine years during April. That news reignited worry about
inflation.
* To try to cool the economy and preempt future inflation, the Federal Reserve
raised interest rates twice.
* Signs of continued economic strength and the expectation of an additional Fed
rate hike pushed bond yields to their highest level in two years by the end
of September.
* Heavy refinancing and home sales have meant a large supply of mortgages.
While the supply of mortgage-backed securities increased, Treasury bond
supply decreased.
* Because so many new mortgages have been created in the last year, when rates
have been relatively low, the average coupon on mortgage-backed securities
has declined.
MANAGEMENT Q&A
* American Century GNMA's return was limited by rising interest rates; however,
the fund continued to perform well relative to the average GNMA fund.
* The portfolio generated more income than the average GNMA fund. As of
September 30, American Century GNMA's 30-day SEC yield ranked in the top 10%
of the Lipper group.
* One reason GNMA's done well relative to the Lipper group is that our expenses
are below average. Other things being equal, lower expenses mean higher
yields and returns for our shareholders.
* Our benchmark-based management approach also helped performance. Trying to
meet or beat the benchmark has helped us produce solid long-term results
relative to the Lipper group.
* The portfolio's duration naturally lengthened as rates rose, mirroring the
changes we've seen in the benchmark's duration.
* We have a generally positive outlook for the mortgage market. We think
attractive yields will boost demand for mortgage-backed securities, while
supply should taper off as higher rates and lower consumer confidence mean
fewer refinancings and home sales.
[left margin]
GNMA(1)
(BGNMX)
TOTAL RETURNS: AS OF 9/30/99
6 Months -0.03%(2)
1 Year 1.65%
30-DAY SEC YIELD: 6.60%
INCEPTION DATE: 9/23/85
NET ASSETS: $1.4 billion(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 19-20.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- --------------------------------------------------------------------------------
[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
Higher interest rates limited returns for mortgage-backed securities during
the six months ended September 30, 1999, when the Salomon Brothers 30-Year GNMA
Index returned just 0.60%. Nevertheless, mortgage-backed securities outperformed
Treasury and corporate bonds for the six months.
RISING RATES
Interest rates, which had been edging higher since hitting record lows in
late 1998, jumped dramatically in April and May. The rate on a 30-year
fixed-rate home loan went from less than 7% in March to as high as 8.42% in
August, though mortgage rates moderated somewhat in September.
Consumer prices had their biggest monthly increase in almost nine years
during April. That led the Federal Reserve (the U.S. central bank) to raise
short-term interest rates twice during the summer to preempt future inflation.
But signs of continued economic strength and anecdotal evidence of rising
wages were a further source of stress for bond investors. As a result, bond
yields continued to rise in anticipation of the Fed making a final rate hike
before year's end. By the end of September, Treasury bond yields had risen to
their highest levels in two years.
MORTGAGE SUPPLY INCREASES
Despite the increase in interest rates, home sales remained surprisingly
strong before slowing modestly in September. Mortgage refinancing activity also
continued to run at a pace faster than the historical average, though the
Mortgage Bankers' Association Refinancing Index is significantly lower than its
record high of last October (see the graph at right).
All that refinancing and housing sales activity means a larger supply of
newly minted mortgage-backed securities. While mortgage supply was increasing,
the supply of Treasury bonds actually declined because healthier federal budgets
have reduced the government's borrowing needs. These factors combined to cause
the spread--or difference in yield between mortgages and Treasurys--to widen,
particularly during the summer. However, spreads narrowed and mortgage-backed
securities performed better, particularly in September.
AVERAGE COUPON DECLINES
A side effect of the heavy supply of new mortgages in the last year is that
the market has become increasingly concentrated in mortgage-backed securities
with interest rates--or coupons--of 7% or less.
Just four years ago, more than half the Salomon Brothers 30-Year GNMA Index
was made up of securities with coupons of 8% or more. Only about 40% of the
index had 6% or 7% coupons. Today, just 20% of mortgage-backed securities have
8% or higher coupons, while 6% and 7% securities make up the remaining 80% or so
of the index.
[right margin]
"INTEREST RATES, WHICH HAD BEEN EDGING HIGHER SINCE HITTING RECORD LOWS IN LATE
1998, JUMPED DRAMATICALLY IN APRIL AND MAY."
[line chart - data below]
RECORD REFINANCING WAVE SUBSIDES
Mortgage Bankers Association
Index of 10-Year
Refinancing Applications Treasury Yields
(right scale) (left scale)
3/31/98 1206.30 5.474%
4/10/98 1515.80 5.578%
4/17/98 1087.00 5.587%
4/24/98 1157.00 5.660%
5/1/98 1326.50 5.658%
5/8/98 1297.00 5.705%
5/15/98 1138.70 5.683%
5/22/98 1049.00 5.633%
5/29/98 939.40 5.554%
6/5/98 1120.70 5.579%
6/12/98 1209.60 5.431%
6/19/98 1406.20 5.467%
6/26/98 1202.00 5.457%
7/3/98 1176.50 5.407%
7/10/98 1305.50 5.411%
7/17/98 1292.20 5.505%
7/24/98 1320.20 5.453%
7/31/98 1278.80 5.496%
8/7/98 1291.90 5.401%
8/14/98 1310.50 5.424%
8/21/98 1211.90 5.300%
8/28/98 1331.50 5.066%
9/4/98 1924.00 5.005%
9/11/98 1713.50 4.838%
9/18/98 2269.90 4.703%
9/25/98 2682.70 4.570%
10/2/98 3410.50 4.284%
10/9/98 4389.10 4.782%
10/16/98 2256.30 4.438%
10/23/98 2774.30 4.693%
10/30/98 2495.70 4.605%
11/6/98 1987.00 4.844%
11/13/98 1550.70 4.814%
11/20/98 1814.80 4.814%
11/27/98 1460.40 4.810%
12/4/98 2055.10 4.627%
12/11/98 1879.10 4.619%
12/18/98 1569.00 4.581%
12/25/98 864.80 4.856%
1/1/99 881.10 4.648%
1/8/99 1494.20 4.870%
1/15/99 1634.40 4.657%
1/22/99 1415.00 4.637%
1/29/99 1741.70 4.653%
2/5/99 1654.00 4.938%
2/12/99 1401.40 5.059%
2/19/99 1191.80 5.067%
2/26/99 1512.80 5.285%
3/5/99 1241.30 5.307%
3/12/99 1153.30 5.151%
3/19/99 1332.60 5.164%
3/26/99 1177.20 5.199%
4/2/99 1086.20 5.187%
4/9/99 1203.90 5.053%
4/16/99 1155.70 5.221%
4/23/99 1093.40 5.252%
4/30/99 1062.90 5.348%
5/7/99 1042.10 5.542%
5/14/99 867.10 5.628%
5/21/99 832.20 5.504%
5/28/99 853.70 5.620%
6/4/99 606.80 5.807%
6/11/99 702.70 6.032%
6/18/99 636.10 5.827%
6/25/99 612.20 6.014%
7/2/99 588.40 5.827%
7/9/99 417.60 5.825%
7/16/99 508.30 5.667%
7/23/99 490.80 5.835%
7/30/99 458.10 5.902%
8/6/99 462.30 6.038%
8/13/99 449.20 5.979%
8/20/99 440.40 5.876%
8/27/99 456.40 5.864%
9/3/99 395.90 5.888%
9/10/99 315.30 5.898%
9/17/99 398.70 5.871%
9/24/99 388.40 5.772%
10/1/99 414.60 5.973%
Source: Bloomberg Financial Markets
www.americancentury.com 3
<TABLE>
<CAPTION>
GNMA--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 9/23/85) ADVISOR CLASS (INCEPTION 10/9/97)
SALOMON 30-YEAR GNMA FUNDS(2) SALOMON 30-YEAR
GNMA GNMA INDEX AVERAGE RETURN FUND'S RANKING GNMA GNMA INDEX
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) -0.03% 0.60% -0.16% -- -0.15% 0.60%
1 YEAR 1.65% 2.58% 0.64% 4 OUT OF 54 1.30% 2.58%
===========================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 6.36% 6.94% 6.08% 14 OUT OF 46 -- --
5 YEARS 7.37% 8.08% 7.10% 17 OUT OF 38 -- --
10 YEARS 7.78% 8.32% 7.39% 5 OUT OF 24 -- --
LIFE OF FUND 8.28% 9.18%(3) 7.86%(4) 5 OUT OF 14(4) 4.32% 5.07%(5)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 9/30/85, the date nearest the class's inception for which data are
available.
(4) Since 10/31/85, the date nearest the class's inception for which data are
available.
(5) Since 10/31/97, the date nearest the class's inception for which data are
available.
See pages 17-19 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 9/30/99
Salomon 30-Year GNMA Index $22,234
GNMA $21,159
Salomon 30-Year
GNMA GNMA Index
DATE VALUE VALUE
9/30/1989 $10,000 $10,000
9/30/1990 $10,863 $10,967
9/30/1991 $12,596 $12,781
9/30/1992 $14,066 $14,257
9/30/1993 $14,991 $15,237
9/30/1994 $14,826 $15,074
9/30/1995 $16,739 $17,155
9/30/1996 $17,587 $18,178
9/30/1997 $19,339 $20,019
9/30/1998 $20,815 $21,675
9/30/1999 $21,159 $22,234
$10,000 investment made 9/30/89
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
Salomon 30-Year GNMA Index is provided for comparison in each graph. GNMA'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. The graphs are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above). 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 SEPTEMBER 30)
Salomon 30-Year
GNMA GNMA Index
DATE RETURN RETURN
9/30/1990 8.63% 9.68%
9/30/1991 15.95% 16.62%
9/30/1992 11.67% 11.58%
9/30/1993 6.58% 6.84%
9/30/1994 -1.10% -1.09%
9/30/1995 12.90% 13.88%
9/30/1996 5.07% 5.98%
9/30/1997 9.96% 10.14%
9/30/1998 7.63% 8.27%
9/30/1999 1.65% 2.58%
4 1-800-345-2021
GNMA--Q&A
- --------------------------------------------------------------------------------
[photo of Casey Colton]
An interview with Casey Colton, a portfolio manager on the GNMA fund
investment team.
HOW DID THE FUND PERFORM IN THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
American Century GNMA performed very well relative to its peers, though the
fund's absolute performance reflected the difficult investment climate for bonds
(see page 3). For the six months, the portfolio's return was essentially flat,
at -0.03%.* But that compares favorably with the -0.16% average return of the 56
GNMA funds tracked by Lipper Inc. We're also proud to report that the
portfolio's longer-term returns are all better than average. (See the previous
page for additional performance comparisons.)
HOW DID THE PORTFOLIO'S YIELD COMPARE?
We manage the fund to give shareholders high current income without big
surprises, and so far we've been successful--on September 30, the portfolio had
a 30-day SEC yield of 6.60%, while the average GNMA fund's yield was just 5.82%,
according to Lipper. That yield was good enough to rank in the top 10% of the
Lipper group. And though 1999 has been a difficult year for bond investors, the
silver lining is that we're able to offer shareholders very attractive yields.
In fact, yields on GNMA securities are about as high as they've been in two
years.
WHAT'S THE KEY TO THE FUND'S LONG-TERM SUCCESS?
First, we use a benchmark-based approach to managing the portfolio, running
the fund to track the Salomon Brothers 30-Year GNMA Index. The index has
historically done very well relative to other GNMA funds, so trying to meet or
beat the benchmark's return has helped us produce solid long-term performance.
Second, our expenses are significantly below average. As of September 30,
the fund's annualized expense ratio was 0.59%, while the average of the Lipper
group was 1.10%. Other things being equal, lower expenses mean higher yields and
returns for our shareholders.
HOW DID YOU POSITION THE GNMA FUND RELATIVE TO THE BENCHMARK?
We continued to track the benchmark closely in terms of coupon structure
and duration. With regard to coupon structure, the record number of home sales
and mortgage refinancings in recent years has caused our index to become
increasingly concentrated in mortgages with 6% and 7% interest coupons (see page
3). We've made some adjustments to the portfolio to mimic those changes in the
index. As a result, about three-quarters of the portfolio was in 6% and 7%
mortgages at the end of September.
WHAT ABOUT THE PORTFOLIO'S DURATION?
Keep in mind that duration measures a portfolio's sensitivity to changes in
interest rates. The longer a fund's duration, the more its share price
fluctuates when rates change. Ideally, then, you want to lengthen duration when
interest rates are falling and shorten duration when rates are rising.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"AMERICAN CENTURY GNMA PERFORMED VERY WELL RELATIVE TO ITS PEERS, THOUGH THE
FUND'S ABSOLUTE PERFORMANCE REFLECTS THE DIFFICULT INVESTMENT CLIMATE FOR BONDS
SO FAR IN 1999."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 3,327 3,383
AVERAGE DURATION 4.7 YRS 3.2 YRS
AVERAGE LIFE 9.0 YRS 6.5 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.59%* 0.59%
* Annualized.
YIELD AS OF SEPTEMBER 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.60% 6.34%
Investment terms are defined in the Glossary on pages 19-20.
www.americancentury.com 5
GNMA--Q&A
- --------------------------------------------------------------------------------
(Continued)
But the duration of mortgage-backed securities actually increases when
rates rise. That's because homeowners are less likely to refinance their
mortgages when rates are rising. This is called "duration extension."
Interest rates rose substantially over the last six months, so the fund's
duration naturally lengthened. Duration went from 3.2 years on March 31 to 4.7
years at the end of September. By comparison, the portfolio's duration was just
1.5 years at the height of the Asian economic crisis last October, when interest
rates were at record lows.
WHAT DO A LONGER DURATION AND LOWER AVERAGE COUPON MEAN FOR THE PORTFOLIO?
They probably signal a little more share price volatility going forward
than we've seen in the past. Several years ago the mortgage market had a much
wider distribution of coupons, and it took a big change in interest rates to
make the fund's share price budge. But lower-coupon GNMAs tend to be more
responsive to changes in interest rates, so we're likely to see larger price
swings for a given change in rates.
DID YOU MAKE ANY OTHER CHANGES TO THE PORTFOLIO?
We continued to keep a small portion of fund assets (about 6%) in
inflation-indexed Treasury and government agency securities. We bought these
securities at attractive yields early in the year, when market expectations for
inflation were low. That's been good for performance because inflation-indexed
securities have outperformed mortgages and nominal Treasury bonds so far this
year. They've also been a good way to add yield and liquidity to the portfolio
without taking on the duration extension risk of mortgage-backed securities.
WHAT'S YOUR OUTLOOK FOR MORTGAGE-BACKED SECURITIES?
We're pretty optimistic. Consumer confidence fell in October for the fourth
consecutive month, which should eventually slow down home sales; in fact, the
latest data show that home sales tailed off in September. In addition, higher
interest rates should dampen refinancing activity. We expect these factors will
combine to decrease the supply of new mortgages. At the same time, yields on
mortgage-backed securities are as attractive relative to Treasury bonds as
they've been in about two years, which should make for better demand. We think
these factors make for a generally positive outlook for the mortgage market.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
It's business as usual--we'll continue to run the fund using the same
benchmark-based approach that's produced the portfolio's solid long-term
performance. In practice, that means we'll track the index in terms of coupon
structure and duration, making modest bets only when we think we can add value.
In addition, we're likely to trim our position in inflation-protected securities
if we see an opportunity to lock in some of our profits and put that money back
to work in higher-yielding mortgage-backed securities.
[left margin]
"THOUGH 1999 HAS BEEN A DIFFICULT YEAR FOR BOND INVESTORS, THE SILVER LINING IS
THAT WE'RE ABLE TO OFFER SHAREHOLDERS VERY ATTRACTIVE YIELDS."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
GNMAs 94%
U.S. Gov't. Agency
Securities 3%
U.S. Treasury Securities 3%
AS OF MARCH 31, 1999
GNMAs 93%
U.S. Gov't. Agency
Securities 3%
Repos 2%
U.S. Treasury Securities 2%
Investment terms are defined in the Glossary on pages 19-20.
6 1-800-345-2021
GNMA--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 2.8%
$ 40,557,200 U.S. Treasury Inflation Indexed
Notes, 3.875%, 4/15/29 $ 39,201,069
---------------
(Cost $39,383,321)
U.S. GOVERNMENT AGENCY SECURITIES -- 2.8%
42,082,400 TVA Inflation Indexed Notes,
3.375%, 1/15/07 38,944,198
---------------
(Cost $40,113,951)
GNMA SECURITIES(1) -- 92.3%
88,155,092 GNMA, 6.00%, 7/20/16 to
3/15/29(2) 81,876,953
301,474,456 GNMA, 6.50%, 9/20/08 to
7/15/29(2) 288,850,183
398,256,704 GNMA, 7.00%, 9/15/08 to
7/15/29(2) 391,593,889
8,603,049 GNMA, 7.25%, 7/20/20 to
12/20/25 8,508,845
213,446,491 GNMA, 7.50%, 1/15/06 to
1/15/28(2) 214,702,290
4,317,696 GNMA, 7.65%, 6/15/16 to
2/15/18 4,414,086
7,661,596 GNMA, 7.75%, 9/20/17 to
1/20/26 7,790,505
4,520,690 GNMA, 7.77%, 4/15/20 to
1/15/21 4,609,656
2,746,744 GNMA, 7.85%, 11/20/20 to
10/20/22 2,791,428
990,809 GNMA, 7.89%, 9/20/22(2) 1,007,954
3,055,410 GNMA, 7.98%, 6/15/19(2) 3,149,157
77,041,131 GNMA, 8.00%, 6/15/06 to
2/20/28 78,914,701
1,041,948 GNMA, 8.15%, 11/15/19 to
2/15/21 1,080,078
15,480,145 GNMA, 8.25%, 2/15/06 to
5/15/27(2) 16,011,083
5,963,223 GNMA, 8.35%, 1/15/19 to
12/15/20 6,190,810
62,546,844 GNMA, 8.50%, 12/15/04 to
5/15/31(2) 64,952,766
1,791,854 GNMA, 8.625%, 1/15/32(2) 1,876,005
8,875,546 GNMA, 8.75%, 2/15/16 to
7/15/27(2) 9,285,984
49,797,800 GNMA, 9.00%, 11/15/04 to
7/20/26(2) 52,347,503
7,840,271 GNMA, 9.25%, 5/15/16 to
8/15/26(2) 8,312,811
Principal Amount Value
- --------------------------------------------------------------------------------
$ 14,155,660 GNMA, 9.50%, 6/15/09 to
7/20/25(2) $ 15,094,695
2,579,476 GNMA, 9.75%, 6/15/05 to
11/15/21 2,743,980
2,174,629 GNMA, 10.00%, 11/15/09 to
2/20/22(2) 2,365,035
1,547,645 GNMA, 10.25%, 5/15/12 to
2/15/21(2) 1,688,056
688,916 GNMA, 10.50%, 8/15/00 to
3/15/21 766,271
405,286 GNMA, 10.75%, 12/15/09 to
8/15/19 447,997
1,513,579 GNMA, 11.00%, 12/15/09 to
8/15/20 1,679,749
27,819 GNMA, 11.25%, 10/20/15 to
2/20/16 31,090
400,646 GNMA, 11.50%, 8/15/00 to
2/20/20 448,288
262,931 GNMA, 12.00%, 6/15/00 to
1/20/15 291,634
162,126 GNMA, 12.25%, 8/15/13 to
5/15/15 184,739
424,479 GNMA, 12.50%, 4/15/10 to
5/15/15 484,267
8,399 GNMA, 12.75%, 12/15/13 9,510
1,052,725 GNMA, 13.00%, 11/15/10 to
8/15/15 1,219,792
35,421 GNMA, 13.25%, 1/20/15 41,423
412,949 GNMA, 13.50%, 5/15/10 to
11/15/14 478,781
11,005 GNMA, 13.75%, 8/15/14 12,688
19,798 GNMA, 14.00%, 6/15/11 to
10/15/14 23,246
153,005 GNMA, 14.50%, 9/15/12 to
12/15/12 180,074
323,618 GNMA, 15.00%, 6/15/11 to
10/15/12 382,081
115,715 GNMA, 16.00%, 8/15/10 to
4/15/12 139,092
---------------
TOTAL GNMA SECURITIES 1,276,979,175
---------------
(Cost $1,297,373,293)
FORWARD COMMITMENTS -- 2.1%
30,000,000 GNMA Purchase, 6.50%,
settlement 10/21/99 28,703,010
---------------
(Cost $28,616,016)
TOTAL INVESTMENT SECURITIES -- 100.0% $1,383,827,452
===============
(Cost $1,405,486,581)
See Notes to Financial Statements www.americancentury.com 7
GNMA--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
GNMA = Government National Mortgage Association
TVA = Tennessee Valley Authority
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Securities, or a portion thereof, have been segregated at the custodian
bank for Forward Commitments.
8 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. For each class of shares, 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).
SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $1,405,486,581)
(Note 3) .............................................. $ 1,383,827,452
Receivable for investments sold ......................... 192,188
Interest receivable ..................................... 8,896,336
---------------
1,392,915,976
---------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................................ 465,468
Payable for investments purchased ....................... 28,724,349
Accrued management fees (Note 2) ........................ 651,957
Distribution fees payable (Note 2) ...................... 1,740
Service fees payable (Note 2) ........................... 1,740
Dividends payable ....................................... 1,459,546
Payable for trustees' fees and expenses ................. 2,875
Accrued expenses and other liabilities .................. 9,190
---------------
31,316,865
---------------
Net Assets .............................................. $ 1,361,599,111
===============
NET ASSETS CONSIST OF:
Capital paid in ......................................... $ 1,410,202,897
Accumulated net realized loss
on investment transactions ............................ (26,944,657)
Net unrealized depreciation
on investments (Note 3) ............................... (21,659,129)
---------------
$ 1,361,599,111
===============
Investor Class
Net assets .............................................. $ 1,353,242,250
Shares outstanding ...................................... 131,456,638
Net asset value per share ............................... $ 10.29
Advisor Class
Net assets .............................................. $ 8,356,861
Shares outstanding ...................................... 811,797
Net asset value per share ............................... $ 10.29
See Notes to Financial Statements www.americancentury.com 9
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.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest ................................................. $ 47,646,406
------------
Expenses (Note 2):
Management fees .......................................... 4,070,491
Distribution fees -- Advisor Class ....................... 10,157
Service fees -- Advisor Class ............................ 10,157
Trustees' fees and expenses .............................. 22,664
------------
4,113,469
------------
Net investment income .................................... 43,532,937
------------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ......................... (5,387,902)
Change in net unrealized
appreciation on investments ............................ (38,664,372)
------------
Net realized and unrealized
loss on investments .................................... (44,052,274)
------------
Net Decrease in Net Assets
Resulting from Operations .............................. $ (519,337)
============
10 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.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
SEPTEMBER 30, MARCH 31,
Increase (Decrease) in Net Assets 1999 1999
OPERATIONS
Net investment income .................. $ 43,532,937 $ 80,843,520
Net realized gain (loss)
on investments ....................... (5,387,902) 2,433,855
Change in net unrealized
appreciation on investments .......... (38,664,372) (9,003,273)
--------------- ---------------
Net increase (decrease)
in net assets resulting
from operations ...................... (519,337) 74,274,102
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ....................... (43,289,219) (80,723,297)
Advisor Class ........................ (243,718) (192,401)
--------------- ---------------
Decrease in net assets
from distributions
to shareholders ...................... (43,532,937) (80,915,698)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in
net assets from capital
share transactions ................... (16,865,336) 143,057,929
--------------- ---------------
Net increase (decrease)
in net assets ........................ (60,917,610) 136,416,333
NET ASSETS
Beginning of period .................... 1,422,516,721 1,286,100,388
--------------- ---------------
End of period .......................... $ 1,361,599,111 $ 1,422,516,721
=============== ===============
See Notes to Financial Statements www.americancentury.com 11
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust), is
registered under the Investment Company Act of 1940 as an open-end management
investment company. GNMA Fund (the fund) is one of the eight funds issued by the
trust. The fund is diversified under the 1940 Act. The fund seeks to provide a
high level of current income consistent with safety of principal and maintenance
of liquidity by investing primarily in mortgage-backed Ginnie Mae certificates.
The fund is authorized to issue two classes of shares: the Investor Class and
the Advisor Class. The two classes of shares differ principally in their
respective shareholder servicing and distribution expenses and arrangements. All
shares of the fund represent an equal pro rata interest in the assets of the
class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes. The following 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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment advisor, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Trustees. Each repurchase agreement is recorded at cost.
The fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the fund's custodian in a manner
sufficient to enable the fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
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.
FORWARD COMMITMENTS -- The fund may purchase and sell U.S. government
securities on a firm commitment basis. Under these arrangements, the securities'
prices and yields are fixed on the date of the commitment, but payment and
delivery are scheduled for a future date. During this period, securities are
subject to market fluctuations. The fund maintains segregated accounts
consisting of cash or liquid securities in an amount sufficient to meet the
purchase price.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared daily and paid 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 March 31, 1999, accumulated net realized capital loss carryovers of
$20,902,640 (expiring in 2003 through 2005) may be used to offset future taxable
realized gains.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
12 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with ACIM, under which
ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the fund, except brokerage commissions, taxes, portfolio
insurance, interest, fees and expenses of the trustees who are not considered
"interested persons" as defined in the Investment Company Act of 1940 (including
counsel fees) and extraordinary expenses, 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 0.2425% to
0.3600% and the rates for the Complex Fee (Investor Class) range from 0.2900% to
0.3100%. The Advisor Class is 0.2500% less at each point within the Complex Fee
range. For the six months ended September 30, 1999, the effective annual
Investor Class management fee was 0.59%.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plan provides that the fund will pay ACIM an annual
distribution fee equal to 0.25% and service fee equal to 0.25%. The fees are
computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred by
the fund under the plan during the six months ended September 30, 1999 were
$20,314.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, and the
trust's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of U.S. Treasury and Agency obligations, excluding
short-term investments, for the six months ended September 30, 1999, were
$620,597,413 and $572,080,674, respectively.
On September 30, 1999, accumulated net unrealized depreciation was
$22,313,107, based on the aggregate cost of investments for federal income tax
purposes of $1,406,140,559, which consisted of unrealized appreciation of
$7,857,831 and unrealized depreciation of $30,170,938.
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows (unlimited number of shares
authorized):
SHARES AMOUNT
INVESTOR CLASS
Six months ended September 30, 1999
Sold ....................................... 21,081,844 $ 219,849,234
Issued in reinvestment of distributions .... 3,350,464 34,782,090
Redeemed ................................... (26,283,988) (273,195,981)
------------- -------------
Net decrease ............................... (1,851,680) $ (18,564,657)
============= =============
Year ended March 31, 1999
Sold ....................................... 53,378,360 $ 570,181,601
Issued in reinvestment of distributions .... 6,062,643 64,763,962
Redeemed ................................... (46,668,723) (498,381,229)
------------- -------------
Net increase ............................... 12,772,280 $ 136,564,334
============= =============
ADVISOR CLASS
Six months ended September 30, 1999
Sold ....................................... 507,677 $ 5,285,554
Issued in reinvestment of distributions .... 19,785 205,263
Redeemed ................................... (366,374) (3,791,496)
------------- -------------
Net increase ............................... 161,088 $ 1,699,321
============= =============
Year ended March 31, 1999
Sold ....................................... 748,340 $ 7,995,760
Issued in reinvestment of distributions .... 16,340 174,448
Redeemed ................................... (157,042) (1,676,613)
------------- -------------
Net increase ............................... 607,638 $ 6,493,595
============= =============
- --------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.40%. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The fund did not borrow from the line during the six
months ended September 30, 1999.
14 1-800-345-2021
<TABLE>
<CAPTION>
GNMA--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ...............$ 10.62 $ 10.67 $ 10.33 $ 10.45 $ 10.18 $ 10.35
------------ ------------ ------------ ------------ ------------ ---------
Income From Investment
Operations
Net Investment Income ............. 0.32 0.64 0.69 0.71 0.74 0.72
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ........... (0.33) (0.05) 0.34 (0.12) 0.27 (0.18)
------------ ------------ ------------ ------------ ------------ ---------
Total From Investment Operations .. (0.01) 0.59 1.03 0.59 1.01 0.54
------------ ------------ ------------ ------------ ------------ ---------
Distributions
From Net Investment Income ........ (0.32) (0.64) (0.69) (0.71) (0.74) (0.71)
------------ ------------ ------------ ------------ ------------ ---------
Net Asset Value, End of Period ......$ 10.29 $ 10.62 $ 10.67 $ 10.33 $ 10.45 $ 10.18
============ ============ ============ ============ ============ =========
Total Return(2) ................... (0.03)% 5.66% 10.21% 5.84% 10.08% 5.53%
RATIOS/SUPPLEMENTAL
DATA
Ratio of Operating Expenses
to Average Net Assets(3) .......... 0.59%(4) 0.59% 0.58% 0.55% 0.58% 0.58%
Ratio of Net Investment Income
to Average Net Assets ............. 6.24%(4) 5.98% 6.49% 6.84% 6.98% 7.08%
Portfolio Turnover Rate ............. 41% 119% 133% 105% 64% 120%
Net Assets, End of Period
(in thousands) ....................$ 1,353,242 $ 1,415,607 $ 1,285,641 $ 1,119,165 $ 1,120,019 $ 979,670
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) The ratios for years ended March 31, 1997 and March 31, 1996, include
expenses paid through expense offset arrangements.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 15
GNMA--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1999 1998(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ..$ 10.62 $ 10.67 $ 10.63
--------- --------- ---------
Income From Investment Operations
Net Investment Income ............... 0.31 0.61 0.31
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ... (0.33) (0.05) 0.04
--------- --------- ---------
Total From Investment Operations .... (0.02) 0.56 0.35
--------- --------- ---------
Distributions
From Net Investment Income .......... (0.31) (0.61) (0.31)
--------- --------- ---------
Net Asset Value, End of Period ........$ 10.29 $ 10.62 $ 10.67
========= ========= =========
Total Return(3) ..................... (0.15)% 5.40% 3.30%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.84%(4) 0.84% 0.84%(4)
Ratio of Net Investment Income
to Average Net Assets ............... 5.99%(4) 5.73% 5.92%(4)
Portfolio Turnover Rate ............... 41% 119% 133%
Net Assets, End of Period
(in thousands) ......................$ 8,357 $ 6,910 $ 460
(1) Six months ended September 30, 1999 (unaudited).
(2) October 9, 1997 (commencement of sale) through March 31, 1998.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
16 1-800-345-2021 See Notes to Financial Statements
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
INVESTOR CLASS shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
ADVISOR CLASS shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the fund and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
www.americancentury.com 17
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each fund's
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
GNMA seeks to provide a high level of current income, consistent with
safety of principal, by investing primarily in mortgage-backed GNMA
certificates. Fund shares are not guaranteed by the U.S. government.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The SALOMON BROTHERS 30-YEAR GNMA INDEX is a market-capitalization weighted
index of 30-year GNMA single-family mortgages.
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 category for GNMA is:
GNMA FUNDS -- funds that invest at least 65% of their assets in Government
National Mortgage Association (Ginnie Mae) securities.
[left margin]
INVESTMENT TEAM LEADERS
Portfolio Manager
CASEY COLTON
18 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 15-16.
YIELDS
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
INVESTMENT TERMS
* BASIS POINT -- one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%).
* COUPON -- the stated interest rate of a security.
* DURATION EXTENSION -- a lengthening of a mortgage-backed security's duration,
typically because of rising interest rates. When interest rates rise sharply,
higher interest rates reduce prepayments (which is good for investors), but the
lower level of prepayments causes GNMA durations to extend, which makes price
declines more severe.
* PREPAYMENT -- paying off a mortgage early, often by selling or refinancing.
Prepayments occur most frequently when homeowners refinance their mortgages to
take advantage of falling interest rates. Prepayments shorten the lives of
mortgage portfolios and force GNMA investors to reinvest in lower-yielding
mortgage pools. Therefore, when prepayment levels climb, mortgage analysts
increase the prepayment assumptions used to price mortgage-backed securities. As
a result, mortgage-backed security durations shorten, limiting the price gains
from falling interest rates.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES -- the number of different securities held by a fund on a
given date.
* AVERAGE DURATION -- a time-weighted average of the interest and principal
payments of the securities in a portfolio. As the duration of a portfolio
increases, so does the impact of a change in interest rates on the value of the
portfolio.
* AVERAGE LIFE -- a measure of the sensitivity of a mortgage-backed securities
portfolio to interest rate changes. Although it is similar to weighted average
maturity, average life takes into account the gradual payments of principal that
occur with mortgage-backed securities. As a result, average life is a better
measure of interest rate sensitivity for mortgage-backed securities.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets.
TYPES OF SECURITIES
* GOVERNMENT NATIONAL MORTGAGE ASSOCIATION SECURITIES (GNMAS) -- mortgage-backed
securities issued by the Government National Mortgage Association, a U.S.
government agency. A GNMA is backed by a pool of fixed-rate mortgages. A GNMA is
also backed by the full faith and credit of the U.S. government as to the timely
payment of interest and principal. This means GNMA investors will receive their
share of interest and principal payments whether or not borrowers make their
scheduled mortgage payments.
* REPURCHASE AGREEMENTS (REPOS) -- short-term debt agreements in which a fund
buys a security at one price and simultaneously agrees to sell it back to the
seller at a slightly higher price on a specified date (usually within seven
days).
* U.S. GOVERNMENT AGENCY SECURITIES -- debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
Some agency securities are backed by the full faith and credit of the U.S.
government, while others are guaranteed only by the issuing agency.
www.americancentury.com 19
Glossary
- --------------------------------------------------------------------------------
(Continued)
Government agency securities include discount notes (maturing in one year or
less) and medium-term notes, debentures and bonds (maturing in three months to
50 years).
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years), and bonds (maturing in more than 10 years).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
20 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
- --------------------------------------------------------------------------------
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc. is
9911 the distributor of American Century funds
SH-ANN-18629 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
SEPTEMBER 30, 1999
SEMIANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
INFLATION-ADJUSTED TREASURY
[american century logo (reg. sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain operations
in the event of any Y2K-related incidents. We have conducted practice drills of
contingency scenarios and will continue to refine our plans during the rest of
1999 to respond quickly and effectively so that the date change is as seamless
as possible for investors. We expect the Year 2000 to be business as usual at
American Century.
Year 2000 Readiness Disclosure
[left margin]
INFLATION-ADJUSTED TREASURY
- ----------------------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
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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.
Strong economic growth and increasing inflation anxiety resulted in higher
interest rates during the six months ended September 30, 1999. The recovery of
overseas economies and unabated U.S. growth reignited inflation fears and pushed
interest rates higher. The Federal Reserve (the U.S. central bank) raised
short-term interest rates twice during the summer of 1999.
In this environment, inflation-indexed bonds outperformed virtually every
other sector of the bond market. Inflation-indexed bonds tend to hold their
value better than traditional bonds when the threat of rising inflation leads to
higher interest rates.
Turning to corporate matters, American Century has long been an active
supporter of the development and use of technologies that improve the
efficiencies of capital markets, lower the costs of trading securities, and
ultimately offer better returns for shareholders. Toward that end, we've made
investments in several other financial services firms, including Archipelago,
Optimark, Tradepoint Financial Networks, W.R. Hambrecht, and, most recently,
WorldStreet Corporation. WorldStreet, located in Boston, is developing a
customized software application that marries portfolio holdings with real-time
market information.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR, Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature--part of the
personalized performance section--as the key reason it ranked our statement
second out of 88 mutual fund company statements in the nation.
One final note -- in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided an update on our preparations for Y2K on the inside
front cover of this report. We understand that our diligence in this area is
very important to you.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
INFLATION-ADJUSTED TREASURY
Performance Information ................................................. 4
Management Q&A .......................................................... 5
Portfolio at a Glance ................................................... 5
Yields .................................................................. 5
Types of Investments .................................................... 6
Schedule of Investments ................................................. 7
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 .................................................... 14
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................. 16
Background Information
Investment Philosophy
and Policies ...................................................... 17
Comparative Indices .................................................. 17
Investment Team
Leaders ........................................................... 17
Glossary ................................................................ 18
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Treasury inflation-indexed securities (TIIS) posted modest returns during the
six months ended September 30, 1999, and outperformed traditional Treasury
bonds.
* Interest rates rose as strong economic growth sparked renewed inflation
fears.
* In response, the Federal Reserve raised short-term interest rates in late
June and late August.
* Traditional Treasury bonds are more sensitive to interest rate changes than
TIIS, so their prices fell more dramatically as rates increased.
* Despite slightly higher inflation in 1999, investor demand for the inflation
protection of TIIS has not increased.
* The principal adjustments for TIIS, based on the change in the consumer price
index, totaled 1.3% during the six-month period (a 2.6% annual rate).
FUND PERFORMANCE
* Inflation-Adjusted Treasury's performance reflected the positive returns of
TIIS during the six-month period.
* The fund's yield at the end of the period was more than 7%, compared with a
yield of around 6% for most traditional Treasury bonds.
* This higher yield was the result of a sizable inflation adjustment to TIIS in
September. The inflation adjustment is considered income, so it gets added to
the fund's yield along with interest payments.
* The monthly changes to the inflation adjustment produce wide fluctuations in
the fund's 30-day SEC yield, which was as high as 12% and as low as 4% during
the period.
FUND STRATEGY
* We kept the fund's duration (a measure of price volatility as interest rates
change) close to that of its benchmark index.
* We overweighted 10-year TIIS in the fund because they were the
highest-yielding bonds in the TIIS market.
* The fund also held a U.S. government agency inflation-indexed bond, which
offered a higher yield than comparable TIIS.
OUTLOOK
* The inflation rate has risen from 1.5% to 2.5% over the past year.
* We expect inflation to stabilize at this level in the coming months.
* TIIS currently offer a better value than traditional Treasury bonds if, as we
expect, inflation is higher than 2% going forward.
* We may look to position Inflation-Adjusted Treasury more conservatively in
the future to reflect the conservative nature of inflation-protected
investing.
[left margin]
INFLATION-ADJUSTED
TREASURY(1)
TOTAL RETURNS: AS OF 9/30/99
6 Months 1.56%(2)
1 Year 1.50%
30-DAY SEC YIELD: 7.32%
INCEPTION DATE: 2/10/97
NET ASSETS: $16.2 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on page 4.
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
PERFORMANCE OVERVIEW
Higher interest rates undermined U.S. bond returns during the six months
ended September 30, 1999. Although Treasury inflation-indexed securities (TIIS)
posted modest returns, they outperformed traditional Treasury notes and bonds.
The Salomon U.S. Inflation-Linked Index returned 1.87% for the six-month period,
while the Lehman Brothers Treasury Index returned -0.21%.
RISING INTEREST RATES
Bond prices fell as interest rates rose steadily throughout the period.
Continued economic strength in the U.S., as well as rebounding economies
overseas, sparked renewed fears of rising inflation.
Those fears were borne out in April when the consumer price index (CPI), a
widely watched inflation gauge, experienced its biggest monthly increase in nine
years. By May, the bond market began to fret about the possibility of a
short-term interest rate increase by the Federal Reserve (the U.S. central
bank).
It didn't take long for that possibility to become reality. The Fed raised
rates twice during the summer--once at the end of June and again in late August.
The Fed characterized the rate increases as a reversal of the three rate cuts it
made in late 1998. By returning short-term rates to mid-1998 levels, the Fed
stated that its actions "should markedly diminish the risk of rising inflation
going forward."
However, the Fed's words weren't all that soothing for the bond market.
Signs of continued economic strength and evidence of rising prices caused bond
yields to climb further in anticipation of another Fed rate hike before year's
end.
TIIS OUTPERFORM DESPITE LACKLUSTER DEMAND
Nominal Treasury bond yields tend to fluctuate about four times as much as
the real (or after-inflation) yields of TIIS, and that held true over the past
six months. The 10-year Treasury bond yield increased from 5.28% to 6.00%, while
the 10-year TIIS yield rose from 3.91% to 4.07% (see the graph below).
You might think that TIIS should benefit from increased demand when
inflation fears rise, but that hasn't been the case. The CPI rose by 1.3% during
the six-month period, for an annualized rate of 2.6%. Although this is higher
than the 1.6% increase for all of 1998, it's still below historical averages.
The increase in the inflation rate has not yet been large enough to convince
investors that they need inflation protection.
THE NUMBERS
The Treasury issued $14 billion in new TIIS during the past six months,
about equally split between 10-year notes and 30-year bonds. The TIIS market has
now grown to more than $86 billion in outstanding securities, though it remains
a small part of the $3.2 trillion Treasury market.
Reflecting the increase in the CPI, the inflation adjustments to the
principal value of TIIS totaled 1.28% for the six-month period.
[right margin]
"ALTHOUGH TREASURY INFLATION-INDEXED SECURITIES POSTED MODEST RETURNS, THEY
OUTPERFORMED TRADITIONAL TREASURY NOTES AND BONDS."
[line graph - data below]
10-YEAR TREASURY YIELD COMPARISON
10-year 10-year
Nominal Treasury TIIS Yield
3/31/99 5.28% 3.91%
4/9/99 5.04% 3.92%
4/16/99 5.22% 3.93%
4/26/99 5.25% 3.91%
4/30/99 5.36% 3.90%
5/7/99 5.54% 3.86%
5/14/99 5.61% 3.83%
5/21/99 5.53% 3.88%
5/28/99 5.62% 3.87%
6/4/99 5.80% 3.90%
6/11/99 6.02% 3.93%
6/18/99 5.84% 4.02%
6/25/99 6.02% 4.02%
7/2/99 5.83% 3.98%
7/9/99 5.84% 4.02%
7/16/99 5.68% 4.02%
7/23/99 5.83% 4.03%
7/30/99 5.91% 4.04%
8/6/99 6.02% 4.01%
8/13/99 5.98% 4.05%
8/20/99 5.88% 4.03%
8/27/99 5.85% 4.03%
9/3/99 5.89% 4.05%
9/10/99 5.89% 4.04%
9/17/99 5.87% 4.06%
9/24/99 5.75% 4.06%
9/30/99 6.00% 4.07%
Source: Bloomberg Financial Markets
"YOU MIGHT THINK THAT INFLATION-INDEXED BONDS SHOULD BENEFIT FROM INCREASED
DEMAND WHEN INFLATION FEARS RISE, BUT THAT HASN'T BEEN THE CASE."
www.americancentury.com 3
<TABLE>
<CAPTION>
Inflation-Adjusted Treasury--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1999
INVESTOR CLASS (INCEPTION 2/10/97) ADVISOR CLASS (INCEPTION 6/15/98)
INFLATION- SALOMON SALOMON INFLATION- SALOMON SALOMON
ADJUSTED INFLATION- TREASURY ADJUSTED INFLATION- TREASURY
TREASURY LINKED INDEX INDEX TREASURY LINKED INDEX INDEX
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 1.56% 1.87% -2.65% 1.44% 1.87% -2.65%
1 YEAR 1.50% 1.86% -7.68% 1.27% 1.86% -7.68%
==============================================================================================
AVERAGE ANNUAL RETURNS
LIFE OF FUND 2.40% 3.28%(2) 8.23%(2) 2.62% 3.74%(3) -0.31%(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Since 2/28/97, the date nearest the class's inception for which data are
available.
(3) Since 6/30/98, the date nearest the class's inception for which data are
available.
See pages 16-18 for more information about share classes, returns, and the
comparative indices.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/99
Salomon Treasury Index $12,267
Salomon Inflation-Linked Index $10,871
Inflation-Adjusted Treasury $10,706
Inflation-Adjusted Salomon Inflation- Salomon Treasury
Treasury Linked Index Index
DATE VALUE VALUE VALUE
2/28/1997 $10,000 $10,000 $10,000
3/31/1997 $9,858 $9,863 $9,756
4/30/1997 $9,920 $9,932 $9,981
5/31/1997 $9,977 $9,984 $10,099
6/30/1997 $9,943 $9,953 $10,291
7/31/1997 $10,034 $10,045 $10,896
8/31/1997 $10,061 $10,077 $10,589
9/30/1997 $10,076 $10,096 $10,884
10/31/1997 $10,173 $10,206 $11,253
11/30/1997 $10,224 $10,260 $11,400
12/31/1997 $10,161 $10,213 $11,592
1/31/1998 $10,214 $10,266 $11,826
2/28/1998 $10,207 $10,256 $11,739
3/31/1998 $10,200 $10,250 $11,767
4/30/1998 $10,225 $10,287 $11,809
5/31/1998 $10,292 $10,354 $12,033
6/30/1998 $10,316 $10,382 $12,315
7/31/1998 $10,341 $10,431 $12,261
8/31/1998 $10,337 $10,448 $12,810
9/30/1998 $10,550 $10,672 $13,288
10/31/1998 $10,580 $10,691 $13,076
11/30/1998 $10,564 $10,684 $13,189
12/31/1998 $10,512 $10,614 $13,155
1/31/1999 $10,608 $10,741 $13,281
2/28/1999 $10,543 $10,666 $12,629
3/31/1999 $10,543 $10,671 $12,601
4/30/1999 $10,597 $10,731 $12,612
5/31/1999 $10,680 $10,814 $12,429
6/30/1999 $10,669 $10,813 $12,281
7/31/1999 $10,670 $10,812 $12,220
8/31/1999 $10,669 $10,832 $12,177
9/30/1999 $10,706 $10,871 $12,267
$10,000 investment made 2/28/97*
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
Salomon Treasury and Salomon Inflation-Linked indices are provided for
comparison. Inflation-Adjusted Treasury's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not. The graphs are based on Investor
Class shares only; performance for other classes will vary due to differences in
fee structures (see the Total Returns table above). 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 SEPTEMBER 30)
Inflation-Adjusted Salomon Inflation-
Treasury Linked Index
DATE RETURN RETURN
9/30/1997* 0.76% 0.96%
9/30/1998 4.70% 5.70%
9/30/1999 1.50% 1.86%
* From 2/28/97 (the date nearest the class's inception for which index data are
available).
4 1-800-345-2021
Inflation-Adjusted Treasury--Q&A
- --------------------------------------------------------------------------------
[photo of Dave Schroeder]
An interview with Dave Schroeder, a portfolio manager on the
Inflation-Adjusted Treasury fund investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1999?
Inflation-Adjusted Treasury's return was modestly positive, reflecting the
general performance of Treasury inflation-indexed securities (TIIS). For the
six-month period, the fund returned 1.56%, compared with the 1.87% return of the
Salomon Brothers U.S. Inflation-Linked Index.* (See the previous page for other
fund performance comparisons.)
THE FUND'S 30-DAY SEC YIELD AT THE END OF SEPTEMBER WAS MORE THAN 7% (SEE THE
TABLE AT RIGHT), WHILE TRADITIONAL TREASURY BOND YIELDS WERE AROUND 6%. WHY WAS
THE FUND'S YIELD SO HIGH?
It's a function of the inflation adjustments. The face value of an
inflation-indexed bond is adjusted each month for changes in the inflation rate.
The inflation index used for TIIS is the consumer price index (CPI), but with a
three-month lag. That means, for example, that the change in the CPI for July
will be the inflation adjustment for the month of September.
The twist is that these adjustments are considered income, just like
interest payments. As a result, they count as part of the fund's yield.
The July CPI value was 166.7, up from 166.2 in June. Therefore, the
inflation adjustment for September was a relatively high 0.3%, which translates
to 3.7% on an annualized basis. Add that to the real yield of around 4.1% on
TIIS, and you get a total yield of about 7.8%. Subtract the fund's expense ratio
from that, and you get approximately the 30-day SEC yield.
THANKS FOR THE MATH LESSON. DOES THE CPI ADJUSTMENT EXPLAIN WHY THE FUND'S YIELD
CAN FLUCTUATE DRAMATICALLY FROM MONTH TO MONTH?
Yes. Inflation-Adjusted Treasury's 30-day SEC yield was as high as 12.20%
at the end of June; that was because April brought the biggest monthly CPI
increase in nine years. Then the 30-day SEC yield dropped to 4.09% at the end of
July, when we had essentially no inflation adjustment.
This yield volatility does have an impact on the way we manage the
portfolio. We typically keep some cash in the portfolio in case of shareholder
withdrawals, but the amount varies. When TIIS yields are high, we tend to hold
very little cash; when yields are low, we're inclined to hold more cash.
HOW DID THE FUND'S PORTFOLIO CHANGE OVER THE PAST SIX MONTHS?
We tend to keep the fund's duration (a measure of price volatility as
interest rates change) close to that of the Salomon Inflation-Linked Index,
which is a good barometer of the overall TIIS market. As a result, the fund's
duration ranged between 8.5 years and 9.5 years during the period.
We differ from the index by overweighting bonds that we think offer the
best potential returns in the TIIS market. In recent months, the fund has
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"INFLATION-ADJUSTED TREASURY'S 30-DAY SEC YIELD WAS AS HIGH AS 12.20% AT THE
END OF JUNE."
PORTFOLIO AT A GLANCE
9/30/99 3/31/99
NUMBER OF SECURITIES 5 4
WEIGHTED AVERAGE
MATURITY 12.1 YRS 11.3 YRS
AVERAGE DURATION 8.7 YRS 8.5 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.49%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 7.32% 7.06%
Investment terms are defined in the Glossary on pages 18-19.
www.americancentury.com 5
Inflation-Adjusted Treasury--Q&A
- --------------------------------------------------------------------------------
(Continued)
been overweight in 10-year TIIS because they've had higher real yields than
three-year and 30-year TIIS.
We've also kept about a quarter of the portfolio in a government agency
inflation-indexed bond issued by the Tennessee Valley Authority (TVA).
Government agency bonds tend to offer higher yields than Treasury bonds; the TVA
bond has been yielding about 50 basis points (0.50%) more than TIIS of
comparable maturity.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR INFLATION?
A year ago, inflation was rising at a 1.5% annual rate, but today it's
closer to 2.5%. The difference comes from a 10% increase in energy prices over
the past year. But we think the rise in energy prices has run its course, and
the Federal Reserve's recent rate hikes should keep the inflation rate at or
around its current level as we head into 2000.
Many analysts talk about the threat of tight labor markets leading to
rising wages and higher prices; we've even mentioned it as a possibility in
previous reports. But wage increases have been higher than the CPI for several
years now, and we've seen little evidence that higher wages are being reflected
in consumer prices.
WHAT DOES THIS MEAN FOR THE INFLATION-INDEXED BOND MARKET?
TIIS aren't as attractive as they were six months ago, but they still offer
a pretty good value compared with the rest of the Treasury bond market. Back in
March, TIIS were a great bargain--real TIIS yields were around 3.9%, while real
yields on traditional Treasury bonds were about 3.5%. Since then, however, TIIS
have outperformed traditional Treasury bonds, and that has leveled the playing
field somewhat.
Right now, a 10-year TIIS has a real yield of 4.1%, while the nominal yield
of a 10-year Treasury bond is around 6.1%. The difference between the two--about
2%--is the "breakeven" inflation rate. If inflation is less than 2% going
forward, then traditional Treasurys offer the best deal; if inflation is greater
than 2%, then TIIS are the way to go.
Since we see inflation coming in a little higher than 2%, we think TIIS
still provide a better value than traditional Treasury bonds. And if inflation
trends higher than we expect, TIIS become an even more attractive investment
opportunity.
WHAT ARE YOUR PLANS FOR INFLATION-ADJUSTED TREASURY GOING FORWARD?
We plan to keep the portfolio positioned much like it is now, with a
duration close to that of the benchmark index. We also intend to hang on to our
government agency bond to benefit from its higher yield.
Down the road, we may also try to position the portfolio a little more
conservatively. Inflation protection is a conservative investment objective, and
we manage the fund with this goal in mind. One way to make the portfolio more
conservative is to reduce its interest rate sensitivity, and that's something we
may do in the future.
[left margin]
"SINCE WE SEE INFLATION COMING IN A LITTLE HIGHER THAN 2%, WE THINK TIIS STILL
PROVIDE A BETTER VALUE THAN TRADITIONAL TREASURY BONDS."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 1999
U.S. Treasury Securities 75%
U.S. Government Agency Securities 25%
AS OF MARCH 31, 1999
U.S. Treasury Securities 69%
U.S. Government Agency Securities 31%
Investment terms are defined in the Glossary on pages 18-19.
6 1-800-345-2021
Inflation-Adjusted Treasury--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
SEPTEMBER 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 75.2%
$1,196,874 U.S. Treasury Inflation-Indexed
Notes, 3.625%, 7/15/02 $ 1,188,646
2,089,274 U.S. Treasury Inflation-Indexed
Notes, 3.625%, 1/15/08 2,022,025
5,793,252 U.S. Treasury Inflation-Indexed
Notes, 3.875%, 1/15/09 5,704,545
3,168,531 U.S. Treasury Inflation-Indexed
Bonds, 3.875%, 4/15/29 3,062,583
-----------
TOTAL U.S. TREASURY SECURITIES 11,977,799
-----------
(Cost $12,130,834)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 24.8%
$4,260,843 TVA Inflation-Indexed Notes,
3.375%, 1/15/07 $ 3,943,100
-----------
(Cost $4,053,985)
TOTAL INVESTMENT SECURITIES -- 100.0% $15,920,899
===========
(Cost $16,184,819)
NOTES TO SCHEDULE OF INVESTMENTS
TVA = Tennessee Valley Authority
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. For each class of shares, 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).
SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $16,184,819)
(Note 3) ................................................ $ 15,920,899
Cash ...................................................... 136,402
Investment in affiliated money
market fund (Note 2) .................................... 2,235
Interest and other receivables ............................ 156,606
------------
16,216,142
------------
LIABILITIES
Accrued management fees (Note 2) .......................... 6,068
Distribution and service
fees payable (Note 2) ................................... 11
Dividends payable ......................................... 17,376
Payable for trustees' fees and expenses ................... 31
Accrued expenses and other liabilities .................... 735
------------
24,221
------------
Net Assets ................................................ $ 16,191,921
============
NET ASSETS CONSIST OF:
Capital paid in ........................................... $ 16,618,702
Accumulated net realized loss
on investments .......................................... (162,861)
Net unrealized depreciation
on investments (Note 3) ................................. (263,920)
------------
$ 16,191,921
============
Investor Class
Net assets ................................................ $ 16,171,139
Shares outstanding ........................................ 1,733,609
Net asset value per share ................................. $ 9.33
Advisor Class
Net assets ................................................ $ 20,782
Shares outstanding ........................................ 2,228
Net asset value per share ................................. $ 9.33
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.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest ................................................... $ 379,525
---------
Expenses (Note 2):
Management fees ............................................ 28,480
Distribution fees -- Advisor Class ......................... 26
Service fees -- Advisor Class .............................. 26
Trustees' fees and expenses ................................ 166
---------
28,698
---------
Net investment income ...................................... 350,827
---------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ........................... (92,264)
Change in net unrealized
depreciation on investments .............................. (100,288)
---------
Net realized and unrealized
loss on investments ...................................... (192,552)
---------
Net Increase in Net Assets
Resulting from Operations ................................ $ 158,275
=========
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.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND YEAR ENDED MARCH 31, 1999
SEPTEMBER 30, MARCH 31,
Increase in Net Assets 1999 1999
OPERATIONS
Net investment income ......................... $ 350,827 $ 338,501
Net realized loss on investments .............. (92,264) (20,024)
Change in net unrealized
depreciation on investments ................. (100,288) (111,410)
------------ -----------
Net increase in net assets
resulting from operations ................... 158,275 207,067
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .............................. (350,184) (338,135)
Advisor Class ............................... (643) (366)
------------ -----------
Decrease in net assets from distributions ..... (350,827) (338,501)
------------ -----------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from
capital share transactions .................. 7,393,812 3,842,717
------------ -----------
Net increase in net assets .................... 7,201,260 3,711,283
NET ASSETS
Beginning of period ........................... 8,990,661 5,279,378
------------ -----------
End of period ................................. $ 16,191,921 $ 8,990,661
============ ===========
10 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Inflation-Adjusted Treasury Fund (the fund) is
one of the eight funds issued by the trust. The fund's investment objective is
to provide a total return consistent with investment in U.S. Treasury
inflation-adjusted securities. The fund may also invest in U.S. Treasury
securities which are not indexed to inflation for liquidity and total return, or
if at any time the manager believes there is an inadequate supply of appropriate
Treasury inflation-adjusted securities in which to invest. The fund is
authorized to issue two classes of shares: the Investor Class and the Advisor
Class. The two classes of shares differ principally in their respective
shareholder servicing and distribution expenses and arrangements. All shares of
the fund represent an equal pro rata interest in the assets of the class to
which such shares belong, and have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except for class specific
expenses and exclusive rights to vote on matters affecting only individual
classes. 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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment advisor, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Trustees. Each repurchase agreement is recorded at cost.
The fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the fund's custodian in a manner
sufficient to enable the fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
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.
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 March 31, 1999, accumulated net realized capital loss carryovers of
approximately $56,275 (expiring in 2006 through 2007) may be used to offset
future taxable gains.
The fund has elected to treat $9,570 of net realized losses incurred in the
five month period ended March 31, 1999 as having been incurred in the following
fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
www.americancentury.com 11
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with ACIM , under which
ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the funds, except brokerage, taxes, portfolio insurance,
interest, fees and expenses of those trustees who are not considered "interested
persons" as defined in the Investment Company Act of 1940 (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is calculated
daily and paid monthly. It consists of an Investment Category Fee based on the
average net assets of the funds in a specific fund's investment category and a
Complex Fee based on the average net assets of all the funds managed by ACIM.
The rates for the Investment Category Fee range from 0.1625% to 0.2800% and the
rates for the Complex Fee (Investor Class) range from 0.2900% to 0.3100%. The
Advisor Class is 0.2500% less at each point within the Complex Fee range. For
the six months ended September 30, 1999, the effective annual Investor Class
management fee was 0.51%.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plan provides that the fund will pay ACIM an annual
distribution fee equal to 0.25% and service fee equal to 0.25%. The fees are
computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred by
the fund under the plan during the six months ended September 30, 1999 were $52.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, and the
trust's transfer agent, American Century Services Corporation.
As of September 30, 1999, the fund had invested $2,235 in shares of Capital
Preservation Fund, which is a series of American Century Government Income
Trust. The terms of the transaction were identical to those with non-related
entities except that, to avoid duplicate management fees, the fund did not pay
ACIM management fees with respect to assets invested in Capital Preservation
Fund.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of U.S. Treasury and Agency obligations, excluding
short-term investments, for the six months ended September 30, 1999, were
$13,367,197 and $6,157,429, respectively.
On September 30, 1999, accumulated net unrealized depreciation was $268,222,
based on the aggregate cost of investments for federal income tax purposes of
$16,189,121. Accumulated net unrealized depreciation consisted entirely of
unrealized depreciation of $268,222.
12 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows (unlimited number of shares
authorized):
SHARES AMOUNT
INVESTOR CLASS
Six months ended September 30, 1999
Sold ......................................... 1,159,704 $ 10,897,956
Issued in reinvestment of distributions ...... 32,007 301,386
Redeemed ..................................... (405,618) (3,816,541)
---------- ------------
Net increase ................................. 786,093 $ 7,382,801
========== ============
Year ended March 31, 1999
Sold ......................................... 663,668 $ 6,372,276
Issued in reinvestment of distributions ...... 31,279 300,195
Redeemed ..................................... (295,763) (2,840,158)
---------- ------------
Net increase ................................. 399,184 $ 3,832,313
========== ============
ADVISOR CLASS
Six months ended September 30, 1999
Sold ......................................... 2,187 $ 20,703
Issued in reinvestment of distributions ...... 63 588
Redeemed ..................................... (1,102) (10,280)
---------- ------------
Net increase ................................. 1,148 $ 11,011
========== ============
June 15, 1998(1) through March 31, 1999
Sold ......................................... 1,043 $ 10,051
Issued in reinvestment of distributions ...... 37 353
Redeemed ..................................... -- --
---------- ------------
Net increase ................................. 1,080 $ 10,404
========== ============
(1) Commencement of sale of the Advisor Class.
- --------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.40%. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The fund did not borrow from the line during the six
months ended September 30, 1999.
www.americancentury.com 13
<TABLE>
<CAPTION>
Inflation-Adjusted Treasury--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 share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
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 MARCH 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1999 1998 1997(2)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 9.48 $ 9.63 $ 9.74 $ 10.00
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............... 0.29 0.47 0.44 0.06
Net Realized and Unrealized Loss
on Investment Transactions .......... (0.15) (0.15) (0.11) (0.26)
---------- ---------- ---------- ----------
Total From Investment Operations .... 0.14 0.32 0.33 (0.20)
---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......... (0.29) (0.47) (0.44) (0.06)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $ 9.33 $ 9.48 $ 9.63 $ 9.74
========== ========== ========== ==========
Total Return(3) ..................... 1.56% 3.37% 3.45% (1.98)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51%(4) 0.49% 0.50% 0.50%(4)
Ratio of Net Investment Income
to Average Net Assets ............... 6.19%(4) 4.84% 4.45% 5.03%(4)
Portfolio Turnover Rate ............... 55% 127% 69% --
Net Assets, End of Period
(in thousands) ...................... $ 16,171 $ 8,980 $ 5,279 $ 2,277
</TABLE>
(1) Six months ended September 30, 1999 (unaudited).
(2) February 10, 1997 (inception) through March 31, 1997.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
14 1-800-345-2021 See Notes to Financial Statements
Inflation-Adjusted Treasury--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Advisor Class
1999(1) 1999(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ........ $ 9.48 $ 9.64
------- -------
Income From Investment Operations
Net Investment Income ..................... 0.28 0.34
Net Realized and Unrealized Loss
on Investment Transactions ................ (0.15) (0.16)
------- -------
Total From Investment Operations .......... 0.13 0.18
------- -------
Distributions
From Net Investment Income ................ (0.28) (0.34)
------- -------
Net Asset Value, End of Period .............. $ 9.33 $ 9.48
======= =======
Total Return(3) ........................... 1.44% 1.94%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..................... 0.76%(4) 0.74%(4)
Ratio of Net Investment Income
to Average Net Assets ..................... 5.94%(4) 4.56%(4)
Portfolio Turnover Rate ..................... 55% 127%
Net Assets, End of Period
(in thousands) ............................ $ 21 $ 10
(1) Six months ended September 30, 1999 (unaudited).
(2) June 15, 1998 (commencement of sale) through March 31, 1999.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 15
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
INVESTOR CLASS shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
ADVISOR CLASS shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the fund and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
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:
INFLATION-ADJUSTED TREASURY seeks to provide a total return and inflation
protection consistent with an investment in inflation-indexed securities issued
by the U.S. Treasury. The fund has no average maturity limitations. Fund shares
are not guaranteed by the U.S. government.
COMPARATIVE INDICES
The indices listed below are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The SALOMON BROTHERS TREASURY INDEX is an index of U.S. Treasury securities
with maturities greater than 10 years.
The SALOMON BROTHERS U.S. INFLATION-LINKED INDEX is an index of
inflation-linked U.S. Treasury securities.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Manager
DAVE SCHROEDER
www.americancentury.com 17
Glossary
- --------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 14-15.
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 fund's net investment income
includesboth interest and the principal adjustment on inflation-indexed
securities. The SEC yield should be regarded as an estimate of the fund's rate
of investment income, and it may not equal the fund's actual income distribution
rate, the income paid to a shareholder's account, or the income reported in the
fund's financial statements.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES -- the
number of different securities held by the 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 expensesand fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
INVESTMENT TERMS
* BASIS POINT -- one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%). Basis points are used to clearly
describe interest rate changes. For example, if a news report indicates that
interest rates rose by 1%, does that mean 1% of the previous rate or one
percentage point? It is more accurate to state that interest rates rose by 100
basis points.
* COUPON -- the stated interest rate of a security.
SECURITY TYPES
* U.S. TREASURY INFLATION-INDEXED SECURITIES (TIIS) -- debt securities issued by
the U.S. Treasury and backed by the direct "full faith and credit" pledge of the
U.S. government. Inflation-indexed bonds have lower interest rates than normal
Treasury bonds with similar maturities. But unlike ordinary bonds,
inflation-indexed bonds' principal value is adjusted regularly for inflation
based on the consumer price index. As a result, the amount of interest paid out
changes with the principal adjustments.
* U.S. GOVERNMENT AGENCY INFLATION-INDEXED SECURITIES -- similar to the Treasury
securities, but issued by U.S. government agencies such as the Tennessee Valley
Authority.
18 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 19
Notes
- --------------------------------------------------------------------------------
20 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
- --------------------------------------------------------------------------------
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc. is
9911 the distributor of American Century funds
SH-ANN-18628 (c)1999 American Century Services Corporation
