[front cover]
September 30, 2000
AMERICAN CENTURY
Semiannual Report
Short-Term Treasury
Intermediate-Term Treasury
Long-Term Treasury
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
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to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century' s fund performance reports have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
SHORT-TERM TREASURY
(BSTAX)
--------------------------
INTERMEDIATE-TERM TREASURY
(CPTNX)
--------------------------
LONG-TERM TREASURY
(BLAGX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
American Century's Short-, Intermediate-, and Long-Term Treasury funds
posted solid returns for the six months ended September 30, 2000, a volatile
period for equity markets. For risk-averse investors or those with short
investment horizons, this demonstrated the value of maintaining at least a
modest fixed-income position to cushion against stock price swings. The funds'
investment team reviews fund performance and the Treasury market in general
beginning on page 3.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., a substantial minority shareholder in
American Century Companies, Inc. since 1998. If the transaction is completed as
expected, J.P. Morgan Chase, the new enterprise, will own the shares of American
Century currently held by Morgan. Corporate control of American Century is not
affected by this transaction. We will be exploring ways to partner with J.P.
Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we have chosen to share the
chairman of the board position and named American Century President William M.
Lyons chief executive officer, giving him ultimate management responsibility for
the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will be continuing involvement on the
investment teams responsible for the Ultra and Veedot funds.
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 Co-Chairman of the Board
[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
Statement of Assets and
Liabilities ......................................................... 16
Statement of Operations ................................................ 17
Statement 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
* U.S. bonds posted generally solid returns for the six months ended September
30, 2000. The returns for U.S. government securities generally ranged from
2-5% during the period.
* After outperforming earlier in the year, Treasury securities generally
underperformed non-Treasury taxable securities.
* Among Treasurys, 2- to 10-year notes and Treasury inflation-indexed
securities (TIIS) were among the best performers.
* Longer-term Treasury bonds lagged. With declining Treasury buybacks and
higher oil prices taking their toll, the 30-year T-bond yielded more than
the 10-year T-note for the first time since mid-January.
SHORT-TERM TREASURY
* The fund produced a solid return.
* Taking a cautious approach, we kept the portfolio's sensitivity to interest
rate changes (duration) short of the fund benchmark's. That caused the fund
to lag a bit behind its peer group average and benchmark.
* Our quantitative fixed-income analysis team assisted us in making timely
adjustments between Treasury and agency bonds in the portfolio, which
helped the fund stay close to its peers.
* The portfolio's TIIS position also boosted performance.
* We expect a "soft landing" for the U.S. economy, and believe the Federal
Reserve will refrain from further interest rate moves in the near term. We
think the fund is well positioned for that scenario.
INTERMEDIATE-TERM TREASURY
* The fund produced a solid return and outperformed its Lipper peers.
* Our quantitative fixed-income analysis team assisted us in making timely
adjustments between Treasury and agency bonds in the portfolio.
* The portfolio's TIIS position also boosted performance.
* We expect a "soft landing" for the U.S. economy, and believe the Federal
Reserve will refrain from further interest rate moves in the near term. We
think the fund is well positioned for that scenario.
LONG-TERM TREASURY
* The fund performed quite well, considering that it was positioned in the
most challenging Treasury maturity area. The further out beyond 10 years on
the maturity spectrum, the worse performance was likely to be.
* Long-Term Treasury generated a higher yield than its peers. The higher yield
came from a combination of the fund's longer maturity and lower expenses.
* The portfolio's TIIS position produced mixed performance.
* The fund's long-maturity zero-coupon bonds performed well.
* We believe the economy will continue to slow and inflationary pressures
should subside. Against that backdrop, we think long-term Treasury bonds
should perform well. We plan to maintain our holdings in TIIS.
[left margin]
SHORT-TERM TREASURY(1)
(BSTAX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 3.67%(2)
1 Year 5.35%
30-DAY SEC YIELD: 5.87%
INCEPTION DATE: 9/8/92
NET ASSETS: $55.6 million(3)
INTERMEDIATE-TERM TREASURY(1)
(CPTNX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 4.66%(2)
1 Year 6.41%
30-DAY SEC YIELD: 5.64%
INCEPTION DATE: 5/16/80
NET ASSETS: $340.2 million(3)
LONG-TERM TREASURY(1)
(BLAGX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 3.66%(2)
1 Year 9.44%
30-DAY SEC YIELD: 5.69%
INCEPTION DATE: 9/8/92
NET ASSETS: $98.7 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
U.S. ECONOMIC AND BOND MARKET OVERVIEW
An economic slowdown, an extended pause in the Federal Reserve's program of
interest rate hikes, and stock market volatility helped U.S. bonds post
generally solid returns during the six months ended September 30, 2000. The
returns for U.S. government securities generally ranged from 2-5% during the
period (see the Treasury Index Returns table at right).
After withstanding six increases in short-term interest rates by the
Federal Reserve since June 1999, the U.S. economy finally slowed. Annualized
third quarter economic growth was just 2.7% (by initial estimates),
significantly lower than the rate during the first half of 2000. As the threat
of higher inflation faded in late May and June, the Fed stood pat after raising
rates in mid-May.
By late summer, rising oil prices and a declining euro (the European
currency) further threatened global economic growth, as well as demand for U.S.
goods and services. With corporate profits coming under pressure, stocks
staggered and bonds were boosted by the combination of increased demand and a
more stable interest rate environment.
SPREAD SECTORS OUTPERFORM TREASURYS
Not all bond sectors benefited equally. In the taxable bond arena,
mortgage-backed, agency, and asset-backed bonds performed best. Investors sought
value and higher yields in those sectors after Treasury yields dropped
dramatically during the first half of this year.
As a result, Treasury notes and bonds generally underperformed non-Treasury
(spread sector) notes and bonds during the six-month period, with the 30-year
T-bond lagging furthest behind. With declining Treasury buybacks and higher oil
prices taking their toll, the long end of the Treasury yield curve "disinverted"
(the 30-year T-bond yielded more than the 10-year T-note) for the first time
since mid-January.
INTERMEDIATE-TERM TREASURYS AND TIIS PERFORMED BEST
With the long end of the Treasury yield curve "disinverting" and the short
end stabilizing as the Fed stopped raising interest rates, the place to be in
the Treasury market was the two- to 10-year maturity range. The five-year note
performed best, returning 4.85% as its yield fell 47 basis points. By
comparison, the 30-year bond returned just 2.42% as its yield rose six basis
points.
Treasury inflation-indexed securities (TIIS) drew increasing attention.
Investors believed that TIIS, whose yields are adjusted for changes in
inflation, were attractive relative to the spread sectors and nominal
(traditional) Treasury bonds. The second and third quarters of 2000 provided a
favorable environment for TIIS--inflation, though mild, ticked up slightly, and
real (inflation-adjusted) yields fell.
[right margin]
"THE PLACE TO BE IN THE TREASURY MARKET WAS THE TWO- TO 10-YEAR MATURITY RANGE."
TREASURY INDEX RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
SALOMON BROTHERS 1- TO 3-YEAR
TREASURY INDEX 3.86%
SALOMON BROTHERS 3- TO 10-YEAR
TREASURY INDEX 4.83%
SALOMON BROTHERS LONG-TERM
TREASURY INDEX 3.79%
Source: Russell/Mellon Analytical Services and Bloomberg Financial Markets
[line graph - data below]
"DISINVERTING" TREASURY YIELD CURVE
YEARS TO
MATURITY 3/31/00 9/30/00
1 6.24% 6.10%
2 6.48% 5.98%
3 6.42% 5.93%
4 6.37% 5.89%
5 6.32% 5.85%
6 6.25% 5.84%
7 6.19% 5.83%
8 6.13% 5.82%
9 6.07% 5.81%
10 6.01% 5.80%
11 6.00% 5.80%
12 5.99% 5.80%
13 5.98% 5.80%
14 5.97% 5.80%
15 5.96% 5.80%
16 5.95% 5.80%
17 5.94% 5.80%
18 5.93% 5.80%
19 5.92% 5.80%
20 5.91% 5.80%
21 5.90% 5.80%
22 5.89% 5.81%
23 5.88% 5.82%
24 5.87% 5.83%
25 5.86% 5.84%
26 5.85% 5.85%
27 5.84% 5.86%
28 5.83% 5.87%
29 5.83% 5.88%
30 5.83% 5.89%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Short-Term Treasury--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 2000
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 TREASURY INDEX AVERAGE RETURN FUND'S RANKING TREASURY TREASURY INDEX
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
6 MONTHS(1) 3.67% 3.86% 3.70% -- 3.54% 3.86%
1 YEAR 5.35% 5.75% 5.31% 11 OUT OF 24 5.09% 5.75%
=======================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.05% 5.64% 5.05% 11 OUT OF 22 -- --
5 YEARS 5.21% 5.88% 5.32% 9 OUT OF 17 -- --
LIFE OF FUND 4.85% 5.50%(3) 4.96%(4) 5 OUT OF 8 4.71% 5.64%(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) Index data since 8/31/92, the date nearest the class's inception for which
data are available.
(4) Since 9/30/92, the date nearest the class's inception for which data are
available.
(5) Index data since 9/30/97, the date nearest the class's inception for which
data are available.
See pages 28-30 for 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 9/30/00
Salomon 1- to 3-Year
Treasury Index $15,418
Short-Term Treasury $14,650
Short-Term Salomon 1- to 3-Year
Treasury Treasury Index
DATE VALUE VALUE
9/8/1992 $10,000 $10,000
12/31/1992 $10,023 $10,117
3/31/1993 $10,279 $10,333
6/30/1993 $10,388 $10,449
9/30/1993 $10,512 $10,597
12/31/1993 $10,557 $10,662
3/31/1994 $10,500 $10,609
6/30/1994 $10,498 $10,613
9/30/1994 $10,585 $10,715
12/31/1994 $10,574 $10,718
3/31/1995 $10,906 $11,070
6/30/1995 $11,222 $11,419
9/30/1995 $11,369 $11,584
12/31/1995 $11,625 $11,870
3/31/1996 $11,638 $11,919
6/30/1996 $11,725 $12,042
9/30/1996 $11,898 $12,241
12/31/1996 $12,103 $12,470
3/31/1997 $12,176 $12,555
6/30/1997 $12,419 $12,828
9/30/1997 $12,643 $13,079
12/31/1997 $12,843 $13,300
3/31/1998 $13,015 $13,493
6/30/1998 $13,201 $13,700
9/30/1998 $13,588 $14,122
12/31/1998 $13,669 $14,228
3/31/1999 $13,743 $14,315
6/30/1999 $13,747 $14,397
9/30/1999 $13,909 $14,580
12/31/1999 $13,976 $14,661
3/31/2000 $14,135 $14,845
6/30/2000 $14,363 $15,100
9/30/2000 $14,650 $15,418
$10,000 investment made 9/8/92(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 3- to 10-Year Treasury 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
return of the index does 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 Index
DATE RETURN RETURN
9/30/1993* 4.77% 4.99%
9/30/1994 0.69% 1.11%
9/30/1995 7.40% 8.11%
9/30/1996 4.65% 5.67%
9/30/1997 6.26% 6.85%
9/30/1998 7.48% 7.97%
9/30/1999 2.37% 3.25%
9/30/2000 5.35% 5.75%
* From 9/30/92 (the date after the class's inception for which index data are
available).
4 1-800-345-2021
Short-Term Treasury--Q&A
--------------------------------------------------------------------------------
[photo of Bob Gahagan]
An interview with Bob Gahagan, a portfolio manager on the Short-Term
Treasury fund investment team.
HOW DID SHORT-TERM TREASURY PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30,
2000?
The six months were generally upbeat for most government bonds, allowing
the fund to produce a solid total return. Short-Term Treasury returned 3.67%,
narrowly trailing the 3.70% average return of 25 "Short U.S. Treasury Funds"
tracked by Lipper Inc.* The fund's benchmark, the Salomon Brothers 1- to 3-Year
Treasury Index, returned 3.86%. (See the previous page for other fund
performance comparisons.)
WHAT CAUSED THE PERFORMANCE GAP BETWEEN THE FUND, THE LIPPER AVERAGE, AND THE
BENCHMARK?
We were a little too conservative in managing the fund's duration. Duration
measures a bond portfolio's price sensitivity to interest rate changes--more
duration translates to greater price changes when interest rates move and less
duration means less price sensitivity. So you'd like to have more (longer)
duration when interest rates are falling (and bond prices are rising), which was
the case during the six-month period.
However, we were concerned about the strength of the U.S. economy and the
possibility of higher interest rates, so we kept duration a bit short of the
benchmark's. As it became clearer that economic growth was slowing and near-term
interest rate hikes were becoming increasingly unlikely, we lengthened the
fund's duration, which helped as bonds continued to rally. But we did lose some
ground at the beginning of the period.
WHAT OTHER STRATEGY DECISIONS DID YOU MAKE?
At times we adjusted the balance between Treasury and agency bonds in the
portfolio to take advantage of supply and demand imbalances. Those adjustments
helped the fund keep pace with its peers.
For example we took advantage of an agency bond rally that began in May,
reducing the portfolio's agency position from 25% to 14% by selling three-year
and shorter-maturity bonds at higher prices.
But by late summer, yields on agency bonds began to creep higher. We used
that as an opportunity to reintroduce agency securities to the portfolio,
increasing holdings to 24%.
WHAT TOOLS DID YOU USE TO MAKE THESE ADJUSTMENTS?
We have a quantitative fixed-income analysis team that helps us choose
where to concentrate the portfolio's holdings and where to limit its exposure.
For example, detailed return attribution analysis by the quantitative team
plays a significant role in our process. The team uses proprietary models to
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"THE SIX MONTHS WERE GENERALLY UPBEAT FOR MOST GOVERNMENT BONDS."
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 13 8
WEIGHTED AVERAGE
MATURITY 1.7 YRS 1.6 YRS
AVERAGE DURATION 1.5 YRS 1.3 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.51%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.87% 5.61%
Investment terms are defined in the Glossary on pages 30-31.
www.americancentury.com 5
Short-Term Treasury--Q&A
--------------------------------------------------------------------------------
(Continued)
closely examine the performance of Treasury and agency bonds. That helps us
determine which maturities and types of bonds look most attractive and how they
will perform in different market scenarios. That allows us to better understand
how the fund will perform as conditions change. We then position the portfolio
based on what seems to be the most likely scenario.
YOU HELD SOME TREASURY INFLATION-INDEXED SECURITIES (TIIS) IN THE PORTFOLIO. HOW
DID THEY PERFORM?
They performed quite well. We maintained around 8% of the portfolio in
two-year TIIS throughout the six months, adding to or subtracting from that
position as conditions warranted. Unlike nominal Treasurys, the principal values
of TIIS are adjusted upward when consumer prices rise.
Rising oil costs have pushed consumer prices higher this year, enhancing
the performance of TIIS. That was especially true during April and May, when we
temporarily increased our TIIS holdings because of the higher principal
adjustments.
For at least the near term, we expect to maintain our TIIS holdings because
their story remains compelling. Based on current prices and yields, if inflation
continues to rise at least 2.3% annually, two-year TIIS should outperform
nominal two-year Treasurys.
OIL PRICES SPIKED TO 10-YEAR HIGHS IN SEPTEMBER. IS THAT A CONCERN FOR BONDS?
Yes, oil costs have clouded our outlook and will bear close scrutiny in the
near term. Ongoing tensions and violence in the Middle East have been at the
heart of rising oil costs, which helped fuel the 3.5% rise in consumer prices
over the past year. Making matters worse, we're heading into winter--the peak
period for heating oil consumption--with low U.S. oil inventories, so prices
could rise even more.
On the positive side, the U.S. economy is far less dependent on oil than it
has been in previous decades.
OUTSIDE OF THOSE CONCERNS, WHAT'S YOUR OUTLOOK FOR BONDS?
We think short-term Treasurys and other government bonds may have performed
too well too quickly, so yields are lower than we think they should be.
Short-term bonds currently reflect expectations that the Federal Reserve will
lower rates by nearly half a percent by next summer. That's too aggressive in
our book.
Economic growth has moderated but there are few signs of outright weakness.
Consumer confidence and retail sales remain fairly strong and the housing market
is still quite active. And though stocks have struggled more this year than in
the recent past, any equity market rebound could add to economic strength.
Therefore, we don't think the Federal Reserve will raise or lower interest
rates in the near future.
IN LIGHT OF THAT PERSPECTIVE, WHAT ARE YOUR NEAR-TERM PLANS FOR THE PORTFOLIO?
We think Short-Term Treasury is well positioned for the current
environment. We will probably maintain the fund's roughly neutral duration for
now, and maybe even shorten a bit, just in case the economy heats up again.
In addition, we will probably keep roughly equal (neutral) weightings in
the various maturities in which the fund invests.
[left margin]
"WE HAVE A QUANTITATIVE FIXED-INCOME ANALYSIS TEAM THAT HELPS US CHOOSE WHERE TO
CONCENTRATE THE PORTFOLIO'S HOLDINGS."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
TREASURY NOTES 67%
AGENCY NOTES 24%
TREASURY INFLATION-INDEXED
NOTES 8%
TEMPORARY CASH INVESTMENTS 1%
AS OF MARCH 31, 2000
TREASURY NOTES 67%
AGENCY NOTES 24%
TREASURY INFLATION-INDEXED
NOTES 9%
Investment terms are defined in the Glossary on pages 30-31.
6 1-800-345-2021
Short-Term Treasury--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 75.3%
$5,900,000 U.S. Treasury Notes, 7.75%,
2/15/01 $ 5,931,347
6,700,000 U.S. Treasury Notes, 8.00%,
5/15/01 6,771,188
3,000,000 U.S. Treasury Notes, 5.50%,
8/31/01 2,979,377
9,100,000 U.S. Treasury Notes, 6.50%,
2/28/02 9,145,499
4,310,320 U.S. Treasury Inflation Indexed
Notes, 3.625%, 7/15/02 4,308,975
5,000,000 U.S. Treasury Bonds, 10.75%,
5/15/03 5,568,750
1,800,000 U.S. Treasury Bonds, 11.125%,
8/15/03 2,040,750
2,400,000 U.S. Treasury Notes, 5.75%,
8/15/03 2,388,000
2,200,000 U.S. Treasury Notes, 5.875%,
11/15/04 2,198,625
-----------
TOTAL U.S. TREASURY SECURITIES 41,332,511
-----------
(Cost $41,195,316)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 24.1%
$1,500,000 FHLB, 6.00%, 11/15/01 $ 1,492,466
5,800,000 FHLB, 6.25%, 11/15/02 5,774,631
5,900,000 FHLB, 7.00%, 2/14/03 5,966,150
-----------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 13,233,247
-----------
(Cost $13,102,735)
TEMPORARY CASH INVESTMENTS -- 0.6%
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.45%, dated 9/29/00,
due 10/2/00 (Delivery value $302,162) 302,000
-----------
(Cost $302,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $54,867,758
===========
(Cost $54,600,051)
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
See Notes to Financial Statements www.americancentury.com 7
Intermediate-Term Treasury--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 2000
INVESTOR CLASS (INCEPTION 5/16/80) ADVISOR CLASS (INCEPTION 10/9/97)
SALOMON 3- TO SALOMON 3- TO
INTERMEDIATE-TERM 10-YEAR INTERMEDIATE U.S. TREASURY FUNDS(2) INTERMEDIATE-TERM 10-YEAR
TREASURY TREASURY INDEX AVERAGE RETURN FUND'S RANKING TREASURY TREASURY INDEX
========================================================================================================================
<S> <C> <C> <C> <C> <C>
6 MONTHS(1) 4.66% 4.83% 4.45% -- 4.53% 4.83%
1 YEAR 6.41% 6.86% 6.04% 5 OUT OF 12 6.15% 6.86%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.52% 6.15% 5.37% 5 OUT OF 10 -- --
5 YEARS 5.91% 6.46% 5.74% 3 OUT OF 6 -- --
10 YEARS 6.91% 7.44% 6.92% 3 OUT OF 4 -- --
LIFE OF FUND 8.32% 9.28%(3) 8.32% 1 OUT OF 1 5.23% 6.15%(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) Index data since 5/31/80, the date nearest the class's inception for which
data are available.
(4) Index data since 9/30/97, the date nearest the class's inception for which
data are available.
See pages 28-30 for 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 9/30/00
Salomon 3- to 10-Year
Treasury Index $20,502
Intermediate-Term Treasury $19,522
Intermediate-Term Salomon 3- to 10-Year
Treasury Treasury Index
DATE VALUE VALUE
9/30/1990 $10,000 $10,000
9/30/1991 $11,297 $11,349
9/30/1992 $12,707 $12,768
9/30/1993 $13,629 $13,753
9/30/1994 $13,362 $13,544
9/30/1995 $14,648 $14,991
9/30/1996 $15,354 $15,753
9/30/1997 $16,616 $17,140
9/30/1998 $18,706 $19,483
9/30/1999 $18,347 $19,185
9/30/2000 $19,522 $20,502
$10,000 investment made 9/30/90
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
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
9/30/1991 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%
9/30/2000 6.41% 6.86%
8 1-800-345-2021
Intermediate-Term Treasury--Q&A
--------------------------------------------------------------------------------
An interview with Bob Gahagan (pictured on page 5), a portfolio manager on
the Intermediate-Term Treasury fund investment team.
HOW DID INTERMEDIATE-TERM TREASURY PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER
30, 2000?
The six months were generally upbeat for intermediate-term government
bonds, allowing the fund to produce a solid total return. Intermediate-Term
Treasury's total return was 4.66%, outpacing the 4.45% average return of 12
"Intermediate U.S. Treasury Funds" tracked by Lipper Inc.* The fund's benchmark,
the Salomon Brothers 3- to 10-Year Treasury Index, returned 4.83%. (See the
previous page for other fund performance comparisons.)
WHAT HELPED INTERMEDIATE-TERM TREASURY OUTPERFORM?
Several factors were important, including the adjustments that we made to
the fund's balance of Treasury and agency bonds, the efforts of our quantitative
team, and the performance of the portfolio's inflation-indexed Treasury
position.
WHAT CHANGES DID YOU MAKE IN THE PORTFOLIO'S BALANCE BETWEEN TREASURY AND
AGENCY BONDS?
We adjusted the balance between Treasury and agency bonds to take advantage
of supply and demand imbalances.
At the start of the year, agency bond yields were high because of proposed
legislation that would have stripped government backing from agencies such as
Fannie Mae and Freddie Mac. As a result, agency bond prices fell and yields
rose, widening the difference, or spread, between their yields and those offered
by Treasury securities.
However, conditions began to change in May. The market became increasingly
convinced that the proposed legislation would be watered down, if it ever
passed. Demand grew for agency bonds' higher yields, and spreads narrowed. We
decided to sell into that demand, reducing the portfolio's agency position from
14% to 7% by selling 10-year or greater maturity bonds.
But spreads began to widen again by late summer. We used that opportunity
to add agencys back to the portfolio at attractive prices and yields, increasing
holdings to 17% by September 30. Instead of longer-term agency bonds, however,
we added securities with three- to four-year maturities.
WHAT TOOLS DID YOU USE TO MAKE THESE ADJUSTMENTS?
We have a quantitative fixed-income analysis team that helps us choose
where to concentrate the portfolio's holdings and where to limit its exposure.
For example, detailed return attribution analysis by the quantitative team
plays a significant role in our process. The team uses proprietary models to
closely examine the performance of Treasury and agency bonds. That helps us
determine which maturities and types of bonds look best and how they will
perform in different market scenarios. That allows us to better understand how
the fund will perform as conditions change. We then position the portfolio
based on what seems the most likely scenario.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"THE SIX MONTHS WERE GENERALLY UPBEAT FOR INTERMEDIATE-TERM GOVERNMENT BONDS."
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 17 18
WEIGHTED AVERAGE
MATURITY 6.2 YRS 6.3 YRS
AVERAGE DURATION 4.5 YRS 4.7 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.51%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.64% 5.39%
Investment terms are defined in the Glossary on pages 30-31.
www.americancentury.com 9
Intermediate-Term Treasury--Q&A
--------------------------------------------------------------------------------
(Continued)
HOW DID THE FUND'S EXPOSURE TO TREASURY INFLATION-INDEXED SECURITIES (TIIS)
BOOST PERFORMANCE?
TIIS outperform traditional (nominal) Treasury securities when inflation
threatens, as it did last April and May. Unlike nominal Treasurys, the principal
values of TIIS are adjusted upward when consumer prices rise. We maintained a
position of around 5% of the portfolio in 10-year TIIS throughout the six
months, adding to or subtracting from that position as conditions warranted.
For at least the near term, we expect to hold on to these securities
because their story remains compelling. Based on current prices and yields, if
inflation continues to rise at least 1.8% annually, then 10-year TIIS should
outperform nominal 10-year Treasurys.
LET'S JUMP TO YOUR OUTLOOK FOR BONDS. WHAT'S IN STORE FOR THE MARKET?
We think that short- and intermediate-term government securities may have
performed too well too quickly, so yields are lower than we think they should
be. Short-term bonds currently reflect expectations that the Federal Reserve
will lower rates by nearly half a percent by next summer. That's too aggressive
in our book.
Economic growth has moderated but there are few signs of weakness.
Consumer confidence and retail sales remain fairly strong and the housing market
is still quite active. And though stocks have struggled more this year than in
the recent past, any equity market rebound could bolster consumer spending--the
economy's primary driver. The reverse is also true, however--if stock volatility
continues, that could sap consumer enthusiasm.
Therefore, we don't think the Federal Reserve will raise or lower interest
rates in the near future.
IN LIGHT OF THAT PERSPECTIVE, WHAT ARE YOUR NEAR-TERM PLANS FOR THE PORTFOLIO?
We believe Intermediate-Term Treasury is well positioned for the current
environment. We will probably maintain the fund's short-to-neutral duration
relative to its benchmark for now, just in case the economy heats up again.
In addition, we'll probably keep roughly equal (neutral) weightings in the
various maturities in which the fund invests.
[left margin]
"WE BELIEVE THAT INTERMEDIATE-TERM TREASURY IS WELL POSITIONED FOR THE CURRENT
ENVIRONMENT."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
TREASURY NOTES 77%
AGENCY NOTES 17%
TREASURY INFLATION-INDEXED
NOTES 5%
TEMPORARY CASH INVESTMENTS 1%
AS OF MARCH 31, 2000
TREASURY NOTES 73%
AGENCY NOTES 14%
TREASURY INFLATION-INDEXED
NOTES 8%
TREASURY BONDS 5%
Investment terms are defined in the Glossary on pages 30-31.
10 1-800-345-2021
Intermediate-Term Treasury--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 81.8%
$16,000,000 U.S. Treasury Notes, 7.25%,
5/15/04 $ 16,685,008
19,900,000 U.S. Treasury Notes, 7.50%,
2/15/05 21,118,875
29,800,000 U.S. Treasury Notes, 6.50%,
8/15/05 30,563,624
15,200,000 U.S. Treasury Notes, 6.875%,
5/15/06 15,888,758
16,500,000 U.S. Treasury Notes, 6.625%,
5/15/07 17,108,438
20,000,000 U.S. Treasury Notes, 6.125%,
8/15/07 20,218,760
23,000,000 U.S. Treasury Notes, 5.50%,
2/15/08 22,410,625
20,000,000 U.S. Treasury Notes, 5.625%,
5/15/08 19,625,000
17,300,000 U.S. Treasury Notes, 4.75%,
11/15/08 16,013,313
32,600,000 U.S. Treasury Notes, 5.50%,
5/15/09 31,672,953
24,000,000 U.S. Treasury Notes, 6.00%,
8/15/09 24,105,000
16,925,205 U.S. Treasury Inflation Indexed
Notes, 4.25%, 1/15/10 17,295,444
20,000,000 U.S. Treasury Notes, 6.50%,
2/15/10 20,831,260
------------
TOTAL U.S. TREASURY SECURITIES 273,537,058
------------
(Cost $271,187,744)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 16.7%
$14,500,000 FHLB, 6.25%, 11/15/02 $ 14,436,579
31,300,000 FHLB, 7.25%, 5/15/03 31,864,965
10,000,000 FHLB, 5.125%, 9/15/03 9,637,260
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 55,938,804
------------
(Cost $55,615,564)
TEMPORARY CASH INVESTMENTS -- 1.5%
Repurchase Agreement , Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.45%, dated 9/29/00,
due 10/2/00 (Delivery value $5,018,696) 5,016,000
------------
(Cost $5,016,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $334,491,862
============
(Cost $331,819,308)
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
See Notes to Financial Statements www.americancentury.com 11
Long-Term Treasury--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 2000
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 TREASURY INDEX AVERAGE RETURN FUND'S RANKING TREASURY TREASURY INDEX
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
6 MONTHS(1) 3.66% 3.79% 3.71% -- 3.53% 3.79%
1 YEAR 9.44% 9.81% 7.26% 3 OUT OF 17 9.17% 9.81%
=======================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 6.98% 7.37% 5.85% 2 OUT OF 15 -- --
5 YEARS 7.10% 7.50% 6.28% 3 OUT OF 13 -- --
LIFE OF FUND 7.56% 8.43%(3) 6.95%(4) 2 OUT OF 9 3.98% 5.61%(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) Index data since 8/31/92, the date nearest the class's inception for which
data are available.
(4) Since 9/30/92, the date nearest the class's inception for which data are
available.
(5) Index data since 12/31/97, the date nearest the class's inception for which
data are available.
See pages 28-30 for 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 9/30/00
Salomon Long-Term
Treasury Index $19,239
Long-Term Treasury $17,991
Long-Term Salomon Long-Term
Treasury Treasury Index
DATE VALUE VALUE
9/8/1992 $10,000 $10,000
12/31/1992 $9,998 $10,244
3/31/1993 $10,648 $10,916
6/30/1993 $11,195 $11,512
9/30/1993 $11,981 $12,219
12/31/1993 $11,762 $12,016
3/31/1994 $10,953 $11,282
6/30/1994 $10,574 $10,987
9/30/1994 $10,501 $10,908
12/31/1994 $10,674 $11,098
3/31/1995 $11,309 $11,808
6/30/1995 $12,494 $13,102
9/30/1995 $12,767 $13,400
12/31/1995 $13,797 $14,510
3/31/1996 $12,831 $13,548
6/30/1996 $12,809 $13,522
9/30/1996 $12,994 $13,728
12/31/1996 $13,608 $14,383
3/31/1997 $13,170 $13,933
6/30/1997 $13,883 $14,697
9/30/1997 $14,692 $15,544
12/31/1997 $15,616 $16,557
3/31/1998 $15,868 $16,806
6/30/1998 $16,551 $17,589
9/30/1998 $17,748 $18,979
12/31/1998 $17,608 $18,789
3/31/1999 $16,872 $17,997
6/30/1999 $16,470 $17,541
9/30/1999 $16,437 $17,521
12/31/1999 $16,076 $17,153
3/31/2000 $17,355 $18,537
6/30/2000 $17,539 $18,718
9/30/2000 $17,991 $19,239
$10,000 investment made 9/8/92(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 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
return of the index does 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 Index
DATE RETURN RETURN
9/30/1993* 21.14% 20.40%
9/30/1994 -12.35% -10.73%
9/30/1995 21.57% 22.85%
9/30/1996 1.78% 2.45%
9/30/1997 13.08% 13.23%
9/30/1998 20.80% 22.10%
9/30/1999 -7.38% -7.68%
9/30/2000 9.44% 9.81%
* From 9/30/92 (the date after the class's inception for which index data are
available).
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,
2000?
It performed quite well, especially after you take into consideration how
it was positioned compared with its Lipper category and benchmark index.
Long-Term Treasury returned 3.66%, five basis points (0.05%--a basis point
equals 0.01%) below the average return of 17 "General U.S. Treasury Funds"
tracked by Lipper, and 13 basis points lower than the Salomon Long-Term Treasury
index.* (See the previous page for other fund performance comparisons.)
Trailing the category average by a relatively small margin was notable
because the fund was at a considerable disadvantage during the period. The
further out a bond portfolio was beyond 10 years on the Treasury yield curve,
the worse its performance was likely to be (see page 3). We were out in the most
challenging area--we manage Long-Term Treasury to be a pure play on the long end
of the Treasury bond market, while the Lipper category includes short-,
intermediate-, and long-term funds.
To be fair, what worked against the fund recently worked to its advantage
at other times. As interest rates have generally declined over the last two
decades, it has paid to be on the long end of curve, where falling interest
rates trigger the greatest price increases. That's one reason the fund's
longer-term returns compare so favorably. For the one-, three-, and five-year
periods ended September 30, 2000, Long-Term Treasury ranked in the top quartile
of its peer group.
WHAT ELSE HAS HELPED THE FUND'S LONGER-TERM RETURNS?
Long-Term Treasury usually generates a higher yield than its peers. For
example, as of September 30, 2000, Long-Term Treasury's 30-day SEC yield was
5.69%, 20 basis points higher than the 5.49% average yield of its Lipper
category. The higher yield comes from a combination of the fund's longer
maturity and lower expenses. Case in point--the fund's 0.51% annualized expense
ratio during the period was about 27 basis points lower than the average expense
ratio for its Lipper category.
WHAT OTHER FACTORS AFFECTED THE FUND'S PERFORMANCE?
The main one was our use of Treasury inflation-indexed securities (TIIS),
which had a mixed impact on performance. These securities offer a guaranteed
rate of return above inflation, as measured by the consumer price index. The
principal value of an inflation-indexed bond is adjusted upward when interest
rates rise. As a result, our TIIS holdings aided performance in April and May,
when there was an uptick in inflation, mainly in response to rising oil prices.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"WE MANAGE LONG-TERM TREASURY TO BE A PURE PLAY ON THE LONG END OF THE TREASURY
BOND MARKET."
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 10 8
WEIGHTED AVERAGE
MATURITY 19.5 YRS 19.8 YRS
AVERAGE DURATION 10.1 YRS 10.3 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.51%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.69% 5.44%
Investment terms are defined in the Glossary on pages 30-31.
www.americancentury.com 13
Long-Term Treasury--Q&A
--------------------------------------------------------------------------------
(Continued)
Beginning in June and throughout the summer, however, inflationary
pressures subsided and TIIS didn't perform as well as traditional (nominal)
Treasurys. We sold some of our TIIS holdings at that point, but our remaining
holdings were a bit of a drag on performance. TIIS suffered another slight
setback toward the end of the period as prices slid in anticipation of a TIIS
auction in mid-October.
AGENCY BONDS OUTPERFORMED TREASURY BONDS RECENTLY. DID THAT PROVIDE ANY
INCENTIVE TO INCREASE THE FUND'S AGENCY HOLDINGS?
No--we continued to avoid long-term agency securities because in this
maturity sector, we didn't think they would perform as well as Treasurys in the
longer term. We believe that many federal agencies will continue to increase
their debt issuance, which would likely mute price gains for agency securities,
while Treasury issuance seems likely to decline. We believe there are better
ways to add return.
WHAT OTHER AVENUES DID YOU EXPLORE?
In addition to TIIS, we also liked long-maturity zero-coupon Treasury bonds
(STRIPS). STRIPS pay no interest, but are sold at a discount, and their value
appreciates to their face value over time. Because of that, they have heightened
interest rate sensitivity. We added them based on our view that in early 2001
there may be renewed concern about the supply of long-term Treasury bonds. If
U.S. government budget surpluses continue and the Treasury maintains its
strategy of reducing its bond auctions and buying back outstanding debt,
Treasury bonds could rally, particularly long-term zeros.
WHAT'S YOUR OUTLOOK?
We believe that the economy will continue to slow and inflationary
pressures will subside. Against that backdrop, we think long-term Treasury bonds
should perform well. The market appears to be expecting the Federal Reserve to
cut interest rates sometime next year. To the extent that those expectations
continue and bond yields decline, long-term Treasurys should be prime
beneficiaries. Also, continued U.S. fiscal health and the subsequent reduction
in the supply of long-term Treasury bonds would benefit the fund.
GIVEN THAT OUTLOOK, WHAT'S YOUR CURRENT STRATEGY?
In addition to holding long-term nominal Treasury bonds, we plan to
maintain our holdings in TIIS, which offered more attractive "real" yields than
nominal 30-year Treasury bonds did at the end of the period. To calculate the
real yield on a 30-year Treasury bond, we subtract the inflation rate (about
3.5%) from the bond's nominal, or stated yield (around 5.9%), which nets a real
yield of about 2.4%. TIIS, by comparison, carried a real yield of nearly 4%.
We're likely to maintain our TIIS position until the real yields on nominal
Treasury bonds are more in line with those of TIIS.
[left margin]
"IN ADDITION TO TIIS, WE ALSO LIKED LONG-MATURITY ZERO-COUPON TREASURY BONDS
(STRIPS)."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
TREASURY BONDS 81%
TREASURY INFLATION-INDEXED
NOTES 9%
TEMPORARY CASH INVESTMENTS 6%
STRIPS 4%
AS OF MARCH 31, 2000
TREASURY BONDS 99%
AGENCY DISCOUNT NOTES 1%
Investment terms are defined in the Glossary on pages 30-31.
14 1-800-345-2021
Long-Term Treasury--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount Value
-------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 93.7%
$12,900,000 U.S. Treasury Bonds, 11.25%,
2/15/15 $19,176,665
8,000,000 U.S. Treasury Bonds, 8.875%,
2/15/19 10,400,000
10,000,000 U.S. Treasury Bonds, 8.125%,
8/15/19 12,212,500
11,500,000 U.S. Treasury Bonds, 8.50%,
2/15/20 14,569,063
15,500,000 U.S. Treasury Bonds, 6.875%,
8/15/25 17,064,539
18,600,000 STRIPS - PRINCIPAL, 5.98%,
11/15/27(1) 3,748,045
4,300,000 U.S. Treasury Bonds, 6.125%,
11/15/27 4,336,283
8,923,300 U.S. Treasury Inflation Indexed
Bonds, 3.875%, 4/15/29 8,867,529
-----------
TOTAL U.S. TREASURY SECURITIES 90,374,624
-----------
(Cost $86,142,906)
Principal Amount Value
-------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 6.3%
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.45%, dated 9/29/00,
due 10/2/00 (Delivery value $4,840,600) $ 4,838,000
Repurchase Agreement, State Street Bank,
(U.S. Treasury obligations), in a joint trading
account at 6.45%, dated 9/29/00, due
10/2/00 (Delivery value $1,269,682) 1,269,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS 6,107,000
-----------
(Cost $6,107,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $96,481,624
===========
(Cost $92,249,906)
NOTES TO SCHEDULE OF INVESTMENTS
STRIPS = Separate Trading of Registered Interest and Principal of Securities.
(1) Security is a zero-coupon bond. The yield to maturity at purchase is
indicated. Zero coupon securities are purchased at a substantial discount
from their value at maturity.
See Notes to Financial Statements www.americancentury.com 15
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 payables) 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).
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
SEPTEMBER 30, 2000 (UNAUDITED) TREASURY TREASURY TREASURY
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $54,600,051,
$331,819,308, and $92,249,906,
respectively) (Note 3) ............$ 54,867,758 $ 334,491,862 $ 96,481,624
Cash ................................ -- 330,369 1,396,199
Receivable for capital shares sold .. 4,607 450,265 28,213
Interest receivable ................. 875,179 5,180,525 895,272
------------- ------------- -------------
55,747,544 340,453,021 98,801,308
------------- ------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ............ 71,335 -- --
Accrued management fees (Note 2) .... 23,365 137,825 39,747
Distribution fees payable (Note 2) .. 252 1,898 801
Service fees payable (Note 2) ....... 252 1,898 801
Dividends payable ................... 11,892 74,344 25,211
Payable for trustees' fees
and expenses ...................... 133 895 259
Accrued expenses and
other liabilities ................. 22 20 --
------------- ------------- -------------
107,251 216,880 66,819
------------- ------------- -------------
Net Assets ..........................$ 55,640,293 $ 340,236,141 $ 98,734,489
============= ============= =============
NET ASSETS CONSIST OF:
Capital paid in .....................$ 56,548,996 $ 355,982,707 $ 102,336,459
Accumulated net realized loss
on investment transactions ........ (1,176,410) (18,419,120) (7,833,688)
Net unrealized appreciation
on investments (Note 3) ........... 267,707 2,672,554 4,231,718
------------- ------------- -------------
$ 55,640,293 $ 340,236,141 $ 98,734,489
============= ============= =============
Investor Class
Net assets ..........................$ 54,404,678 $ 330,950,819 $ 94,833,602
Shares outstanding .................. 5,607,545 32,416,811 9,586,803
Net asset value per share ...........$ 9.70 $ 10.21 $ 9.89
Advisor Class
Net assets ..........................$ 1,235,615 $ 9,285,322 $ 3,900,887
Shares outstanding .................. 127,354 909,493 394,345
Net asset value per share ...........$ 9.70 $ 10.21 $ 9.89
</TABLE>
16 1-800-345-20 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
<TABLE>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
TREASURY TREASURY TREASURY
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ............................$ 1,886,426 $ 10,155,498 $ 2,904,339
------------ ------------ ------------
Expenses (Note 2):
Management fees ..................... 146,084 835,347 228,419
Distribution fees -- Advisor Class .. 1,845 12,802 5,366
Service fees -- Advisor Class ....... 1,845 12,802 5,366
Trustees' fees and expenses ......... 999 5,721 1,569
------------ ------------ ------------
150,773 866,672 240,720
------------ ------------ ------------
Net investment income ............... 1,735,653 9,288,826 2,663,619
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain (loss)
on investments .................... (129,624) (3,773,235) 289,932
Change in net unrealized
appreciation on investments ....... 484,017 9,534,700 475,795
------------ ------------ ------------
Net realized and unrealized
gain on investments ............... 354,393 5,761,465 765,727
------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations .........$ 2,090,046 $ 15,050,291 $ 3,429,346
============ ============ ============
</TABLE>
See Notes to Financial Statements www.americancentury.com 17
Statement 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.
<TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND YEAR ENDED MARCH 31, 2000
SHORT-TERM TREASURY INTERMEDIATE-TERM TREASURY LONG-TERM TREASURY
Increase (Decrease) in SEPT. 30, MARCH 31, SEPT. 30, MARCH 31, SEPT. 30, MARCH 31,
Net Assets 2000 2000 2000 2000 2000 2000
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income .....$1,735,653 $3,317,106 $9,288,826 $19,580,105 $2,663,619 $6,494,520
Net realized gain (loss)
on investments .......... (129,624) (1,041,720) (3,773,235) (14,645,882) 289,932 (7,299,656)
Change in net unrealized
appreciation on
investments ............. 484,017 (319,091) 9,534,700 (644,750) 475,795 1,905,647
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net
assets resulting
from operations ......... 2,090,046 1,956,295 15,050,291 4,289,473 3,429,346 1,100,511
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
TO SHAREHOLDERS
From net investment
income:
Investor Class ..........(1,693,430) (3,186,698) (9,016,026) (19,084,472) (2,544,286) (6,238,022)
Advisor Class ........... (42,223) (130,408) (272,800) (495,633) (119,333) (256,498)
In excess of net realized
gains on investment
transactions:
Investor Class .......... -- (25,561) -- (1,722,118) -- --
Advisor Class ........... -- (807) -- (52,539) -- --
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets
from distributions ......(1,735,653) (3,343,474) (9,288,826) (21,354,762) (2,663,619) (6,494,520)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net increase (decrease)
in net assets from
capital share
transactions ............(6,019,211) (2,192,741) (7,209,380) (82,862,309) 7,374,924 (44,151,482)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ...........(5,664,818) (3,579,920) (1,447,915) (99,927,598) 8,140,651 (49,545,491)
NET ASSETS
Beginning of period .......61,305,111 64,885,031 341,684,056 441,611,654 90,593,838 140,139,329
------------- ------------- ------------- ------------- ------------- -------------
End of period ............$55,640,293 $61,305,111 $340,236,141 $341,684,056 $98,734,489 $90,593,838
============= ============= ============= ============= ============= =============
</TABLE>
18 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (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 (the 1940 Act) as an
open-end management investment company. 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 are diversified under the 1940 Act. 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 following significant accounting policies are in accordance with
generally accepted accounting principles; these policies may require the use of
estimates by fund management.
MULTIPLE CLASS -- 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.
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.
At March 31, 2000, Short-Term, Intermediate-Term, and Long-Term had
accumulated net realized capital loss carryovers for federal income tax purposes
of $732,404, $7,419,121, and $6,520,546, respectively (expiring in 2008) which
may be used to offset future taxable gains.
For the five month period ended March 31, 2000, Short-Term,
Intermediate-Term, and Long-Term incurred net capital losses of $306,981,
$7,226,216, and $1,016,977, respectively. The funds have elected to treat such
losses as having been incurred in the following fiscal year.
www.americancentury.com 19
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (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 1940 Act (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 month period ended September 30,
2000, 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 1940 Act.
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
month period ended September 30, 2000, were $3,690, $25,604, and $10,732 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, the
distributor of the trust, American Century Investment Services, Inc., and the
trust's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six
months ended September 30, 2000, were as follows:
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
PURCHASES
U.S. Treasury &
Agency Obligations .... $45,045,781 $198,055,145 $52,329,108
PROCEEDS FROM SALES
U.S. Treasury &
Agency Obligations .... $50,772,828 $209,166,316 $48,636,076
On September 30, 2000, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
Appreciation ............ $279,684 $4,674,068 $3,733,470
Depreciation ............ (14,574) (2,001,514) (89,112)
---------------- ----------------- ----------------
Net ..................... $265,110 $2,672,554 $3,644,358
================ ================= ================
Federal Tax Cost ........ $54,602,648 $331,819,308 $92,837,266
================ ================= ================
20 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (unlimited number of
shares authorized):
<TABLE>
SHORT-TERM TREASURY INTERMEDIATE-TERM TREASURY LONG-TERM TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
Six months ended
September 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Sold ..................... 1,934,657 $17,941,124 4,655,105 $45,358,763 3,511,456 $33,632,085
Issued in reinvestment
of distributions ....... 148,005 1,429,128 763,433 7,696,124 226,425 2,226,825
Redeemed ................. (2,663,334) (24,982,430) (5,893,899) (57,695,069) (2,897,583) (27,637,104)
------------- ------------ ------------- ------------- ------------ -------------
Net increase (decrease) .. (580,672) $(5,612,178) (475,361) $(4,640,182) 840,298 $8,221,806
============= ============ ============= ============= ============ =============
Year ended
March 31, 2000
Sold ..................... 5,182,537 $50,375,634 17,426,887 $176,912,009 10,058,675 $97,040,909
Issued in reinvestment
of distributions ....... 279,099 2,708,713 1,816,504 18,375,531 580,834 5,597,909
Redeemed ................. (5,548,735) (53,870,579) (28,028,748) (284,095,180) (15,489,080) (148,982,449)
------------- ------------ ------------- ------------- ------------ -------------
Net decrease ............. (87,099) $(786,232) (8,785,357) $(88,807,640) (4,849,571) $(46,343,631)
============= ============ ============= ============= ============ =============
ADVISOR CLASS
Six months ended
September 30, 2000
Sold ..................... 7,227 $35,639 86,614 $749,406 122,816 $1,151,183
Issued in reinvestment
of distributions ....... 4,019 38,804 25,757 259,512 10,636 104,544
Redeemed ................. (53,343) (481,476) (367,951) (3,578,116) (218,543) (2,102,609)
------------- ------------ ------------- ------------- ------------ -------------
Net decrease ............. (42,097) $(407,033) (255,580) $(2,569,198) (85,091) $(846,882)
============= ============ ============= ============= ============ =============
Year ended
March 31, 2000
Sold ..................... 564,018 $5,483,581 841,326 $8,588,952 542,794 $5,236,953
Issued in reinvestment
of distributions ....... 10,801 104,163 46,632 470,616 19,618 188,392
Redeemed ................. (720,430) (6,994,253) (308,338) (3,114,237) (338,724) (3,233,196)
------------- ------------ ------------- ------------- ------------ -------------
Net increase (decrease) .. (145,611) $(1,406,509) 579,620 $5,945,331 223,688 $2,192,149
============= ============ ============= ============= ============ =============
</TABLE>
--------------------------------------------------------------------------------
5. BANK LOANS
The funds, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
six month period ended September 30, 2000.
www.americancentury.com 21
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
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .............. $9.64 $9.85 $9.80 $9.68 $9.84 $9.73
--------- --------- ---------- --------- ---------- ----------
Income From Investment
Operations
Net Investment Income ............ 0.29 0.49 0.49 0.53 0.52 0.53
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ..................... 0.06 (0.21) 0.05 0.12 (0.07) 0.11
--------- --------- ---------- --------- ---------- ----------
Total From Investment
Operations ....................... 0.35 0.28 0.54 0.65 0.45 0.64
--------- --------- ---------- --------- ---------- ----------
Distributions
From Net Investment Income ....... (0.29) (0.49) (0.49) (0.53) (0.52) (0.53)
From Net Realized Gains on
Investment Transactions .......... -- -- -- -- (0.09) --
In Excessof Net Realized Gains ... -- --(2) -- -- -- --
--------- --------- ---------- --------- ---------- ----------
Total Distributions .............. (0.29) (0.49) (0.49) (0.53) (0.61) (0.53)
--------- --------- ---------- --------- ---------- ----------
Net Asset Value, End of Period ..... $9.70 $9.64 $9.85 $9.80 $9.68 $9.84
========= ========= ========== ========= ========== ==========
Total Return(3) .................. 3.67% 2.86% 5.60% 6.89% 4.62% 6.71%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............0.51%(4) 0.51% 0.51% 0.55% 0.61% 0.67%
Ratio of Net Investment Income
to Average Net Assets ............5.95%(4) 4.94% 4.92% 5.45% 5.26% 5.39%
Portfolio Turnover Rate ............ 86% 179% 138% 140% 234% 224%
Net Assets, End of Period
(in thousands) ................... $54,405 $59,671 $61,783 $40,874 $35,854 $35,648
</TABLE>
(1) Six months ended September 30, 2000 (unaudited).
(2) Per-share amount was less than $0.005.
(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.
22 1-800-345-2021 See Notes to Financial Statements
Short-Term Treasury--Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
2000(1) 2000 1999 1998(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period ................ $ 9.64 $ 9.85 $ 9.80 $ 9.80
--------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .............. 0.28 0.46 0.46 0.25
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. 0.06 (0.21) 0.05 --
--------- --------- --------- ---------
Total From Investment Operations ... 0.34 0.25 0.51 0.25
--------- --------- --------- ---------
Distributions
From Net Investment Income ......... (0.28) (0.46) (0.46) (0.25)
In Excess of Net Realized Gains .... -- --(3) -- --
--------- --------- --------- ---------
Total Distributions ................ (0.28) (0.46) (0.46) (0.25)
--------- --------- --------- ---------
Net Asset Value, End of Period ....... $ 9.70 $ 9.64 $ 9.85 $ 9.80
========= ========= ========= =========
Total Return(4) .................... 3.54% 2.60% 5.34% 2.51%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.76%(5) 0.76% 0.76% 0.78%(5)
Ratio of Net Investment Income
to Average Net Assets .............. 5.70%(5) 4.69% 4.67% 5.20%(5)
Portfolio Turnover Rate .............. 86% 179% 138% 140%
Net Assets, End of Period
(in thousands) ..................... $ 1,236 $ 1,634 $ 3,102 $ 1,460
</TABLE>
(1) Six months ended September 30, 2000 (unaudited).
(2) October 6, 1997 (commencement of sale) through March 31, 1998.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(5) Annualized.
See Notes to Financial Statements www.americancentury.com 23
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
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .............. $10.03 $10.45 $10.56 $10.06 $10.24 $9.99
--------- --------- -------- --------- -------- --------
Income From Investment
Operations
Net Investment Income ............ 0.28 0.53 0.54 0.59 0.58 0.58
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ..................... 0.18 (0.37) 0.10 0.50 (0.18) 0.25
--------- --------- -------- --------- -------- --------
Total From Investment
Operations ....................... 0.46 0.16 0.64 1.09 0.40 0.83
--------- --------- -------- --------- -------- --------
Distributions
From Net Investment Income ....... (0.28) (0.53) (0.54) (0.59) (0.58) (0.58)
From Net Realized Gains on
Investment Transactions .......... -- -- (0.21) -- -- --
In Excess of Net Realized Gains .. -- (0.05) -- -- -- --
--------- --------- -------- --------- -------- --------
Total Distributions ................ (0.28) (0.58) (0.75) (0.59) (0.58) (0.58)
--------- --------- -------- --------- -------- --------
Net Asset Value, End of Period ..... $10.21 $10.03 $10.45 $10.56 $10.06 $10.24
========= ========= ======== ========= ======== ========
Total Return(2) .................. 4.66% 1.51% 6.09% 11.04% 4.05% 8.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............0.51%(3) 0.51% 0.51% 0.51% 0.51% 0.53%
Ratio of Net Investment Income
to Average Net Assets ............5.56%(3) 5.11% 5.01% 5.63% 5.72% 5.65%
Portfolio Turnover Rate ............ 61% 171% 221% 194% 110% 168%
Net Assets, End of Period
(in thousands) ...................$330,951 $329,995 $435,494 $374,861 $328,784 $311,020
</TABLE>
(1) Six months ended September 30, 2000 (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
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
2000(1) 2000 1999 1998(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................ $10.03 $10.45 $10.56 $10.42
-------- --------- -------- --------
Income From Investment Operations
Net Investment Income .............. 0.27 0.50 0.51 0.26
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. 0.18 (0.37) 0.10 0.14
-------- --------- -------- --------
Total From Investment Operations ... 0.45 0.13 0.61 0.40
-------- --------- -------- --------
Distributions
From Net Investment Income ......... (0.27) (0.50) (0.51) (0.26)
From Net Realized Gains
on Investment Transactions ......... -- -- (0.21) --
In Excess of Net Realized Gains .... -- (0.05) -- --
-------- --------- -------- --------
Total Distributions ................ (0.27) (0.55) (0.72) (0.26)
-------- --------- -------- --------
Net Asset Value, End of Period ....... $10.21 $10.03 $10.45 $10.56
======== ========= ======== ========
Total Return(3) .................... 4.53% 1.25% 5.83% 3.90%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..............0.76%(4) 0.76% 0.76% 0.77%(4)
Ratio of Net Investment Income
to Average Net Assets ..............5.31%(4) 4.86% 4.76% 5.28%(4)
Portfolio Turnover Rate .............. 61% 171% 221% 194%
Net Assets, End of Period
(in thousands) ..................... $9,285 $11,689 $6,117 $128
(1) Six months ended September 30, 2000 (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
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
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $9.82 $10.12 $10.58 $9.32 $9.67 $9.05
-------- -------- -------- --------- ---------- ---------
Income From Investment
Operations
Net Investment Income ............. 0.28 0.57 0.58 0.61 0.60 0.60
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ...................... 0.07 (0.30) 0.11 1.26 (0.35) 0.62
-------- -------- -------- --------- ---------- ---------
Total From Investment
Operations ........................ 0.35 0.27 0.69 1.87 0.25 1.22
-------- -------- -------- --------- ---------- ---------
Distributions
From Net Investment Income ........ (0.28) (0.57) (0.58) (0.61) (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) (0.57) (1.15) (0.61) (0.60) (0.60)
-------- -------- -------- --------- ---------- ---------
Net Asset Value, End of Period ...... $9.89 $9.82 $10.12 $10.58 $9.32 $9.67
======== ======== ======== ========= ========== =========
Total Return(2) ................... 3.66% 2.86% 6.33% 20.48% 2.65% 13.46%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.51%(3) 0.51% 0.51% 0.54% 0.60% 0.67%
Ratio of Net Investment Income
to Average Net Assets ............. 5.79%(3) 5.84% 5.37% 6.00% 6.28% 5.93%
Portfolio Turnover Rate ............. 55% 182% 105% 57% 40% 112%
Net Assets, End of Period
(in thousands) .................... $94,834 $85,886 $137,552 $103,381 $126,570 $110,741
</TABLE>
(1) Six months ended September 30, 2000 (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
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
2000(1) 2000 1999 1998(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................ $9.82 $10.12 $10.58 $10.85
--------- --------- -------- --------
Income From Investment Operations
Net Investment Income .............. 0.27 0.55 0.56 0.12
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. 0.07 (0.30) 0.11 (0.27)
--------- --------- -------- --------
Total From Investment Operations ... 0.34 0.25 0.67 (0.15)
--------- --------- -------- --------
Distributions
From Net Investment Income .........(0.27) (0.55) (0.56) (0.12)
From Net Realized Gains on
Investment Transactions ............ -- -- (0.52) --
In Excess of Net Realized Gains .... -- -- (0.05) --
--------- --------- -------- --------
Total Distributions ................(0.27) (0.55) (1.13) (0.12)
--------- --------- -------- --------
Net Asset Value, End of Period ....... $9.89 $9.82 $10.12 $10.58
========= ========= ======== ========
Total Return(3) .................... 3.53% 2.61% 6.07% (1.34)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............0.76%(4) 0.76% 0.76% 0.77%(4)
Ratio of Net Investment Income
to Average Net Assets .............5.54%(4) 5.59% 5.12% 5.42%(4)
Portfolio Turnover Rate ............. 55% 182% 105% 57%
Net Assets, End of Period
(in thousands) .................... $3,901 $4,708 $2,587 $218
(1) Six months ended September 30, 2000 (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 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.
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. Visit our Web site
(www.americancentury.com) or call us 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
U.S. Treasury securities. 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 U.S.
Treasury securities. 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 following indices 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 INDEX is an index of U.S.
Treasury 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 INDEX is an index of U.S. Treasury
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
Portfolio Managers
BOB GAHAGAN
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 total 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.
* REAL YIELD -- an inflation-adjusted yield for a bond, calculated by
subtracting the inflation rate from the bond's nominal (or stated) yield.
* 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).
30 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
* 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.
* 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
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive
yields, as well as a strong and stable foundation and generally lower volatility
levels than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 31
Notes
--------------------------------------------------------------------------------
32 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0011 American Century Investment Services, Inc.
SH-SAN-22589 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
September 30, 2000
AMERICAN CENTURY
Semiannual Report
Capital Preservation
Government Agency
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century' s fund performance reports have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
CAPITAL PRESERVATION
(CPFXX)
--------------------------
GOVERNMENT AGENCY
(BGAXX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The six-month period ended September 30, 2000, provided a nearly ideal
environment for money market funds--rising yields, modest inflation, and stock
volatility. It also demonstrated the benefits of maintaining at least modest
fixed-income holdings for investors who are sensitive to extreme short-term
equity market swings--particularly those with shorter-term investment horizons.
The Capital Preservation and Government Agency funds continued to perform
well, providing higher yields and total returns than the majority of their peers
(according to Lipper Inc., an independent mutual fund ranking service--see
pages 4 and 7). Fund manager Beth Bunnell Hunter reviews fund performance on
pages 5 and 8.
On the corporate front, Chase Manhattan Corp. recently announced plans to
acquire J.P. Morgan & Co., a substantial minority shareholder in American
Century Companies, Inc. since 1998. If the transaction is completed as expected,
J.P. Morgan Chase, the new enterprise, will own the shares of American Century
currently held by Morgan. Corporate control of American Century is not affected
by this transaction. We will be exploring ways to partner with J.P. Morgan Chase
for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we have chosen to share the
chairman of the board position and named American Century President William M.
Lyons chief executive officer, giving him ultimate management responsibility for
the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will be continuing involvement on the
investment teams responsible for the Ultra and Veedot funds.
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 Co-Chairman of the Board
[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
Statement of Assets and
Liabilities ........................................................... 11
Statement of Operations .................................................. 12
Statement 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
Investment Team
Leaders ............................................................ 20
Glossary ................................................................. 21
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
CAPITAL PRESERVATION
* The portfolio's total return for the six months ended September 30 outpaced
80% of the 96 U.S. Treasury money market funds tracked by Lipper Inc.
* The portfolio's state tax-free yield increased during the period, in part
because the Federal Reserve (the Fed) raised interest rates in May of 2000.
* Active management of the portfolio helped Capital Preservation beat its
peers--we correctly anticipated interest rate changes and were able to lock
in higher yields in May and June.
* We think the Fed is done raising rates in the near term, but the longer-term
picture remains unclear.
GOVERNMENT AGENCY
* The portfolio's total return for the period outperformed over 80% of the 134
U.S. government money market funds tracked by Lipper Inc.
* The portfolio's state tax-free yield increased during the period, in part
because the Federal Reserve (the Fed) raised interest rates in May of 2000
* Active management of the portfolio helped Government Agency beat its peers--
we correctly anticipated interest rate changes and were able to lock in
higher yields in May and June.
* We think the Fed is done raising rates in the near term, but the longer-term
picture remains unclear.
[left margin]
CAPITAL PRESERVATION
(CPFXX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 2.87%(1)
1 Year 5.35%
7-DAY CURRENT YIELD: 5.76%
INCEPTION DATE: 10/13/72
NET ASSETS: $3.3 billion
GOVERNMENT AGENCY(2)
(BGAXX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 3.00%(1)
1 Year 5.70%
7-DAY CURRENT YIELD: 6.07%
INCEPTION DATE: 12/5/89
NET ASSETS: $563.6 million(3)
(1) Not annualized.
(2) Investor Class.
(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
--------------------------------------------------------------------------------
WHAT IS THE NEW DATE FOR DIVIDEND PAYMENTS?
Beginning in November, dividends will be paid on the last business day of
the month, rather than the last Friday of the month. We hope this change will
make your dividend payment date easier to remember.
CAN I MAKE DIRECT DEPOSITS INTO MY MONEY MARKET FUND ACCOUNT?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, military allotment, or payments from other government agencies. Visit
our Web site or give us a call to obtain the necessary information to set it up.
WHAT IS THE HOLDING PERIOD ON NEW DEPOSITS INTO MY ACCOUNT?
There is a 7-business-day holding period for deposited funds--including
your initial investment in a new account. There is a one-business-day holding
period for wire transfers.
IS THERE A COST FOR WRITING CHECKS ON MY MONEY MARKET ACCOUNT?
As long as each check is for $100 or more, you can write as many checks as
you like at no charge.
HOW CAN I KEEP TRACK OF MY MONEY MARKET FUND TRANSACTIONS BETWEEN ACCOUNT
STATEMENTS?
You can access your investments any time through our automated telephone
line and the American Century Web site. These services provide fund yields,
returns, account information, and transaction services.
You can keep tabs on your investments by:
* visiting our Web site at
www.americancentury.com*
* using our Automated Information Line (1-800-345-8765)*
* calling an Investor Relations Representative at 1-800-345-2021* weekdays,
7 a.m.-7 p.m. Central time Saturdays, 9 a.m.-2 p.m. Central time
WHY DOES MY MONEY FUND YIELD FLUCTUATE?
Money market funds are managed to maintain a stable $1 share price, but
their yields will fluctuate with changes in market conditions. Common reasons
for changes in your fund's yield are adjustments to Federal Reserve interest
rate policy, the outlook for inflation, and supply and demand for money market
securities.
Keep in mind that no money market fund is guaranteed or insured by the U.S.
government. Although money market funds are intended to preserve the value of
your investment at $1 per share, there's no guarantee that they'll be able to do
so.
IF YOU HAVE ANY QUESTIONS ABOUT OUR MONEY MARKET FUNDS, CALL US TOLL FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE, WWW.AMERICANCENTURY.COM.
* We must have your written authorization on file if you wish to make exchanges
by phone, on our Automated Information Line, or through our Web site.
[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 to five 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, 2000
CAPITAL 90-DAY TREASURY U.S. TREASURY MONEY MARKET FUNDS(2)
PRESERVATION BILL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) .. 2.87% 2.98% 2.74% --
1 YEAR ....... 5.35% 5.73% 5.15% 19 OUT OF 92
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS ...... 4.93% 5.12% 4.73% 14 OUT OF 80
5 YEARS ...... 4.92% 5.14% 4.78% 15 OUT OF 70
10 YEARS ..... 4.57% 4.81% 4.46% 5 OUT OF 24
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 information about returns, the comparative index, and Lipper
fund rankings.
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 17 21
WEIGHTED AVERAGE
MATURITY 51 DAYS 56 DAYS
EXPENSE RATIO 0.47%* 0.48%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
7-DAY CURRENT YIELD 5.76%
7-DAY EFFECTIVE YIELD 5.93%
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.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 2000?
Capital Preservation performed very well--it returned 2.87%, beating the
2.74% average return of the 96 "U.S. Treasury Money Market Funds" tracked by
Lipper Inc. When you take a look at its longer-term track record, Capital
Preservation ranks in the top quarter of its Lipper group for the one-, three-,
five-, and 10-year periods ended September 30.
In terms of income paid to shareholders, Capital Preservation's 7-day
current yield rose from 5.28% on March 31 to 5.76% on September 30. The 7-day
effective yield, which includes reinvested dividends, was 5.93% on September 30.
That was higher than the 5.72% average effective yield of its Lipper peers.
WHY DID THE FUND'S YIELD INCREASE SO MUCH?
The Federal Reserve raised short-term interest rates in May 2000 for the
sixth time since June 1999. That meant higher financing costs for borrowers and
better yields for lenders. We benefited from higher interest rates because
Capital Preservation is essentially a short-term lender to the U.S. Treasury.
Also, the Treasury decreased longer-term borrowing and increased
shorter-term borrowing, which made for a larger supply of three- to six-month
Treasury bills. As a result, yields on these securities had to rise to attract
investors.
WHAT DID YOU DO TO BOOST PERFORMANCE?
We saw a window of opportunity between May and June to lock in some
attractive yields for shareholders. At that time, the market expected the Fed to
continue raising interest rates. In other words, investors wanted to be paid the
current rate of interest, plus additional compensation for the rate increases
they expected to occur in the future.
We thought the market was expecting too much, so we invested a portion of
the portfolio in nine-month Treasury notes to lock in those higher yields while
they were still available. As we anticipated, the Fed didn't raise interest
rates in August.
Our strategy was well rewarded because we earned the going rate of
interest, plus a premium for the rate increases the market was expecting but
never received. Our decision translated into better income and performance for
shareholders.
WHAT'S YOUR OUTLOOK FOR SHORT-TERM INTEREST RATES AND HOW DO YOU PLAN TO
POSITION THE FUND?
We think the Fed is done raising rates in the near term, though the
longer-term picture is unclear. We don't plan on making any significant changes
until we see more economic data, which should provide clues to the Fed's next
step. Our team will continue to assess opportunities to add yield, paying close
attention to supply and demand.
[right margin]
"WE SAW A WINDOW OF OPPORTUNITY BETWEEN MAY AND JUNE TO LOCK IN SOME ATTRACTIVE
YIELDS FOR SHAREHOLDERS."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
TREASURY BILLS 78%
TREASURY NOTES 22%
AS OF MARCH 31, 2000
TREASURY BILLS 91%
TREASURY NOTES 9%
Investment terms are defined in the Glossary on pages 21-22.
www.americancentury.com 5
Capital Preservation--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. TREASURY BILLS(1) -- 78.1%
$100,000,000 U.S. Treasury Bills, 5.97%,
10/12/00 $ 99,812,160
125,000,000 U.S. Treasury Bills, 5.99%,
10/19/00 124,623,250
200,000,000 U.S. Treasury Bills, 6.09%,
11/2/00 198,917,923
300,000,000 U.S. Treasury Bills, 6.01%,
11/16/00 297,694,570
100,000,000 U.S. Treasury Bills, 6.03%,
11/24/00 99,095,500
300,000,000 U.S. Treasury Bills, 6.06%,
11/30/00 296,972,500
50,000,000 U.S. Treasury Bills, 6.01%,
12/7/00 49,449,542
275,000,000 U.S. Treasury Bills, 5.99%,
1/4/01 270,674,631
50,000,000 U.S. Treasury Bills, 6.03%,
1/11/01 49,145,750
200,000,000 U.S. Treasury Bills, 5.99%,
2/8/01 195,677,500
100,000,000 U.S. Treasury Bills, 5.98%,
3/22/01 97,142,889
--------------
TOTAL U.S. TREASURY BILLS 1,779,206,215
--------------
Principal Amount Value
--------------------------------------------------------------------------------
U.S. TREASURY NOTES(1) -- 21.9%
$125,000,000 U.S. Treasury Notes, 4.00%,
10/31/00 $ 124,778,587
100,000,000 U.S. Treasury Notes, 5.75%,
11/15/00 99,916,295
50,000,000 U.S. Treasury Notes, 4.625%,
11/30/00 49,838,708
100,000,000 U.S. Treasury Notes, 5.50%,
12/31/00 99,787,773
50,000,000 U.S. Treasury Notes, 4.50%,
1/31/01 49,692,599
75,000,000 U.S. Treasury Notes, 4.875%,
3/31/01 74,351,084
--------------
TOTAL U.S. TREASURY NOTES 498,365,046
--------------
TOTAL INVESTMENT SECURITIES -- 100.0% $2,277,571,261
==============
NOTES TO SCHEDULE OF INVESTMENTS
(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.
6 1-800-345-2021 See Notes to Financial Statements
Government Agency--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 2000
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) .. 3.00% 2.98% 2.87% -- 2.87% 2.98%
1 YEAR ....... 5.70% 5.73% 5.42% 18 OUT OF 131 5.44% 5.73%
======================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS ...... 5.17% 5.12% 4.98% 22 OUT OF 109 -- --
5 YEARS ...... 5.11% 5.14% 4.97% 25 OUT OF 97 -- --
10 YEARS ..... 4.75% 4.81% 4.56% 8 OUT OF 50 -- --
LIFE OF FUND . 5.02% 5.04%(3) 4.77%(4) 5 OUT OF 46(4) 5.10% 5.37%(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 11/30/89, the date nearest the class's inception for which data
are available.
(4) Since 12/31/89, the date nearest the class's inception for which data
are available.
(5) Since 3/31/99, the date nearest the class's inception for which data are
available.
See pages 19-21 for information about share classes, returns, the comparative
index, and Lipper fund rankings.
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 44 45
WEIGHTED AVERAGE
MATURITY 64 DAYS 48 DAYS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.47%* 0.48%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
INVESTOR CLASS
7-DAY CURRENT YIELD 6.07%
7-DAY EFFECTIVE YIELD 6.25%
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.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 2000?
Government Agency performed well--it returned 3.00%, outpacing the 2.87%
average return of the 134 "U.S. Government Money Market Funds" tracked by Lipper
Inc.* A consistently solid performer, the fund ranked in the top third of its
Lipper group for the one-, three-, five-, and 10-year periods ended September
30.
HOW DID THE FUND'S YIELD COMPARE?
Government Agency's 7-day current yield rose from 5.50% on March 31 to
6.07% on September 30. The 7-day effective yield, which includes reinvested
dividends, was 6.25% on September 30. That was higher than the 5.94% average
effective yield of its Lipper peers.
WHY DID THE PORTFOLIO'S YIELD RISE DURING THE PERIOD?
The Federal Reserve raised short-term interest rates in May 2000 for the
sixth time since June 1999. That meant higher financing costs for borrowers and
better yields for lenders. We benefited from higher interest rates because
Government Agency is essentially a short-term lender to the various government
agencies.
HOW DID YOU OUTPERFORM YOUR PEERS?
We saw a window of opportunity between May and June to lock in some
attractive yields for shareholders. At that time, the market expected the Fed to
continue raising interest rates. In other words, investors wanted to be paid the
current rate of interest, plus additional compensation for the rate increases
they expected to occur in the future.
We thought the market was expecting too much, so we invested a portion of
the portfolio in one-year fixed-rate agency notes to lock in those higher yields
while they were still available. As we anticipated, the Fed didn't raise
interest rates in August.
Our strategy was well rewarded because we earned the going rate of
interest, plus a premium for the rate increases the market was expecting but
never received. Our decision translated into better income and performance for
shareholders.
WHAT IS YOUR OUTLOOK FOR SHORT-TERM INTEREST RATES AND HOW DO YOU PLAN TO
POSITION THE FUND?
We think the Fed is done raising rates in the near term, though the
longer-term picture is unclear. We don't plan on making any significant changes
until we see more economic data, which should provide clues to the Fed's next
step. Our team will continue to assess opportunities to add yield, paying close
attention to supply and demand.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[left margin]
"WE THINK THE FED IS DONE RAISING RATES IN THE NEAR TERM, THOUGH THE LONGER-TERM
PICTURE IS UNCLEAR."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
FLOATING-RATE AGENCY NOTES 43%
GOVERNMENT AGENCY
DISCOUNT NOTES 30%
GOVERNMENT AGENCY NOTES 27%
AS OF MARCH 31, 2000
GOVERNMENT AGENCY
DISCOUNT NOTES 47%
FLOATING-RATE AGENCY NOTES 36%
GOVERNMENT AGENCY NOTES 15%
TREASURY BILLS 2%
Investment terms are defined in the Glossary on pages 21-22.
8 1-800-345-2021
Government Agency--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES(1) -- 69.8%
$ 5,000,000 FFCB, 7.16%, 6/1/01 $ 4,999,001
1,000,000 FFCB MTN, 5.80%, 10/10/00 999,905
1,300,000 FFCB MTN, 5.37%, 2/7/01 1,294,191
3,000,000 FHLB, 6.01%, 10/6/00 2,999,548
10,000,000 FHLB, 6.03%, 10/13/00 9,997,017
7,000,000 FHLB, 4.38%, 10/23/00 6,990,363
3,750,000 FHLB, 6.04%, 10/25/00 3,747,692
9,500,000 FHLB, 4.97%, 1/19/01 9,451,833
7,255,000 FHLB, 6.375%, 1/24/01 7,254,612
7,000,000 FHLB, 5.375%, 3/2/01 6,955,695
15,000,000 FHLB, 6.75%, 3/15/01 14,987,251
16,650,000 FHLB, 6.66%, 4/6/01 16,626,317
20,000,000 FHLB, 7.20%, 6/7/01 20,028,916
10,000,000 FHLB, 7.05%, 8/7/01 10,000,000
10,000,000 FHLB, 6.75%, 10/16/01 10,000,000
7,000,000 FHLB, 6.76%, 10/16/01 7,000,000
14,150,000 FHLB, VRN, 6.48%, 10/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.30% with
no caps 14,148,833
25,000,000 FHLB, VRN, 6.48%, 10/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.30% with
no caps 25,000,000
25,000,000 FHLB, VRN, 6.57%, 10/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.39% with
no caps 25,000,000
8,000,000 FHLB, VRN, 6.64%, 10/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.46% with
no caps 8,000,000
20,000,000 FHLB, VRN, 6.67%, 10/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.49% with
no caps 19,998,301
5,000,000 FHLB, VRN, 6.68%, 10/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.50% with
no caps 5,000,000
25,000,000 FHLB, VRN, 6.43%, 10/20/00,
resets monthly off the 3-month
T-Bill rate minus 0.19% with
no caps 24,988,000
15,600,000 SLMA MTN, 5.90%, 12/1/00 15,584,521
10,000,000 SLMA MTN, VRN, 6.61%,
10/3/00, resets quarterly off the
3-month T-Bill plus 0.43% with
no caps 9,992,827
15,000,000 SLMA MTN, VRN, 6.57%,
10/5/00, resets quarterly off the
3-month T-Bill plus 0.43% with
no caps 15,000,000
Principal Amount Value
--------------------------------------------------------------------------------
$21,200,000 SLMA, VRN, 6.55%, 10/3/00,
resets weekly off the 3-month
T-Bill rate plus 0.41% with
no caps $ 21,199,714
25,000,000 SLMA, VRN, 6.63%, 10/3/00,
resets weekly off the 3-month
T-Bill rate plus 0.45% with
no caps 24,991,773
16,000,000 SLMA, VRN, 6.63%, 10/3/00,
resets weekly off the 3-month
T-Bill rate plus 0.45% with
no caps 15,997,365
25,000,000 SLMA, VRN, 6.63%, 10/3/00,
resets weekly off the 3-month
T-Bill rate plus 0.45% with
no caps 24,999,716
2,000,000 SLMA, VRN, 6.88%, 10/3/00,
resets weekly off the 3-month
T-Bill rate plus 0.70% with
no caps 2,000,822
3,000,000 TVA, 6.00%, 11/1/00 2,997,779
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 388,231,992
------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES(1) -- 30.2%
4,500,000 FFCB Discount Notes, 6.39%,
11/17/00 4,462,459
5,000,000 FFCB Discount Notes, 6.36%,
12/19/00 4,930,217
5,000,000 FFCB Discount Notes, 5.94%,
1/2/01 4,923,275
13,000,000 FFCB Discount Notes, 6.71%,
5/18/01 12,445,121
35,000,000 FHLB Discount Notes, 6.42%,
10/11/00 34,937,583
27,287,000 FHLB Discount Notes, 6.42%,
10/13/00 27,228,606
25,000,000 FHLB Discount Notes, 6.43%,
10/25/00 24,892,833
27,000,000 FHLB Discount Notes, 6.40%,
11/15/00 26,784,000
15,000,000 FHLB Discount Notes, 6.39%,
11/24/00 14,856,225
4,000,000 FHLB Discount Notes, 6.37%,
12/20/00 3,943,378
4,000,000 FHLB Discount Notes, 5.95%,
1/8/01 3,934,550
5,000,000 FHLB Discount Notes, 6.06%,
2/9/01 4,889,742
------------
TOTAL U.S. GOVERNMENT AGENCY
DISCOUNT NOTES 168,227,989
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $556,459,981
============
See Notes to Financial Statements www.americancentury.com 9
Government Agency--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
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. Rate shown is effective
September 30, 2000.
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
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 payables) 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).
CAPITAL GOVERNMENT
SEPTEMBER 30, 2000 (UNAUDITED) PRESERVATION AGENCY
ASSETS
Investment securities, at value
(amortized cost for federal income
tax purposes) .............................. $2,277,571,261 $ 556,459,981
Cash ......................................... 361,579,250 --
Receivable for investments sold .............. 776,190,494 18,567,530
Interest receivable .......................... 23,106,796 6,112,092
-------------- --------------
3,438,447,801 581,139,603
-------------- --------------
LIABILITIES
Disbursements in excess of
demand deposit cash ........................ -- 220,029
Payable for investments purchased ............ 123,261,812 17,000,000
Accrued management fees (Note 2) ............. 1,282,880 217,475
Distribution fees payable (Note 2) ........... -- 456
Service fees payable (Note 2) ................ -- 456
Dividends payable ............................ 587,903 90,175
Payable for trustees' fees and expenses ...... 7,824 1,329
-------------- --------------
125,140,419 17,529,920
-------------- --------------
Net Assets ................................... $3,313,307,382 $ 563,609,683
============== ==============
NET ASSETS CONSIST OF:
Capital paid in .............................. $3,313,216,741 $ 563,606,384
Accumulated undistributed net realized
gain on investment transactions ............ 90,641 3,299
-------------- --------------
$3,313,307,382 $ 563,609,683
============== ==============
Investor Class
Net assets ................................... $3,313,307,382 $ 561,366,084
Shares outstanding ........................... 3,313,216,741 561,362,836
Net asset value per share .................... $ 1.00 $ 1.00
Advisor Class
Net assets ................................... NA $ 2,243,599
Shares outstanding ........................... NA 2,243,548
Net asset value per share .................... NA $ 1.00
See Notes to Financial Statements www.americancentury.com 11
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
CAPITAL GOVERNMENT
PRESERVATION AGENCY
INVESTMENT INCOME
Income:
Interest ..................................... $100,948,896 $ 17,837,045
------------ ------------
Expenses (Note 2):
Management fees .............................. 7,812,329 1,310,432
Distribution fees -- Advisor Class ........... -- 2,950
Service fees -- Advisor Class ................ -- 2,950
Trustees' fees and expenses .................. 54,663 9,185
------------ ------------
7,866,992 1,325,517
------------ ------------
Net investment income ........................ 93,081,904 16,511,528
------------ ------------
Net realized gain on investments ............. 1,105,063 5,417
------------ ------------
Net Increase in Net Assets
Resulting from Operations .................. $ 94,186,967 $ 16,516,945
============ ============
12 1-800-345-2021 See Notes to Financial Statements
Statement 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.
<TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND YEAR ENDED MARCH 31, 2000
CAPITAL PRESERVATION GOVERNMENT AGENCY
Increase (Decrease) in Net Assets SEPT. 30, 2000 MARCH 31, 2000 SEPT. 30, 2000 MARCH 31, 2000
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income .................. $93,081,904 $149,874,202 $16,511,528 $26,049,590
Net realized gain (loss)
on investments ....................... 1,105,063 788,434 5,417 (378)
-------------- --------------- -------------- ---------------
Net increase in net assets
resulting from operations ............ 94,186,967 150,662,636 16,516,945 26,049,212
-------------- --------------- -------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ....................... (93,081,904) (149,874,202) (16,444,638) (25,960,326)
Advisor Class ........................ -- -- (66,890) (89,264)
From net realized gains on
investment transactions:
Investor Class ....................... (1,061,279) (741,577) (1,733) --
Advisor Class ........................ -- -- (7) --
-------------- --------------- -------------- ---------------
Decrease in net assets
from distributions ................... (94,143,183) (150,615,779) (16,513,268) (26,049,590)
-------------- --------------- -------------- ---------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net increase (decrease) in
net assets from capital
share transactions ................... (36,973,029) 25,384,830 5,648,110 30,116,273
-------------- --------------- -------------- ---------------
Net increase (decrease)
in net assets ........................ (36,929,245) 25,431,687 5,651,787 30,115,895
NET ASSETS
Beginning of period ....................3,350,236,627 3,324,804,940 557,957,896 527,842,001
-------------- --------------- -------------- ---------------
End of period ..........................$3,313,307,382 $3,350,236,627 $563,609,683 $557,957,896
============== =============== ============== ===============
</TABLE>
See Notes to Financial Statements www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (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 (the 1940 Act) 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 following significant accounting policies
are in accordance with generally accepted accounting principles; these policies
may require the use of estimates by fund management.
MULTIPLE CLASS -- 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
Capital Preservation had not commenced as of September 30, 2000.
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 and Government Agency had receivables on
forward commitment transactions of $726,270,494 and $18,567,530, respectively.
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, 2000, Government Agency had accumulated net realized capital
loss carryovers of $22,516 (expiring in 2003 through 2006) which may be used to
offset future taxable gains.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. Certain officers of FDI are also officers of the trust.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM), under which ACIM provides each fund with
investment advisory and management services in exchange for a single, unified
management fee 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 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is calculated daily and paid monthly. It consists of an Investment Category
Fee based on the average net assets of the funds in a specific fund's investment
category and a Complex Fee based on the average net assets of all the funds
managed by ACIM. The rates for the Investment Category Fee range from 0.1370% 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 month period ended September 30, 2000, 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 1940 Act.
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
14 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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 month period ended September 30, 2000, were $5,900.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the trust.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
--------------------------------------------------------------------------------
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (unlimited number of
shares authorized):
<TABLE>
CAPITAL PRESERVATION GOVERNMENT AGENCY
SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
Six months ended
September 30, 2000
<S> <C> <C> <C> <C>
Sold ............................ 1,034,822,694 $1,034,822,694 222,198,248 $222,198,248
Issued in reinvestment
of distributions .............. 89,399,907 89,399,907 15,738,370 15,738,370
Redeemed ........................ (1,161,195,630) (1,161,195,630) (231,948,505) (231,948,505)
---------------- ----------------- --------------- ---------------
Net increase (decrease) ......... (36,973,029) $(36,973,029) 5,988,113 $5,988,113
================ ================= =============== ===============
Year ended
March 31, 2000
Sold ............................ 2,329,319,665 $2,329,319,665 430,818,658 $430,818,658
Issued in reinvestment
of distributions .............. 143,840,428 143,840,428 24,964,176 24,964,176
Redeemed ........................ (2,447,775,263) (2,447,775,263) (428,250,112) (428,250,112)
---------------- ----------------- --------------- ---------------
Net increase .................... 25,384,830 $25,384,830 27,532,722 $27,532,722
================ ================= =============== ===============
ADVISOR CLASS
Six months ended
September 30, 2000
Sold .................................................................. 892,951 $892,951
Issued in reinvestment
of distributions .................................................... 66,548 66,548
Redeemed .............................................................. (1,299,502) (1,299,502)
--------------- ---------------
Net decrease .......................................................... (340,003) $(340,003)
=============== ===============
Period ended
March 31, 2000(1)
Sold .................................................................. 22,561,363 $22,561,363
Issued in reinvestment
of distributions .................................................... 89,271 89,271
Redeemed .............................................................. (20,067,083) (20,067,083)
--------------- ---------------
Net increase .......................................................... 2,583,551 $2,583,551
=============== ===============
</TABLE>
(1) April 12, 1999 (commencement of sale) through March 31, 2000.
www.americancentury.com 15
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. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), and EXPENSE RATIO (operating expenses as a percentage of average net
assets).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
2000(1) 2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ------------- ------------- ------------- -------------
Income From Investment Operations
Net Investment Income ............ 0.03 0.05 0.05 0.05 0.05 0.05
------------- ------------- ------------- ------------- ------------- -------------
Distributions
From Net Investment Income ....... (0.03) (0.05) (0.05) (0.05) (0.05) (0.05)
------------- ------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= ============= ============= =============
Total Return(2) .................. 2.87% 4.63% 4.72% 5.06% 4.82% 5.21%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ........... 0.47%(4) 0.48% 0.48% 0.49% 0.49% 0.51%
Ratio of Net Investment Income
to Average Net Assets .............. 5.60%(4) 4.51% 4.53% 4.90% 4.66% 5.07%
Net Assets, End of Period
(in thousands) ..................... $ 3,313,307 $ 3,350,237 $ 3,324,805 $ 3,144,584 $ 2,978,015 $ 3,077,558
</TABLE>
(1) Six months ended September 30, 2000 (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
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
investment income as a percentage of average net assets), and EXPENSE RATIO
(operating expenses as a percentage of average net assets).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----------- ---------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.03 0.05 0.05 0.05 0.05 0.05
----------- ---------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (0.03) (0.05) (0.05) (0.05) (0.05) (0.05)
----------- ---------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========== ========== =========== =========== =========== ===========
Total Return(2) ..................... 3.00% 4.98% 4.91% 5.14% 4.89% 5.35%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) .............. 0.47%(4) 0.48% 0.48% 0.51% 0.57% 0.51%
Ratio of Net Investment Income
to Average Net Assets ................. 5.91%(4) 4.88% 4.79% 5.02% 4.76% 5.20%
Net Assets, End of Period
(in thousands) ........................ $561,366 $555,374 $527,842 $487,791 $470,759 $503,328
</TABLE>
(1) Six months ended September 30, 2000 (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 PERIODS INDICATED
Advisor Class
2000(1) 2000(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............ $1.00 $1.00
----------- -----------
Income From Investment Operations
Net Investment Income ......................... 0.03 0.04
----------- -----------
Distributions
From Net Investment Income .................... (0.03) (0.04)
----------- -----------
Net Asset Value, End of Period .................. $1.00 $1.00
=========== ===========
Total Return(3) ............................... 2.87% 4.58%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........................... 0.72%(4) 0.73%(4)
Ratio of Net Investment Income
to Average Net Assets ........................... 5.66%(4) 4.66%(4)
Net Assets, End of Period
(in thousands) .................................. $2,244 $2,584
(1) Six months ended September 30, 2000 (unaudited).
(2) April 12, 1999 (commencement of sale) through March 31, 2000 (unaudited).
(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.
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, 2000, 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 tax 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. Visit our Web site
(www.americancentury.com) or call us 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]
INVESTMENT TEAM LEADERS
Portfolio Manager
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 total 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 expenses
and 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 only
invest in those with remaining maturities of 397 days 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 to
one year.
* U.S. TREASURY NOTES (T-NOTES) -- intermediate-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-notes are issued with maturities ranging from two to 10
years, but the funds only invest in those with remaining maturities of 397 days
or 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
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive
yields, as well as a strong and stable foundation and generally lower volatility
levels than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
22 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 23
Notes
--------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo (reg.sm)]
American
Century
P.O. BOX 419200
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--------------------------------------------------------------------------------
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P.O. Box 419200 U.S. POSTAGE PAID
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www.americancentury.com COMPANIES
0011 American Century Investment Services, Inc.
SH-SAN-22588 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
September 30, 2000
AMERICAN CENTURY
Semiannual Report
Short-Term Government
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century' s fund performance reports have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
SHORT-TERM GOVERNMENT
(TWUSX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The six months ended September 30, 2000, provided a positive environment
for bond funds--interest rates fell, economic growth moderated, inflation
remained surprisingly tame, and stock markets wobbled.
We're proud to report to American Century Short-Term Government
shareholders that the fund performed well compared with its peers, based on
total return (according to Lipper Inc., an independent mutual fund ranking
service--see pages 4 and 5). Our investment professionals review the period in
more detail beginning on page 3.
On the corporate front, Chase Manhattan Corp. recently announced plans to
acquire J.P. Morgan & Co., a substantial minority shareholder in American
Century Companies, Inc. since 1998. If the transaction is completed as expected,
J.P. Morgan Chase, the new enterprise, will own the shares of American Century
currently held by Morgan. Corporate control of American Century is not affected
by this transaction. We will be exploring ways to partner with J.P. Morgan Chase
for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we have chosen to share the
chairman of the board position and named American Century President William M.
Lyons chief executive officer, giving him ultimate management responsibility for
the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will be continuing involvement on the
investment teams responsible for the Ultra and Veedot funds.
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 Co-Chairman of the Board
[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
Statement 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
* The six months ended September 30, 2000, generally favored government bond
investors.
* Economic growth slowed as the Federal Reserve's (Fed's) rate hikes began to
have their desired effect.
* The Fed eased off the brakes and left rates unchanged over the summer after
hiking them in May.
* Bonds became increasingly attractive by mid-summer amid expectations of
stable Fed policy and equity market volatility.
* Mortgage-backed, government agency, and Treasury securities all performed
well over the six months.
MANAGEMENT Q&A
* Short-Term Government beat out the average total return of the short
government funds tracked by Lipper Inc. and fell just shy of its
benchmark's performance. (See page 4 for performance comparisons.)
* We finished adjusting the portfolio's composition so that it should more
closely track the fund's benchmark and Lipper peers.
* We sold collateralized mortgage obligations (CMOs) when attractive
opportunities presented themselves, while retaining the ones that we felt
offered nice yields and were easily bought and sold.
* We also adjusted the portfolio's mortgage pass-through exposure, which
played an important role in driving the fund's better-than-average returns.
* Treasury inflation-indexed securities boosted performance too, though we
underweighted Treasurys in general because we felt that they had become
somewhat overpriced.
* Going forward, we believe the fund is well positioned for the current
environment and that our holdings are where we want them to be relative to
the benchmark and Lipper group.
[left margin]
SHORT-TERM GOVERNMENT(1)
(TWUSX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 3.93%(2)
1 Year 5.78%
30-DAY SEC YIELD: 6.03%
INCEPTION DATE: 12/15/82
NET ASSETS: $761.9 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
UPBEAT PERFORMANCE
The six months ended September 30, 2000, generally favored government bond
investors. A combination of factors boosted bond returns. These included a
struggling stock market, slower economic growth, a reduction in the supply of
outstanding Treasury bonds, and growing optimism that the Federal Reserve was
finished raising interest rates for the near term (see the table at right).
ECONOMIC ACTIVITY MODERATED
Economic growth slowed as the Fed's rate hikes began to have their desired
effect. Reduced manufacturing activity and consumer spending indicated that the
economy was downshifting. With growth tapering off to more manageable levels,
the Federal Reserve was able to ease off the brakes and leave rates unchanged
over the summer after hiking them in May.
HEIGHTENED APPEAL
By mid-summer, investors had become convinced that the Fed was unlikely to
raise rates again, setting the stage for bonds to rally. Equity market
volatility added fuel to the fire. And with the Fed out of the picture and
stocks on the decline, bonds became increasingly attractive.
TREASURYS PERFORMED WELL
Investors searching for a safe haven from equities found a far less
volatile home in short-term Treasurys. Intermediate- and long-maturity Treasurys
also performed well in that environment, thanks to the improvement in the
federal budget position--as a result of budget surpluses over the past three
years, the Treasury Department has reduced debt held by the public by $363
billion, the largest three-year reduction in history. As the accompanying
Treasury yield-curve graph illustrates, Treasury yields were mostly lower,
especially for short maturities.
MORTGAGES AND AGENCYS WERE TOP PERFORMERS
Mortgage-backed securities did even better. Increased demand was one
positive factor, as investors looked outside of the Treasury market for
higher-yielding bonds. Mortgages were also helped by the fact that the
congressional legislative period was closing without action on a bill that would
have cut the Treasury lines of credit for agencies such as Fannie Mae and
Freddie Mac. Government agency securities produced attractive returns, too.
Increased demand certainly helped, as did lower-than-expected supply--investors
expected that agencies would begin issuing more debt in the face of a dwindling
supply of Treasury bonds. But the wealth of new supply failed to materialize.
[right margin]
"THE SIX MONTHS ENDED SEPTEMBER 30, 2000, GENERALLY FAVORED GOVERNMENT BOND
INVESTORS."
BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
SALOMON BROTHERS BROAD
INVESTMENT-GRADE INDEX 4.80%
SALOMON BROTHERS
GOVERNMENT INDEX 5.20%
SALOMON BROTHERS MORTGAGE INDEX 5.58%
SALOMON BROTHERS TREASURY INDEX 4.16%
Source: Bloomberg Financial Markets
[line graph - data below]
"DISINVERTING" TREASURY YIELD CURVE
YEARS TO
MATURITY 3/31/00 9/30/00
1 6.24% 6.10%
2 6.48% 5.98%
3 6.42% 5.93%
4 6.37% 5.89%
5 6.32% 5.85%
6 6.25% 5.84%
7 6.19% 5.83%
8 6.13% 5.82%
9 6.07% 5.81%
10 6.01% 5.80%
11 6.00% 5.80%
12 5.99% 5.80%
13 5.98% 5.80%
14 5.97% 5.80%
15 5.96% 5.80%
16 5.95% 5.80%
17 5.94% 5.80%
18 5.93% 5.80%
19 5.92% 5.80%
20 5.91% 5.80%
21 5.90% 5.80%
22 5.89% 5.81%
23 5.88% 5.82%
24 5.87% 5.83%
25 5.86% 5.84%
26 5.85% 5.85%
27 5.84% 5.86%
28 5.83% 5.87%
29 5.83% 5.88%
30 5.83% 5.89%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Short-Term Government--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 2000
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>
6 MONTHS(1) .... 3.93% 3.98% 3.63% -- 3.80% 3.98%
1 YEAR ......... 5.78% 5.92% 5.68% 26 OUT OF 74 5.51% 5.92%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS ........ 4.88% 5.69% 4.88% 42 OUT OF 68 -- --
5 YEARS ........ 5.14% 5.93% 5.13% 29 OUT OF 52 -- --
10 YEARS ....... 5.63% 6.47% 5.78% 11 OUT OF 15 -- --
LIFE OF FUND ... 6.84% 7.94%(3) 7.02%(3) 2 OUT OF 3(3) 4.25% 5.45%(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 6/30/98, the date nearest the class's inception for which data
are available.
See pages 18-20 for 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 9/30/00
Salomon 1- to 3-Year
Treasury/Agency Index $18,724
Short-Term Government $17,297
Short-Term Salomon 1- to 3-Year
Government Treasury/Agency Index
DATE VALUE VALUE
9/30/1990 $10,000 $10,000
9/30/1991 $11,090 $11,125
9/30/1992 $12,099 $12,234
9/30/1993 $12,512 $12,843
9/30/1994 $12,496 $12,986
9/30/1995 $13,461 $14,039
9/30/1996 $14,117 $14,840
9/30/1997 $14,991 $15,861
9/30/1998 $16,084 $17,117
9/30/1999 $16,352 $17,678
9/30/2000 $17,297 $18,724
$10,000 investment made 9/30/90
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
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
9/30/1991 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%
9/30/2000 5.78% 5.92%
4 1-800-345-2021
Short-Term Government--Q&A
--------------------------------------------------------------------------------
[photo of Dave Schroeder] [photo of Michael Shearer]
An interview with Dave Schroeder (left) and Michael Shearer, portfolio
managers on the Short-Term Government fund investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED SEPTEMBER 30, 2000?
Short-Term Government performed well. The fund's 3.93% total return for the
period was just shy of the 3.98% return of its benchmark, the Salomon 1-3 Year
Treasury/Agency index.* The 75 "Short Government" funds tracked by Lipper Inc.
produced an average return of 3.63% over the six months, quite a bit lower than
Short-Term Government's return. (See the previous page for other performance
comparisons.)
WHY DID SHORT-TERM GOVERNMENT OUTPERFORM?
A combination of favorable strategies helped the fund to perform well. Our
occasional overweighting in mortgage-backed securities certainly enhanced
performance, as did our maturity selection among government agency bonds. Adding
Treasury inflation-indexed securities (TIIS) also boosted returns. In addition,
our quantitative fixed-income team continued to play an important role in the
way that we manage the fund.
LET'S START WITH THE FUND'S MORTGAGE-BACKED HOLDINGS. WHAT CHANGES DID YOU MAKE
THERE?
One of our main themes since becoming managers of the fund has been to
adjust the portfolio's composition so that it will more closely track the
benchmark and Lipper peers. During the six months, that meant we continued to
sell collateralized mortgage obligations (CMOs) when attractive opportunities
presented themselves. We retained a modest position in CMOs that had shorter
durations (less interest rate sensitivity), offered what we felt were nice
yields, and were very liquid (easily bought and sold). Those sales helped us to
reduce the portfolio's mortgage-backed exposure from 48% to a more
benchmark-neutral 36%.
We also adjusted the portfolio's mortgage pass-through exposure, which
played an important role in driving the fund's better-than-average returns. The
fund started out slightly overweight in discount mortgage pass-throughs--ones
with coupons below prevailing rates. Discount mortgages performed well, and in
June--because we thought the rally had run its course--we began shifting the
position back to a neutral weighting relative to the benchmark, and switched to
par or premium pass-throughs--ones with coupons at or above prevailing rates,
respectively.
WHAT CHANGES DID YOU MAKE TO THE FUND'S TREASURY POSITION?
We underweighted Treasurys because we felt that they had become somewhat
overpriced. Two- to five-year Treasury note yields fell more than twice as much
as Treasurys with one year and shorter maturities and ones maturing in 10 or
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"WE UNDERWEIGHTED TREASURYS BECAUSE WE FELT THAT THEY HAD BECOME SOMEWHAT
OVERPRICED."
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 97 107
WEIGHTED AVERAGE
MATURITY 2.5 YRS 2.8 YRS
AVERAGE DURATION 1.8 YRS 1.9 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.59%* 0.59%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.03% 5.78%
Investment terms are defined in the Glossary on pages 20-21.
www.americancentury.com 5
Short-Term Government--Q&A
--------------------------------------------------------------------------------
(Continued)
more years. So two-to five-year Treasurys seemed expensive. Relative to the
benchmark, we were closer to neutral by the end of September, but some of the
underweight remained in place.
We also held TIIS at different times during the six months. We tended to
hold two-year TIIS in place of short Treasurys during months such as April and
May, when significant inflation adjustments to the principal value of TIIS
enhanced their monthly returns.
WHAT OTHER CHANGES DID YOU MAKE?
For the portfolio's agency allotment, we generally favored bonds maturing
around three years from now, though we kept the fund's percentage of agencys a
bit below that of the benchmark. But because the agency bonds we selected
rallied more than ones with even shorter maturities, the position boosted
Short-Term Government's returns.
HOW DID THE QUANTITATIVE FIXED-INCOME TEAM FACTOR IN?
Whether we're looking at mortgage-backed securities, government agencys, or
Treasurys, our quantitative fixed-income team helps us to determine where we
should concentrate Short-Term Government's holdings.
A good example is the quantitative analysis that led to the mortgage coupon
weighting described earlier--our team detected the market imbalance that we were
able to capitalize on. With such knowledge in hand, we make the calls based on
what we believe are the most likely market scenarios.
SPEAKING OF LIKELY MARKET SCENARIOS, WHAT'S YOUR NEAR-TERM OUTLOOK FOR
FIXED-INCOME SECURITIES?
We think that government bonds may have performed too well too quickly,
especially Treasurys, which we think may be a bit overpriced. Currently,
short-term bond yields reflect expectations that the Federal Reserve will reduce
rates nearly half a percent by next summer. While we agree that the Fed's next
move may indeed be to lower rates, we're not convinced that's going to happen
any time soon.
The Fed tends to move slowly, so switching from a policy of raising rates
to one of lowering rates could take some time. In addition, tight labor markets
and rising oil costs--which jumped to 10-year highs in September--remain points
of concern.
On the other hand, productivity growth remains an unflagging ingredient in
keeping inflation under control. Plus, rising oil prices have had a tempered
impact on inflation because the U.S. is less dependent on oil than it was a few
decades back, when manufacturing activity drove the national economy.
WITH THAT OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
We believe the fund is well positioned for the current environment and that
our holdings are where we want them to be relative to the benchmark and Lipper
group. So unless something happens to change our perspective, we anticipate
keeping the fund positioned about where it is now.
That means we'll probably maintain a slightly underweight position in
Treasurys relative to the benchmark, while staying fairly neutral with regard to
the portfolio's mortgage-backed exposure, and neutral to occasionally overweight
regarding the portfolio's agency holdings.
We're also likely to keep the portfolio's sensitivity to interest rate
changes fairly neutral to its benchmark, while making small adjustments within
the different fixed-income sectors in which the fund invests.
[left margin]
"WE BELIEVE THE FUND IS WELL POSITIONED FOR THE CURRENT ENVIRONMENT."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
U.S. TREASURY SECURITIES 49%
MORTGAGE-BACKED SECURITIES 36%
U.S. GOVT. AGENCY SECURITIES 14%
TEMPORARY CASH INVESTMENTS 1%
AS OF MARCH 31, 2000
MORTGAGE-BACKED SECURITIES 48%
U.S. TREASURY SECURITIES 42%
U.S. GOVT. AGENCY SECURITIES 7%
TEMPORARY CASH INVESTMENTS 3%
Investment terms are defined in the Glossary on pages 20-21.
6 1-800-345-2021
Short-Term Government--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 48.8%
$ 82,000 U.S. Treasury Notes, 4.625%,
12/31/00 $ 81,616
108,000 U.S. Treasury Notes, 5.50%,
8/31/01(1) 107,257
15,000 U.S. Treasury Notes, 6.125%,
12/31/01 14,986
127,000 U.S. Treasury Notes, 6.625%,
4/1/02(1) 127,952
36,000 U.S. Treasury Notes, 5.75%,
8/15/03 35,820
--------
TOTAL U.S. TREASURY SECURITIES 367,631
--------
(Cost $366,666)
FIXED-RATE MORTGAGE-BACKED SECURITIES(2) -- 18.6%
FHLMC -- 11.3%
10,071 FHLMC Pool #E000846, 7.50%,
5/1/15 10,161
7,373 FHLMC Pool #E00523, 6.50%,
12/1/12 7,257
16,519 FHLMC Pool #E00535, 6.00%,
2/1/13 15,969
7,508 FHLMC Pool #E00540, 6.00%,
3/1/13 7,242
7,465 FHLMC Pool #E077605, 6.00%,
6/1/14 7,198
6,147 FHLMC Pool #E64136, 6.50%,
5/1/11 6,067
9,550 FHLMC Pool #E78664, 7.00%,
9/1/14 9,515
1,917 FHLMC Pool #E79039, 7.00%,
12/1/14 1,910
11,562 FHLMC Pool #E79748, 7.00%,
1/1/15 11,520
3,620 FHLMC Pool #G10439, 6.50%,
1/1/11 3,578
4,272 FHLMC Pool #G40164, 6.50%,
11/1/02 4,236
--------
84,653
--------
FNMA -- 7.2%
4,760 FNMA Pool #252566, 6.00%,
7/1/14 4,585
27,621 FNMA Pool #313958, 6.50%,
1/1/13 27,196
4,296 FNMA Pool #332814, 6.00%,
7/1/09 4,195
5,289 FNMA Pool #398280, 6.00%,
3/1/13 5,095
2,812 FNMA Pool #430978, 6.00%,
6/1/13 2,715
2,002 FNMA Pool #433206, 6.00%,
6/1/13 1,932
8,581 FNMA Pool #524716, 7.50%,
4/1/15 8,652
--------
54,370
--------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
GNMA -- 0.1%
$ 332 GNMA Pool #001291, 9.50%,
11/20/19 $ 346
172 GNMA Pool #001565, 5.50%,
1/20/09 163
82 GNMA Pool #199973, 9.00%,
12/20/16 86
166 GNMA Pool #220128, 9.00%,
8/20/17 173
88 GNMA Pool #220134, 9.50%,
8/20/17 91
75 GNMA Pool #234860, 9.50%,
10/20/17 79
--------
938
--------
TOTAL FIXED-RATE MORTGAGE-BACKED
SECURITIES 139,961
--------
(Cost $138,997)
U.S. GOVERNMENT AGENCY SECURITIES -- 14.1%
67,000 FHLB, 6.25%, 11/15/02 66,707
40,000 FNMA, 5.75%, 4/15/03 39,323
--------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 106,030
--------
(Cost $104,443)
COLLATERALIZED MORTGAGE OBLIGATIONS(2) -- 7.1%
FHLMC -- 1.2%
3,477 FHLMC REMIC, Series 1558,
Class A TAC, 6.00%, 5/15/22 3,427
1,089 FHLMC REMIC, Series 1587,
Class EB PAC-1, 5.50%,
5/15/07 1,085
2,502 FHLMC REMIC, Series 1678,
Class PE PAC, 5.60%,
7/15/07 2,489
2,181 FHLMC REMIC, Series 1934,
Class HB SEQ, 6.50%,
8/17/21 2,171
--------
9,172
--------
FNMA -- 2.7%
6,617 FNMA REMIC, Series 1992-140,
Class ZA PAC, 9.00%,
11/25/06 6,715
5,897 FNMA REMIC, Series 1993-233,
Class J, 6.00%, 6/25/08 5,845
1,951 FNMA REMIC, Series 1994-7,
Class PD PAC-1, 6.05%,
7/25/07 1,942
387 FNMA REMIC, Series 1996-10,
Class A SEQ, 6.50%,
11/25/17 386
1,090 FNMA REMIC, Series 1996-12,
Class A SEQ, 6.50%,
12/25/17 1,084
See Notes to Financial Statements www.americancentury.com 7
Short-Term Government--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 4,152 FNMA REMIC, Series 1996-64,
Class PB PAC, 6.50%,
1/18/19 $ 4,127
--------
20,099
--------
GNMA -- 3.2%
1,863 GNMA REMIC, Series 1996-15,
Class J SEQ, 7.00%, 1/16/07 1,861
968 GNMA REMIC, Series 1996-15,
Class K SEQ, 7.00%, 9/16/06 968
20,855 GNMA REMIC, Series 1999-28,
Class VA SUP, 6.50%, 1/20/07 20,963
--------
23,792
--------
PRIVATE LABEL(3)
72 Dean Witter CMO Trust I, Class A
Floater, 6.75%, 10/20/00,
resets quarterly off the 3-month
LIBOR plus 0.50% with a
0.50% floor and a 13.00% cap(4) 71
--------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS 53,134
--------
(Cost $52,824)
ADJUSTABLE-RATE MORTAGAGE-BACKED
SECURITIES(2) -- 5.4%
FHLMC -- 2.3%
315 FHLMC Pool #390263, 6.75%,
1/1/21 310
334 FHLMC Pool #606095, 7.68%,
11/1/18 339
32 FHLMC Pool #635104, 7.60%,
8/1/18 33
1,537 FHLMC Pool #755188, 8.12%,
9/1/20 1,582
52 FHLMC Pool #775473, 7.36%,
6/1/21 52
638 FHLMC Pool #876559, 8.74%,
3/1/24 654
14,720 FHLMC Pool #E80800, 7.00%,
6/1/15 14,657
--------
17,627
--------
FNMA -- 3.0%
56 FNMA Pool #009781, 7.07%,
10/1/14 55
451 FNMA Pool #013786, 6.88%,
8/1/18 444
285 FNMA Pool #020155, 7.49%,
8/1/14 284
160 FNMA Pool #025432, 8.00%,
4/1/16 163
220 FNMA Pool #036922, 8.25%,
8/1/16 225
179 FNMA Pool #061392, 7.82%,
7/1/17 187
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 1,015 FNMA Pool #061401, 7.82%,
5/1/17 $ 1,064
59 FNMA Pool #062835, 6.29%,
1/1/27 58
68 FNMA Pool #062836, 6.53%,
4/2/26 67
187 FNMA Pool #064708, 8.50%,
2/1/18 194
725 FNMA Pool #066415, 7.35%,
7/1/17 743
694 FNMA Pool #070030, 7.39%,
2/1/18 703
123 FNMA Pool #070184, 7.92%,
1/1/27 128
189 FNMA Pool #070186, 7.85%,
6/1/18 195
745 FNMA Pool #070595, 7.86%,
1/1/20 759
205 FNMA Pool #070716, 6.62%,
1/1/29 201
263 FNMA Pool #105843, 8.28%,
1/1/17 270
73 FNMA Pool #116473, 8.12%,
12/1/18 75
337 FNMA Pool #129482, 6.91%,
8/1/21 334
1,912 FNMA Pool #142402, 7.71%,
9/1/19 1,949
530 FNMA Pool #145556, 7.75%,
1/1/22 542
96 FNMA Pool #162880, 8.08%,
5/1/18 99
636 FNMA Pool #163993, 8.02%,
5/1/22 652
417 FNMA Pool #169868, 8.34%,
6/1/22 430
133 FNMA Pool #173165, 8.68%,
7/1/22 137
330 FNMA Pool #190647, 8.12%,
8/1/23 340
108 FNMA Pool #220498, 8.625%,
6/1/23 111
109 FNMA Pool #222649, 8.65%,
7/1/23 113
394 FNMA Pool #244477, 7.96%,
8/1/19 406
1,394 FNMA Pool #303336, 8.11%,
8/1/23 1,429
72 FNMA Pool #318767, 8.50%,
10/1/25 74
8,858 FNMA Pool #328192, 7.73%,
5/1/25 9,104
94 FNMA Pool #328733, 7.81%,
1/1/23 96
248 FNMA Pool #334441, 7.64%,
5/1/22 253
329 FNMA Pool #336479, 8.21%,
3/1/21 338
--------
22,222
--------
8 1-800-345-2021 See Notes to Financial Statements
Short-Term Government--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
GNMA -- 0.1%
$ 96 GNMA Pool #008230, 7.375%,
5/20/17 $ 97
273 GNMA Pool #008763, 7.875%,
2/20/21 279
143 GNMA Pool #008872, 7.625%,
11/20/21 147
6 GNMA Pool #008902, 7.375%,
1/20/22 6
183 GNMA Pool #008964, 7.25%,
8/20/26 186
--------
715
--------
TOTAL ADJUSTABLE-RATE
MORTGAGE-BACKED SECURITIES 40,564
--------
(Cost $40,445)
FORWARD COMMITMENTS -- 5.4%
20,000 FHLMC, 6.00%, settlement
10/19/00 19,275
10,000 FHLMC, 6.50%, settlement
10/19/00 9,812
12,000 FNMA, 7.00%, settlement
10/19/00 11,936
--------
TOTAL FORWARD COMMITMENTS 41,023
--------
(Cost $40,907)
TEMPORARY CASH INVESTMENTS -- 0.6%
Repurchase Agreement, Morgan Stanley & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.45%, dated 9/29/00,
due 10/2/00 (Delivery value $4,695) 4,692
--------
(Cost $4,692)
TOTAL INVESTMENT SECURITIES -- 100.0% $753,035
========
(Cost $748,974)
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
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) Security, or a portion thereof, has been segregated at the custodian bank
for Forward Commitments.
(2) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(3) Category is less than 0.05% of total investment securities.
(4) Interest reset date is indicated. Rate shown is effective September 30,
2000.
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 payables) 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, 2000 (UNAUDITED)
ASSETS (In Thousands Except Per-Share Amounts)
Investment securities, at value
(identified cost of $748,974)
(Note 3) ............................................... $ 753,035
Cash ..................................................... 180
Receivable for investments sold .......................... 39,642
Receivable for capital shares sold ....................... 11
Interest receivable ...................................... 10,536
-------------
803,404
-------------
LIABILITIES
Payable for investments purchased ........................ 41,041
Accrued management fees (Note 2) ......................... 366
Distribution fees payable (Note 2) ....................... 1
Service fees payable (Note 2) ............................ 1
Dividends payable ........................................ 135
Payable for trustees' fees and expenses .................. 2
-------------
41,546
-------------
Net Assets ............................................... $ 761,858
=============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $ 859,483
Accumulated net realized loss
on investment transactions ............................. (101,686)
Net unrealized appreciation
on investments (Note 3) ................................ 4,061
-------------
$ 761,858
=============
Investor Class, ($ and shares in full)
Net assets ............................................... $ 758,855,544
Shares outstanding ....................................... 81,884,204
Net asset value per share ................................ $ 9.27
Advisor Class, ($ and shares in full)
Net assets ............................................... $ 3,002,696
Shares outstanding ....................................... 324,014
Net asset value per share ................................ $ 9.27
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
INVESTMENT INCOME (In Thousands)
Income:
Interest .................................................... $ 24,686
--------
Expenses (Note 2):
Management fees ............................................. 2,201
Distribution fees -- Advisor Class .......................... 2
Service fees -- Advisor Class ............................... 2
Trustees' fees and expenses ................................. 13
--------
2,218
--------
Net investment income ....................................... 22,468
--------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ............................ (1,955)
Change in net unrealized
appreciation on investments ............................... 8,486
--------
Net realized and unrealized
gain on investments ....................................... 6,531
--------
Net Increase in Net Assets
Resulting from Operations ................................. $ 28,999
========
See Notes to Financial Statements www.americancentury.com 11
Statement 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, 2000 (UNAUDITED) AND YEAR ENDED MARCH 31, 2000
SEPTEMBER 30, MARCH 31,
Decrease in Net Assets 2000 2000
OPERATIONS (In Thousands)
Net investment income .......................... $ 22,468 $ 43,560
Net realized loss on investments ............... (1,955) (20,193)
Change in net unrealized
appreciation (depreciation)
on investments ............................... 8,486 (4,264)
--------- ---------
Net increase in net assets
resulting from operations .................... 28,999 19,103
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ............................... (22,425) (43,547)
Advisor Class ................................ (43) (13)
--------- ---------
Decrease in net assets
from distributions ........................... (22,468) (43,560)
--------- ---------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net decrease in net assets from
capital share transactions ................... (7,497) (45,157)
--------- ---------
Net decrease in net assets ..................... (966) (69,614)
NET ASSETS
Beginning of period ............................ 762,824 832,438
--------- ---------
End of period .................................. $ 761,858 $ 762,824
========= =========
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (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 (the 1940 Act) 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 following significant accounting policies are
in accordance with generally accepted accounting principles; these policies may
require the use of estimates by fund management.
MULTIPLE CLASS -- 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.
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.
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.
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, 2000, the fund had accumulated net realized capital loss
carryovers of $93,346,919 (expiring in 2001 through 2008), which may be used to
offset future taxable gains.
The fund has elected to treat $6,083,509 of net capital losses incurred in
the five month period ended March 31, 2000, as having been incurred in the
following fiscal year.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (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 1940 Act (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is calculated daily and paid monthly. It
consists of an Investment Category Fee based on the average net assets of the
funds in a specific fund's investment category and a Complex Fee based on the
average net assets of all the funds managed by ACIM. The rates for the
Investment Category Fee range from 0.2425% 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 month
period ended September 30, 2000, 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 1940 Act.
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 month period ended September 30, 2000, were $3,747.
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, the
distributor of the trust, American Century Services, Inc., 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, 2000, were
$339,132,090 and $386,875,710, respectively.
On September 30, 2000, accumulated net unrealized appreciation was
$3,760,334, based on the aggregate cost of investments for federal income tax
purposes of $749,274,357, which consisted of unrealized appreciation of
$5,374,930 and unrealized depreciation of $1,614,596.
14 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (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, 2000
Sold ............................................. 13,431 $ 119,244
Issued in reinvestment of distributions .......... 2,276 20,958
Redeemed ......................................... (16,798) (150,216)
--------- ---------
Net decrease ..................................... (1,091) $ (10,014)
========= =========
Year ended March 31, 2000
Sold ............................................. 14,402 $ 133,071
Issued in reinvestment of distributions .......... 4,472 41,446
Redeemed ......................................... (23,790) (220,046)
--------- ---------
Net decrease ..................................... (4,916) $ (45,529)
========= =========
ADVISOR CLASS (In Thousands)
Six months ended September 30, 2000
Sold ............................................. 288 $ 2,647
Issued in reinvestment of distributions .......... 5 42
Redeemed ......................................... (19) (172)
--------- ---------
Net increase ..................................... 274 $ 2,517
========= =========
Year ended March 31, 2000
Sold ............................................. 63 $ 579
Issued in reinvestment of distributions .......... 1 9
Redeemed ......................................... (23) (216)
--------- ---------
Net increase ..................................... 41 $ 372
========= =========
--------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
six month period ended September 30, 2000.
www.americancentury.com 15
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
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 2000 1999 1998(2) 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period ..... $ 9.19 $ 9.47 $ 9.46 $ 9.49 $ 9.47 $ 9.51 $ 9.27
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ... 0.28 0.52 0.49 0.21 0.52 0.51 0.52
Net Realized and
Unrealized Gain (Loss)
on Investment
Transactions ............ 0.08 (0.28) 0.01 (0.03) 0.02 (0.04) 0.24
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations .............. 0.36 0.24 0.50 0.18 0.54 0.47 0.76
----------- ----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment
Income .................. (0.28) (0.52) (0.49) (0.21) (0.52) (0.51) (0.52)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period ........... $ 9.27 $ 9.19 $ 9.47 $ 9.46 $ 9.49 $ 9.47 $ 9.51
=========== =========== =========== =========== =========== =========== ===========
Total Return(3) ......... 3.93% 2.51% 5.39% 1.95% 5.86% 5.09% 8.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ... 0.59%(4) 0.59% 0.59%(4) 0.59% 0.68% 0.70% 0.70%
Ratio of Net Investment
Income to Average
Net Assets .............. 5.98%(4) 5.48% 5.15%(4) 5.43% 5.53% 5.39% 5.53%
Portfolio Turnover Rate ... 52% 323% 196% 54% 293% 246% 128%
Net Assets, End of Period
(in thousands) .......... $ 758,856 $ 762,363 $ 832,344 $ 808,464 $ 519,332 $ 349,772 $ 391,331
</TABLE>
(1) Six months ended September 30, 2000 (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 prior to 1998, the
fund's fiscal year 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 YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
2000(1) 2000 1999(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ..... $9.19 $9.47 $9.49
----------- ---------- ----------
Income From Investment Operations
Net Investment Income .................. 0.26 0.49 0.33
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ...... 0.08 (0.28) (0.02)
----------- ---------- ----------
Total From Investment Operations ....... 0.34 0.21 0.31
----------- ---------- ----------
Distributions
From Net Investment Income ............. (0.26) (0.49) (0.33)
----------- ---------- ----------
Net Asset Value, End of Period ........... $9.27 $9.19 $9.47
=========== ========== ==========
Total Return(3) ........................ 3.80% 2.26% 3.37%
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 .................. 5.73%(4) 5.23% 4.77%(4)
Portfolio Turnover Rate .................. 52% 323% 196%
Net Assets, End of Period
(in thousands) ......................... $3,003 $461 $94
(1) Six months ended September 30, 2000 (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 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 tax 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. Visit our Web site
(www.americancentury.com) or call us 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 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 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 Managers
DAVE SCHROEDER
MICHAEL SHEARER
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 total 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
* COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) --a generic mortgage derivative.
Mortgage derivatives are usually securities created (derived) from a pool of
mortgages or mortgage-backed securities. Whereas a typical mortgage-backed
security is an ownership interest in a complete mortgage pool, a derivative is
usually an interest in just one part of a pool.
* 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 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.
* 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
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive
yields, as well as a strong and stable foundation and generally lower volatility
levels than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 21
Notes
--------------------------------------------------------------------------------
22 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 23
Notes
--------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0011 American Century Investment Services, Inc.
SH-SAN-22590 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
September 30, 2000
AMERICAN CENTURY
Semiannual Report
GNMA
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century' s fund performance reports have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
GNMA
(BGNMX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The six months ended September 30, 2000, provided a positive environment
for GNMA funds--interest rates fell, economic growth moderated, inflation
remained surprisingly tame, and stock markets wobbled. What's more,
mortgage-backed securities outperformed other fixed-income investments.
We're proud to report to American Century GNMA shareholders that the fund
continued to perform well, providing higher yields and total returns than the
majority of its peers (according to Lipper Inc., an independent mutual fund
ranking service--see pages 4 and 5). Our investment professionals review the
period in more detail beginning on page 3.
On the corporate front, Chase Manhattan Corp. recently announced plans to
acquire J.P. Morgan & Co., a substantial minority shareholder in American
Century Companies, Inc. since 1998. If the transaction is completed as expected,
J.P. Morgan Chase, the new enterprise, will own the shares of American Century
currently held by Morgan. Corporate control of American Century is not affected
by this transaction. We will be exploring ways to partner with J.P. Morgan Chase
for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we have chosen to share the
chairman of the board position and named American Century President William M.
Lyons chief executive officer, giving him ultimate management responsibility for
the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will be continuing involvement on the
investment teams responsible for the Ultra and Veedot funds.
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 Co-Chairman of the Board
[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 ........................................................... 8
Statement of Operations .................................................. 9
Statement 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
Lipper Rankings ....................................................... 17
Investment Team
Leaders ............................................................ 17
Glossary ................................................................. 18
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Mortgage-backed securities performed best among domestic bonds in the six
months ended September 30, 2000.
* Investors were lured to mortgages by their higher yields and better values.
That demand helped mortgage-backed securities regain some of the ground
they lost to Treasury bonds early in the year.
* The Federal Reserve tapped the brakes on the economy and managed to keep
inflation in check despite the fact that oil prices hit a 10-year high in
September.
* Good news on the economy and inflation helped bond prices rise and yields
fall, particularly on 10-year Treasurys--an important benchmark for
mortgage rates.
* Lower bond yields meant better borrowing rates for homeowners, keeping the
housing market on track for its second-best year ever.
* Because so many new mortgages have been created in recent years (when rates
have been relatively low), the average coupon (interest rate) on
mortgage-backed securities has declined. Securities with coupons of 8% or
less now make up more than 80% of the Salomon Brothers GNMA Index. That
compares with 40% only five years ago.
MANAGEMENT Q&A
* American Century GNMA provided shareholders yields and returns that were
better than those of the average GNMA fund (see pages 4 and 5).
* A key reason GNMA performed well relative to the Lipper group over time is
that our expenses were below average. Other things being equal, lower
expenses mean higher yields and returns for our shareholders.
* We believe our benchmark-based management approach has also helped our
performance--we track the broad mortgage market while trying to add value
by making modest adjustments to the portfolio.
* Because our mortgage position tends to mirror changes in the broader market,
the fund is increasingly concentrated in mortgages with interest coupons of
8% or less.
* We felt that keeping a small slice of the portfolio in Treasury
inflation-indexed securities was a good way to add yield and return.
* We believe the Federal Reserve has done a good job on the economy and
inflation, and bonds could do well going forward. We also think mortgages
look like good buys relative to Treasury bonds, at least until we hear more
about the Treasury's debt buyback plan in early 2001.
[left margin]
GNMA(1)
(BGNMX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 4.83%(2)
1 Year 6.97%
30-DAY SEC YIELD: 6.57%
INCEPTION DATE: 9/23/85
NET ASSETS: $1.3 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 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
POSITIVE PERFORMANCE
Bond returns were healthy for the six months ended September 30, 2000, and
GNMA securities performed well. Mortgage-backed securities made up the
best-performing sector of the domestic bond market (see the table at right).
ECONOMY AND RATES
The period began with the Federal Reserve (the Fed) focused on slowing the
economy to head off inflation. As a result, the Fed raised its federal funds
rate target in May, the last of six rate increases since the previous summer.
The interest rate hikes appeared to have the desired effect--the pace of
economic growth, though still healthy, slowed considerably. In addition,
inflation remained largely in check despite the fact that oil prices leapt to a
10-year high in September.
That positive backdrop led to higher prices and lower yields on bonds. The
yield on the 10-year Treasury note--an important benchmark for mortgage lending
rates--fell sharply. This contrasts with late 1999 and early 2000, when the
10-year note yield rose slightly even as 30-year bond yields fell because the
Treasury was buying back these securities. At that time, Treasurys performed
best and mortgages lagged.
MORTGAGES OUTPERFORM
But that situation changed between March and September, when
mortgage-backed securities rallied. Investors sought better values and higher
yields outside of the Treasury market, turning to high-quality government agency
mortgages. All that demand helped mortgages outperform Treasurys.
Mortgages were also helped by the fact that the congressional legislative
period was drawing to a close without action on HR 3703, also known as the Baker
Bill. The bill, which would have eliminated government backing for Fannie Mae
and Freddie Mac (two major mortgage-backed bond issuers), weighed on mortgages
generally. Ginnie Mae securities held up better because they were never a target
of the legislation. GNMA mortgages continue to enjoy the backing of the
government's "full faith and credit" pledge.
MORTGAGE MARKET RECAP
In the mortgage market, falling bond yields meant lower borrowing rates for
homeowners. The Fed's rate hikes had pushed mortgage rates as high as 8.7% in
May. But when it became clear in recent months that economic growth was
moderating and that the Fed's work on interest rates was largely done, mortgage
rates dipped below 8%.
Lower borrowing costs kept home sales running at a rapid clip--through
August, the housing market was on pace for one of its best years ever.
Meanwhile, mortgage refinancing applications increased as rates fell in recent
months (see the graph at right).
[right margin]
"MORTGAGE-BACKED SECURITIES MADE UP THE BEST-PERFORMING SECTOR OF THE DOMESTIC
BOND MARKET."
BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
SALOMON BROTHERS BROAD
INVESTMENT-GRADE INDEX 4.80%
SALOMON BROTHERS CORPORATE INDEX 4.31%
SALOMON BROTHERS
GOVERNMENT INDEX 5.20%
SALOMON BROTHERS MORTGAGE INDEX 5.58%
SALOMON BROTHERS TREASURY INDEX 4.16%
Source: Bloomberg Financial Markets
[line graph - data below]
REFINANCING APPLICATIONS AND INTEREST RATES
Mortgage Bankers Association
Index of 10-Year
Refinancing Applications Treasury Yields
DATE (right scale) (left scale)
9/30/99 414.60 5.973%
10/8/99 412.20 6.033%
10/15/99 356.70 6.067%
10/22/99 383.20 6.194%
10/29/99 415.90 6.024%
11/5/99 443.70 5.926%
11/12/99 398.80 5.928%
11/19/99 481.80 6.056%
11/26/99 292.60 6.117%
12/3/99 386.40 6.161%
12/10/99 388.10 6.072%
12/17/99 354.10 6.282%
12/24/99 270.50 6.407%
12/31/99 242.30 6.442%
1/7/00 350.80 6.515%
1/14/00 390.50 6.679%
1/21/00 372.20 6.765%
1/28/00 384.40 6.657%
2/4/00 436.70 6.549%
2/11/00 373.10 6.603%
2/18/00 335.60 6.489%
2/25/00 311.90 6.326%
3/3/00 377.50 6.388%
3/10/00 361.80 6.383%
3/17/00 346.20 6.194%
3/24/00 386.60 6.191%
3/31/00 340.60 6.004%
4/7/00 364.20 5.853%
4/14/00 354.80 5.850%
4/21/00 341.90 5.987%
4/28/00 336.20 6.212%
5/5/00 331.30 6.505%
5/12/00 330.90 6.511%
5/19/00 326.20 6.494%
5/26/00 288.80 6.330%
6/2/00 254.50 6.152%
6/9/00 329.40 6.126%
6/16/00 329.30 5.971%
6/23/00 319.20 6.185%
6/30/00 338.50 6.031%
7/7/00 268.30 6.001%
7/14/00 371.90 6.096%
7/21/00 359.60 5.998%
7/28/00 346.00 6.034%
8/4/00 360.10 5.901%
8/11/00 403.30 5.790%
8/18/00 383.60 5.773%
8/25/00 395.00 5.729%
9/1/00 404.50 5.679%
9/8/00 362.30 5.739%
9/15/00 440.70 5.840%
9/22/00 451.30 5.848%
9/30/00 470.60 5.801%
Source: Bloomberg Financial Markets
www.americancentury.com 3
GNMA--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 2000
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>
6 MONTHS(1) .... 4.83% 5.27% 4.69% -- 4.70% 5.27%
1 YEAR ......... 6.97% 7.73% 6.53% 15 OUT OF 54 6.70% 7.73%
=================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS ........ 5.38% 6.16% 5.15% 16 OUT OF 41 -- --
5 YEARS ........ 6.22% 6.90% 5.90% 11 OUT OF 36 -- --
10 YEARS ....... 7.61% 8.13% 7.26% 4 OUT OF 21 -- --
LIFE OF FUND ... 8.19% 9.08%(3) 7.78%(4) 3 OUT OF 12(4) 5.11% 6.16%(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 9/30/97, the date nearest the class's inception for which data are
available.
See pages 16-18 for 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 9/30/00
Salomon 30-Year
GNMA Index $21,841
GNMA $20,836
Salomon 30-Year
GNMA GNMA Index
DATE VALUE VALUE
9/30/1990 $10,000 $10,000
9/30/1991 $11,595 $11,654
9/30/1992 $12,948 $13,001
9/30/1993 $13,800 $13,894
9/30/1994 $13,648 $13,745
9/30/1995 $15,409 $15,643
9/30/1996 $16,190 $16,576
9/30/1997 $17,803 $18,255
9/30/1998 $19,161 $19,765
9/30/1999 $19,477 $20,274
9/30/2000 $20,836 $21,841
$10,000 investment made 9/30/90
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
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
9/30/1991 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%
9/30/2000 6.97% 7.73%
4 1-800-345-2021
GNMA--Q&A
--------------------------------------------------------------------------------
[photo of Casey Colton]
An interview with Casey Colton, a portfolio manager on the GNMA investment
team.
HOW DID THE GNMA FUND PERFORM FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000?
GNMA performed well, offering shareholders better-than-average yields and
returns. GNMA's 4.83% return beat the 4.69% average return of the 55 GNMA funds
tracked by Lipper Inc.* We're also proud to note that our fund's one-, three-,
five-, and 10-year returns for the periods ended September 30, 2000, were all
better than average. (See the previous page for additional performance
comparisons.)
In addition, GNMA had a 30-day SEC yield of 6.57% on September 30. That's
better than the 6.06% yield of the average GNMA fund. The fund's yield also
compares favorably with the yields available on intermediate-term Treasury
bonds, which were less than 6% at the end of September. We take those
performance numbers to mean we're achieving our goal of giving shareholders high
current income and solid long-term returns.
WHAT WERE SOME OF THE KEY FACTORS BEHIND GNMA'S SOLID PERFORMANCE?
First, our expenses are lower than those of the average GNMA fund. Lipper
estimates that the average expenses for the GNMA funds it tracks were 1.07% on
September 30. By comparison, our annualized expense ratio was 0.59%. Other
things being equal, lower expenses mean higher yields and returns.
Second, we think our management approach helped--we try to track the broad
market for GNMA mortgage securities and look to add value by making modest
adjustments to the portfolio. One aspect of our management approach is to decide
whether we see any value in over- or underweighting the fund in mortgages of a
given coupon (or interest rate). Another is to decide if we think it pays to
make a tactical allocation to Treasury securities with a small slice of the
portfolio.
OKAY, LET'S START WITH COUPON STRUCTURE. HOW DID YOU MANAGE IT?
In past reports to shareholders, we've mentioned that all the refinancing
activity and home sales in the last few years have left the market increasingly
concentrated in newly minted mortgages with coupons below 8%. In fact, by the
end of September more than 80% of the mortgages in the Salomon Brothers 30-Year
GNMA Index had coupons of 8% or less. Just five years ago, that number was about
40%.
Our challenge is to select a coupon structure that maximizes current income
while maintaining share price stability. To the extent that we can hold on to
mortgages with higher coupons, we can earn more income. But of course,
higher-coupon mortgages are more likely to be refinanced when rates fall. To
avoid refinancing activity, we were about 20% underweight relative to the
Salomon GNMA Index in mortgages with coupons above 8%. The higher-coupon
mortgages we did hold were those we thought were less likely to be
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"GNMA PERFORMED WELL, OFFERING SHAREHOLDERS BETTER-THAN-AVERAGE YIELDS AND
RETURNS."
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 3,136 3,204
AVERAGE DURATION 4.7 YRS 4.1 YRS
AVERAGE LIFE 10.0 YRS 7.9 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.59%* 0.59%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.57% 6.32%
Investment terms are defined in the Glossary on pages 18-19.
www.americancentury.com 5
GNMA--Q&A
--------------------------------------------------------------------------------
(Continued)
refinanced. So far, that approach seems to be working--we were able to maintain
a relatively stable share price while providing more income than the average
GNMA fund.
WHAT ABOUT THE FUND'S TREASURY HOLDINGS?
We put a little more than 10% of assets in Treasury inflation-indexed
securities (TIIS). We felt TIIS, whose yields are adjusted for changes in
inflation, were offering attractive yields relative to mortgages and nominal
Treasury bonds. Higher energy prices and some upward revisions to the
government's measure of inflation mean the annualized yield for TIIS will be
around 11% in November.
In addition, we believed that holding a modest position in TIIS was a good
way to help maintain the portfolio's duration, which was decreasing because of
all the mortgage refinancing activity in recent months.
Managing duration has become even more important in recent years because
the fund and the mortgage market as a whole are increasingly sensitive to even
slight changes in rates. Here's why: when rates fall sharply, like they did in
1998 and again this year, it exposes the market to a large wave of refinancing
activity. And with the market so narrowly concentrated in lower-coupon
mortgages, it means more securities are exposed to these changes than ever
before.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND MORTGAGE-BACKED SECURITIES?
We're pretty optimistic. We think the Fed's six interest rate hikes during
the last year or so have done the job of slowing the economy and keeping
inflation under wraps.
If we're right, and the Fed is on the sidelines, then the biggest issue for
mortgage performance relative to Treasurys is the government's debt buyback
story. Just look at 2000 so far--Treasurys beat mortgages early in the year
because of anticipation of the Treasury debt reduction, but as the bloom faded
from the buyback rose in recent months, mortgages outperformed.
But because we're in an election year, and the government's fiscal year-end
was in September, we're not likely to get any more news on the buyback plan
until early 2001. Mortgages probably look like better buys than Treasurys until
then, but an aggressive buyback plan would likely help boost Treasury bonds.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
We're sticking to the strategy that's worked so well in the past--giving
shareholders an investment that moves in line with the broader mortgage market
while looking to add value where we can. For now, we think the best way to do
that is to hold a small stake in inflation-indexed bonds. TIIS allow us to
better manage our duration while adding more yield than we could get on either
mortgages or nominal Treasurys.
[left margin]
"WE BELIEVED THAT HOLDING A MODEST POSITION IN TIIS WAS A GOOD WAY TO ADD YIELD
AND HELP MAINTAIN THE PORTFOLIO'S DURATION."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
GNMAS 87%
U.S. TREASURY SECURITIES 11%
TEMPORARY CASH INVESTMENTS 2%
AS OF MARCH 31, 2000
GNMAS 93%
U.S. TREASURY SECURITIES 7%
Investment terms are defined in the Glossary on pages 18-19.
6 1-800-345-2021
GNMA--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES(1) -- 87.1%
$ 51,666,692 GNMA, 6.00%, 7/20/16 to
3/15/29 $ 48,603,901
295,559,713 GNMA, 6.50%, 6/15/23 to
7/15/29 285,204,862
363,405,201 GNMA, 7.00%, 9/15/08 to
12/20/29 358,023,104
7,446,269 GNMA, 7.25%, 9/15/22 to
12/20/25 7,379,000
184,538,335 GNMA, 7.50%, 1/15/06 to
1/15/28 185,538,712
3,327,867 GNMA, 7.65%, 6/15/16 to
2/15/18 3,353,636
6,648,499 GNMA, 7.75%, 9/20/17 to
1/20/26 6,673,476
3,960,919 GNMA, 7.77%, 4/15/20 to
1/15/21 4,017,624
2,286,734 GNMA, 7.85%, 11/20/20 to
10/20/22 2,313,007
807,622 GNMA, 7.89%, 9/20/22 817,575
2,544,762 GNMA, 7.98%, 6/15/19 2,608,137
66,327,614 GNMA, 8.00%, 6/15/06 to
1/15/30 67,717,836
1,019,591 GNMA, 8.15%, 11/15/19 to
2/15/21 1,041,638
12,893,954 GNMA, 8.25%, 2/15/06 to
5/15/27 13,142,669
5,290,359 GNMA, 8.35%, 1/15/19 to
12/15/20 5,450,235
51,576,837 GNMA, 8.50%, 12/15/04 to
5/15/31 53,218,219
1,781,780 GNMA, 8.625%, 1/15/32 1,831,824
7,107,773 GNMA, 8.75%, 2/15/16 to
7/15/27 7,302,814
25,870,707 GNMA, 9.00%, 11/15/04 to
3/15/25 27,070,152
6,298,414 GNMA, 9.25%, 5/15/16 to
8/15/26 6,501,203
10,383,239 GNMA, 9.50%, 6/15/09 to
7/20/25 10,818,813
1,821,517 GNMA, 9.75%, 6/15/05 to
11/20/21 1,898,758
1,699,123 GNMA, 10.00%, 11/15/09 to
1/20/22 1,786,668
1,079,367 GNMA, 10.25%, 5/15/12 to
2/15/21 1,149,478
493,176 GNMA, 10.50%, 12/15/00 to
3/15/21 531,795
Principal Amount Value
--------------------------------------------------------------------------------
$ 314,827 GNMA, 10.75%, 12/15/09 to
8/15/19 $ 337,396
1,210,775 GNMA, 11.00%, 12/15/09 to
8/15/20 1,318,420
27,158 GNMA, 11.25%, 10/20/15 to
2/20/16 29,267
299,480 GNMA, 11.50%, 7/15/10 to
2/20/20 329,725
203,819 GNMA, 12.00%, 10/15/10 to
1/20/15 227,668
87,014 GNMA, 12.25%, 8/15/13 to
5/15/15 96,853
355,812 GNMA, 12.50%, 5/15/10 to
5/15/15 400,805
8,177 GNMA, 12.75%, 12/15/13 9,231
811,809 GNMA, 13.00%, 1/15/11 to
8/15/15 911,287
34,680 GNMA, 13.25%, 1/20/15 39,145
272,878 GNMA, 13.50%, 5/15/10 to
11/15/14 311,253
10,772 GNMA, 13.75%, 8/15/14 12,357
15,752 GNMA, 14.00%, 6/15/11 to
10/15/12 18,005
134,661 GNMA, 14.50%, 9/15/12 to
12/15/12 153,537
247,017 GNMA, 15.00%, 6/15/11 to
10/15/12 288,772
70,168 GNMA, 16.00%, 10/15/11 to
3/15/12 81,638
--------------
TOTAL MORTGAGE-BACKED SECURITIES 1,108,560,495
--------------
(Cost $1,120,656,376)
U.S. TREASURY SECURITIES -- 11.2%
149,382,800 U.S. Treasury Inflation Indexed
Notes, 3.625%, 4/15/28 142,007,024
--------------
(Cost $143,059,343)
TEMPORARY CASH INVESTMENTS -- 1.7%
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.45%, dated 9/29/00,
due 10/2/00 (Delivery value $22,084,864) 22,073,000
--------------
(Cost $22,073,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $1,272,640,519
==============
(Cost $1,285,788,719)
NOTES TO SCHEDULE OF INVESTMENTS
GNMA = Government National Mortgage Association
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
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 payables) 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, 2000 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $1,285,788,719)
(Note 3) .............................................. $ 1,272,640,519
Receivable for investments sold ......................... 139,054
Receivable for capital shares sold ...................... 239,215
Interest receivable ..................................... 9,101,914
---------------
1,282,120,702
---------------
LIABILITIES
Disbursements in excess of
demand deposit cash ................................... 1,018,611
Accrued management fees (Note 2) ........................ 611,157
Distribution fees payable (Note 2) ...................... 3,367
Service fees payable (Note 2) ........................... 3,367
Dividends payable ....................................... 368,983
Payable for trustees' fees and expenses ................. 2,998
---------------
2,008,483
---------------
Net Assets .............................................. $ 1,280,112,219
===============
NET ASSETS CONSIST OF:
Capital paid in ......................................... $ 1,330,279,335
Accumulated net realized loss
on investment transactions ............................ (37,018,916)
Net unrealized depreciation
on investments (Note 3) ............................... (13,148,200)
---------------
$ 1,280,112,219
===============
Investor Class
Net assets .............................................. $ 1,263,313,597
Shares outstanding ...................................... 122,697,035
Net asset value per share ............................... $ 10.30
Advisor Class
Net assets .............................................. $ 16,798,622
Shares outstanding ...................................... 1,631,552
Net asset value per share ............................... $ 10.30
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 interest income, fees and expenses,
and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest ................................................. $ 45,638,637
------------
Expenses (Note 2):
Management fees .......................................... 3,656,093
Distribution fees - Advisor Class ........................ 18,201
Service fees - Advisor Class ............................. 18,201
Trustees' fees and expenses .............................. 20,547
------------
3,713,042
------------
Net investment income .................................... 41,925,595
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ......................... (2,836,881)
Change in net unrealized
depreciation on investments ............................ 19,348,375
------------
Net realized and unrealized
gain on investments .................................... 16,511,494
------------
Net Increase in Net Assets
Resulting from Operations .............................. $ 58,437,089
============
See Notes to Financial Statements www.americancentury.com 9
Statement 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, 2000 (UNAUDITED) AND YEAR ENDED MARCH 31, 2000
SEPTEMBER 30, MARCH 31,
Increase (Decrease) in Net Assets 2000 2000
OPERATIONS
Net investment income ........................ $ 41,925,595 $ 86,638,647
Net realized loss on investments ............. (2,836,881) (12,625,280)
Change in net unrealized
appreciation (depreciation)
on investments ............................. 19,348,375 (49,501,818)
--------------- ---------------
Net increase in net assets
resulting from operations .................. 58,437,089 24,511,549
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ............................. (41,455,713) (86,043,341)
Advisor Class .............................. (469,882) (595,306)
--------------- ---------------
Decrease in net assets from distributions .... (41,925,595) (86,638,647)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net
assets from capital
share transactions ......................... 10,517,324 (107,306,222)
--------------- ---------------
Net increase (decrease) in
net assets ................................. 27,028,818 (169,433,320)
NET ASSETS
Beginning of period .......................... 1,253,083,401 1,422,516,721
--------------- ---------------
End of period ................................ $ 1,280,112,219 $ 1,253,083,401
=============== ===============
10 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (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 (the 1940 Act) 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 following accounting policies are in accordance
with generally accepted accounting principles; these policies may require the
use of estimates by fund management.
MULTIPLE CLASS -- 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.
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, 2000, accumulated net realized capital loss carryovers of
$28,082,552 (expiring in 2003 through 2008) may be used to offset future taxable
realized gains.
The fund has elected to treat $5,589,785 of net capital losses incurred in
the five month period ended March 31, 2000, as having been incurred in the
following fiscal year.
www.americancentury.com 11
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (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 1940 Act (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The fee is calculated daily and
paid monthly. It consists of an Investment Category Fee based on the average net
assets of the funds in a specific fund's investment category and a Complex Fee
based on the average net assets of all the funds managed by ACIM. The rates for
the Investment Category Fee range from 0.2425% 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 month
period ended September 30, 2000, 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 1940 Act.
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 year ended September 30, 2000 were $36,402.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, a
distributor of the trust, American Century Investment Services, Inc., 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, 2000, were
$560,218,280 and $657,150,020, respectively.
On September 30, 2000, accumulated net unrealized depreciation was
$13,657,760, based on the aggregate cost of investments for federal income tax
purposes of $1,286,298,279, which consisted of unrealized appreciation of
$7,656,880 and unrealized depreciation of $21,314,640.
12 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (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, 2000
Sold ......................................... 12,818,269 $ 119,607,837
Issued in reinvestment of distributions ...... 3,266,314 33,272,878
Redeemed ..................................... (15,408,031) (145,873,903)
------------- -------------
Net increase ................................. 676,552 $ 7,006,812
============= =============
Year ended March 31, 2000
Sold ......................................... 73,365,290 $ 755,281,468
Issued in reinvestment of distributions ...... 6,817,037 70,016,977
Redeemed ..................................... (91,470,162) (939,117,877)
------------- -------------
Net decrease ................................. (11,287,835) $(113,819,432)
============= =============
ADVISOR CLASS
Six months ended September 30, 2000
Sold ......................................... 581,456 $ 5,836,762
Issued in reinvestment of distributions ...... 43,100 439,435
Redeemed ..................................... (280,157) (2,765,685)
------------- -------------
Net increase ................................. 344,399 $ 3,510,512
============= =============
Year ended March 31, 2000
Sold ......................................... 1,487,980 $ 15,220,064
Issued in reinvestment of distributions ...... 50,545 517,711
Redeemed ..................................... (902,081) (9,224,565)
------------- -------------
Net increase ................................. 636,444 $ 6,513,210
============= =============
--------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, has entered into
an unsecured $620,000,000 bank line of credit agreement with Chase Manhattan
Bank. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
six month period ended September 30, 2000.
www.americancentury.com 13
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
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............ $ 10.16 $ 10.62 $ 10.67 $ 10.33 $ 10.45 $ 10.18
------------- ------------- ------------- ------------- ------------- -------------
Income From Investment Operations
Net Investment Income .......... 0.34 0.67 0.64 0.69 0.71 0.74
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ................... 0.14 (0.46) (0.05) 0.34 (0.12) 0.27
------------- ------------- ------------- ------------- ------------- -------------
Total From Investment Operations 0.48 0.21 0.59 1.03 0.59 1.01
------------- ------------- ------------- ------------- ------------- -------------
Distributions
From Net Investment Income ..... (0.34) (0.67) (0.64) (0.69) (0.71) (0.74)
------------- ------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Period ... $ 10.30 $ 10.16 $ 10.62 $ 10.67 $ 10.33 $ 10.45
============= ============= ============= ============= ============= =============
Total Return(2) ................ 4.83% 2.01% 5.66% 10.21% 5.84% 10.08%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets(3) ......... 0.59%(4) 0.59% 0.59% 0.58% 0.55% 0.58%
Ratio of Net Investment Income
to Average Net Assets ............ 6.72%(4) 6.42% 5.98% 6.49% 6.84% 6.98%
Portfolio Turnover Rate .......... 47% 133% 119% 133% 105% 64%
Net Assets, End of Period
(in thousands) ................... $ 1,263,314 $ 1,240,003 $ 1,415,607 $ 1,285,641 $ 1,119,165 $ 1,120,019
</TABLE>
(1) Six months ended September 30, 2000 (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.
14 1-800-345-2021 See Notes to Financial Statements
GNMA--Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
2000(1) 2000 1999 1998(2)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 10.16 $ 10.62 $ 10.67 $ 10.63
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................. 0.33 0.64 0.61 0.31
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............ 0.14 (0.46) (0.05) 0.04
---------- ---------- ---------- ----------
Total From Investment Operations ...... 0.47 0.18 0.56 0.35
---------- ---------- ---------- ----------
Distributions
From Net Investment Income ............ (0.33) (0.64) (0.61) (0.31)
---------- ---------- ---------- ----------
Net Asset Value, End of Period .......... $ 10.30 $ 10.16 $ 10.62 $ 10.67
========== ========== ========== ==========
Total Return(3) ....................... 4.70% 1.76% 5.40% 3.30%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................... 0.84%(4) 0.84% 0.84% 0.84%(4)
Ratio of Net Investment Income
to Average Net Assets ................... 6.47%(4) 6.17% 5.73% 5.92%(4)
Portfolio Turnover Rate ................. 47% 133% 119% 133%
Net Assets, End of Period
(in thousands) .......................... $ 16,799 $ 13,080 $ 6,910 $ 460
</TABLE>
(1) Six months ended September 30, 2000 (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 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 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 tax 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. Visit our Web site
(www.americancentury.com) or call us 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:
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.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Manager
CASEY COLTON
www.americancentury.com 17
Glossary
--------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on 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 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).
18 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).
* 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.
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive
yields, as well as a strong and stable foundation and generally lower volatility
levels than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 19
Notes
--------------------------------------------------------------------------------
20 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0011 American Century Investment Services, Inc.
SH-SAN-22592 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
September 30, 2000
AMERICAN CENTURY
Semiannual Report
Inflation-Adjusted Treasury
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century' s fund performance reports have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
INFLATION-ADJUSTED TREASURY
(ACITX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
Inflation-indexed bonds remained one of the best-performing fixed-income
investments during the six months ended September 30, 2000. A higher level of
inflation than we've seen in several years, led by surging oil prices, convinced
many investors to seek out the inflation protection of the Treasury's
inflation-indexed bonds.
In this environment, American Century's Inflation-Adjusted Treasury fund
produced a very solid return. Our investment management team provides further
details starting on page 3.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., a substantial minority shareholder in
American Century Companies, Inc. since 1998. If the transaction is completed as
expected, J.P. Morgan Chase, the new enterprise, will own the shares of American
Century currently held by Morgan. Corporate control of American Century is not
affected by this transaction. We will be exploring ways to partner with J.P.
Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we have chosen to share the
chairman of the board position and named American Century President William M.
Lyons chief executive officer, giving him ultimate management responsibility for
the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will be continuing involvement on the
investment teams responsible for the Ultra and Veedot funds.
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 Co-Chairman of the Board
[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
Statement 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) continued to outperform nominal
Treasury bonds during the six months ended September 30, 2000.
* The past year has been an ideal environment for TIIS--higher inflation
levels and stable TIIS yields.
* U.S. inflation rose by 3.5% over the past year, driven by a 15% increase in
energy prices.
* Excluding energy prices, the inflation rate has leveled off in recent
months.
* TIIS yields were relatively stable, declining slightly thanks to increased
demand for inflation protection.
* The principal adjustments for TIIS, based on the change in the consumer
price index, totaled 2.3% during the six-month period.
FUND PERFORMANCE
* Inflation-Adjusted Treasury's return for the six months ended September 30
was right in line with the overall TIIS market.
* The fund's return fell just short of its benchmark, the Salomon U.S.
Inflation-Linked Index, with the shortfall about equal to the fund's
expenses.
FUND STRATEGY
* Inflation-Adjusted Treasury began the period overweight in 10-year TIIS
because they were offering the most attractive yields in the TIIS market,
but we moved back to a neutral position during the summer months.
* Other than that, we kept the fund's duration (a measure of price volatility
as interest rates change) and composition close to the benchmark index.
* The fund continued to hold about a 25% position in a government agency
inflation-indexed bond, which currently yields 50 basis points (0.50%) more
than comparable TIIS.
OUTLOOK
* Excluding energy prices, the inflation rate has stabilized at about 2.5%.
* We expect the slowing economy and lower oil prices to cause overall
inflation to slow to a 2.5-3% annual rate.
* Energy is the X-factor--tensions in the Middle East and low oil inventories
in the U.S. are wild cards that could lead to a sudden spike in oil prices.
* Traditional Treasury bonds are pricing in a 2% inflation rate, which we
think is a bit low. Therefore, TIIS remain a compelling value relative to
nominal Treasurys.
* We're comfortable with the fund's current positioning and aren't planning
any changes to the fund's portfolio for the time being.
[left margin]
INFLATION-ADJUSTED TREASURY(1)
(ACITX)
TOTAL RETURNS: AS OF 9/30/00
6 Months 4.23%(2)
1 Year 8.29%
30-DAY SEC YIELD: 6.02%
INCEPTION DATE: 2/10/97
NET ASSETS: $27.0 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 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
Treasury inflation-indexed securities (TIIS) continued to outperform
ordinary Treasury bonds during the six months ended September 30, 2000. The
Salomon U.S. Inflation-Linked Index returned 4.48% for the period, while the
Salomon Treasury Index returned 4.16%.
HARMONIC CONVERGENCE
The past year provided the ideal short-term environment for TIIS. Inflation
was on the rise, while TIIS yields were stable to slightly lower. In addition,
the federal budget surplus, reduced issuance of Treasury securities, and strong
global demand for U.S. assets were all favorable for bonds in general.
On the inflation front, the consumer price index (CPI)--the inflation
measure for TIIS--rose 3.5% over the past year, up from 2.7% for calendar 1999.
The entire increase resulted from soaring energy prices (mainly oil), which were
up 15%.
Much of this energy surge occurred in the first quarter of 2000; energy
prices grew increasingly volatile but continued to rise during the past six
months. Excluding energy, the inflation rate has leveled off somewhat in recent
months, but higher costs in housing, medical care, and the service sector have
kept inflation on an upward trajectory.
STEADY AS SHE GOES
TIIS yields were fairly stable at around 4% during the last six months. The
pick-up in the CPI led to increased demand for the inflation protection of TIIS.
In addition, the federal budget surplus caused the Treasury to reduce issuance
of new securities, including both nominal bonds and TIIS. Greater demand and
reduced supply helped push the 10-year TIIS yield down slightly (see the graph
at right).
Nominal Treasury yields also generally fell as moderating economic growth
convinced investors that the Federal Reserve was finished raising short-term
interest rates. The Fed last raised rates in May, the sixth time since June
1999, to slow the economy and keep inflation under control.
INFLATION ADJUSTMENT
The inflation adjustments to the principal value of TIIS, based on the
increase in the CPI, totaled 2.3% for the six-month period.
In September, the government reported an error that misstated the CPI
between January and August 2000. A software glitch in a new housing measure was
responsible for the mistake, which was corrected in September.
Rather than restate the TIIS principal adjustments for every month going
back to January, the government made the entire correction (equivalent to 0.1%)
at once. The correction will be reflected in the principal adjustment for
November.
[right margin]
"THE PAST YEAR PROVIDED THE IDEAL SHORT-TERM ENVIRONMENT FOR TIIS."
[line graph - data below]
10-YEAR TREASURY YIELD COMPARISON
10-year
Nominal Treasury 10-year TIIS
3/31/00 6.17% 4.01%
4/7/00 6.01% 3.99%
4/14/00 6.04% 3.99%
4/20/00 6.12% 3.98%
4/28/00 6.33% 3.98%
5/5/00 6.61% 4.07%
5/12/00 6.61% 4.21%
5/19/00 6.59% 4.25%
5/26/00 6.40% 4.20%
6/2/00 6.23% 4.12%
6/9/00 6.22% 4.11%
6/16/00 6.07% 4.07%
6/23/00 6.28% 4.09%
6/30/00 6.11% 4.07%
7/7/00 6.08% 4.01%
7/14/00 6.19% 4.03%
7/21/00 6.07% 4.03%
7/28/00 6.10% 4.02%
8/4/00 5.96% 3.99%
8/11/00 5.99% 4.00%
8/18/00 5.96% 4.03%
8/25/00 5.90% 3.98%
9/1/00 5.85% 3.97%
9/8/00 5.90% 3.97%
9/15/00 5.99% 4.01%
9/22/00 5.98% 3.99%
9/29/00 5.92% 3.97%
Source: Yield Book
"GREATER DEMAND AND REDUCED SUPPLY HELPED PUSH THE 10-YEAR TIIS YIELD DOWN
SLIGHTLY."
www.americancentury.com 3
Inflation-Adjusted Treasury--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF SEPTEMBER 30, 2000
INVESTOR CLASS (INCEPTION 2/10/97) ADVISOR CLASS (INCEPTION 6/15/98)
INFLATION-ADJUSTED SALOMON INFLATION- INFLATION-ADJUSTED SALOMON INFLATION-
TREASURY LINKED INDEX TREASURY LINKED INDEX
=================================================================================================
<S> <C> <C> <C> <C>
6 MONTHS(1) .... 4.23% 4.48% 4.10% 4.48%
1 YEAR ......... 8.29% 9.11% 8.02% 9.11%
=================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS ........ 4.79% 5.52% -- --
LIFE OF FUND ... 3.99% 4.61%(2) 4.94% 6.10%(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Index data since 1/31/97, the date nearest the class's inception for which
data are available.
(3) Index data since 6/30/98, the date nearest the class's inception for which
data are available.
See pages 16-18 for information about share classes, returns, and the
comparative index.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/00
Salomon Inflation-Linked Index $11,796
Inflation-Adjusted Treasury $11,529
Inflation-Adjusted Salomon Inflation-Linked
Treasury Index
DATE VALUE VALUE
2/10/1997 $10,000 $10,000
3/31/1997 $9,802 $9,808
6/30/1997 $9,885 $9,897
9/30/1997 $10,019 $10,040
12/31/1997 $10,102 $10,158
3/31/1998 $10,140 $10,194
6/30/1998 $10,256 $10,325
9/30/1998 $10,489 $10,614
12/31/1998 $10,450 $10,556
3/31/1999 $10,482 $10,613
6/30/1999 $10,609 $10,753
9/30/1999 $10,646 $10,811
12/31/1999 $10,627 $10,808
3/31/2000 $11,062 $11,291
6/30/2000 $11,298 $11,546
9/30/2000 $11,529 $11,796
$10,000 investment made 2/10/97(2)
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 Inflation-Linked Index is 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 index
does 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-Linked
Treasury 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%
9/30/2000 8.29% 9.11%
* From 2/28/97 (the date after 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, 2000?
Inflation-Adjusted Treasury's performance was right in line with the
Treasury inflation-indexed securities (TIIS) market. The fund returned 4.23% for
the six-month period, compared with the 4.48% return of its performance
benchmark, the Salomon U.S. Inflation-Linked Index.* (See the previous page for
other fund performance comparisons.)
THE FUND'S PERFORMANCE CAME UP JUST SHORT OF ITS BENCHMARK. WHY?
If you take out the fund's expenses, Inflation-Adjusted Treasury was even
with the index. That's not a surprise, because the fund's portfolio pretty much
matched the make-up of the index.
We think the index is the best reflection of the overall TIIS market, so we
tend to keep the portfolio's composition and duration (a measure of price
volatility as interest rates change) close to those of the index. From time to
time, we'll make some modest adjustments in an effort to add value.
DID YOU MAKE ANY ADJUSTMENTS IN THE PAST SIX MONTHS?
Not really. The fund's duration stayed between 8.5 and 9 years, which was
in line with the duration of the index. This positioning reflected our
expectation for relatively stable TIIS yields.
With regard to composition, we break down the TIIS market into three
maturity categories--short-term TIIS maturing in 2002; intermediate-term
securities maturing between 2007 and 2010; and long-term TIIS maturing in 2028
and 2029.
We were overweight intermediate-term TIIS and underweight long-term bonds
at the start of the six-month period because we thought 10-year bonds offered
the best value. As it turned out, this adjustment provided little in the way of
extra return, so we moved back to a neutral position during the summer months.
INFLATION-ADJUSTED TREASURY STILL OWNS A GOVERNMENT AGENCY BOND, RIGHT?
That's right, and that's probably the biggest difference between the fund
and its benchmark. We've invested about a quarter of the portfolio in an
inflation-indexed bond issued by the Tennessee Valley Authority (TVA), a federal
government agency.
The TVA bond matures in January 2007, and it was originally issued with a
yield that matches the yield of a TIIS maturing at the same time. But when we
first bought the TVA bond, it was yielding 20 basis points (0.20%--a basis point
equals 0.01%) more than the comparable TIIS.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
"WE'VE INVESTED ABOUT A QUARTER OF THE PORTFOLIO IN AN INFLATION-INDEXED BOND
ISSUED BY THE TENNESSEE VALLEY AUTHORITY (TVA), A FEDERAL GOVERNMENT AGENCY."
PORTFOLIO AT A GLANCE
9/30/00 3/31/00
NUMBER OF SECURITIES 8 5
WEIGHTED AVERAGE
MATURITY 12.6 YRS 12.7 YRS
AVERAGE DURATION 8.8 YRS 8.9 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.51%* 0.51%
* Annualized.
YIELDS AS OF SEPTEMBER 30, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.02% 5.77%
Investment terms are defined in the Glossary on pages 18-19.
www.americancentury.com 5
Inflation-Adjusted Treasury--Q&A
--------------------------------------------------------------------------------
(Continued)
Today, 20 basis points of extra yield doesn't seem as attractive as it did
a couple of years ago. The federal budget surplus has reduced supply in the
Treasury market, and that's caused the difference--or spread--between the yields
of Treasury and government agency bonds to widen in the past year or two.
Six months ago, the fund's TVA bond was yielding 60-70 basis points more
than TIIS with the same maturity. Since then, the yield spread has narrowed back
to around 50 basis points.
Although the widening yield spread hurt fund performance in 1999 and early
2000 compared with the index, we expect that to turn around in the future. If we
hold the TVA bond from now until it matures--as we currently expect to do--it
will return an extra half a percent a year over comparable TIIS.
IF YIELDS ARE SO ATTRACTIVE, WHY HAVEN'T YOU BOUGHT MORE TVA BONDS?
As the fund's assets have grown over the past couple of years, we've been
adding to our TVA holdings to maintain a 20-30% position. However, because the
fund is designed to provide exposure to the Treasury inflation-indexed bond
market, we're limited to a maximum of 35% of the portfolio in government agency
bonds.
LOOKING AHEAD, WHAT ARE YOUR EXPECTATIONS FOR INFLATION?
Energy remains the X-factor when it comes to inflation. It's been the main
driver behind the 3.5% rise in the consumer price index (CPI) over the past
year. Outside of energy, inflation has settled into a steady annual rate of
about 2.5%, not much higher than it was a year ago.
Based on the oil futures market, the price of oil is expected to be lower a
year from now. The slowing U.S. economy should also help keep overall inflation
contained. This suggests to us that the CPI will start to trend back toward a
2.5-3% annual rate.
Having said that, however, there are still some wild cards that could
change the outlook. Tensions and violence in the Middle East have increased in
recent months, and oil inventories in the U.S. are somewhat low going into the
winter, a period of heavy energy usage. Either of these factors could lead to an
unexpected spike in oil prices, which would likely keep the CPI rising at an
annual rate above 3%.
ARE INFLATION-INDEXED BONDS STILL ATTRACTIVE GIVEN A LOWER INFLATION RATE?
We think so. The nominal Treasury market is still pricing in an inflation
rate of about 2%; TIIS are the better value if inflation is higher than that. We
think it's pretty unlikely that inflation will slow that much, so TIIS remain a
compelling value relative to nominal Treasury bonds.
WHAT ARE YOUR PLANS FOR INFLATION-ADJUSTED TREASURY GOING FORWARD?
We're comfortable with the fund's current positioning. We expect to
continue investing 20-30% of the portfolio in government agency bonds, while the
rest of the portfolio will be positioned much like the benchmark index.
[left margin]
"ENERGY REMAINS THE X-FACTOR WHEN IT COMES TO INFLATION. OUTSIDE OF ENERGY,
INFLATION HAS SETTLED INTO A STEADY ANNUAL RATE OF ABOUT 2.5%."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF SEPTEMBER 30, 2000
U.S. TREASURY SECURITIES 79%
U.S. GOVERNMENT AGENCY
SECURITIES 21%
AS OF MARCH 31, 2000
U.S. TREASURY SECURITIES 74%
U.S. GOVERNMENT AGENCY
SECURITIES 26%
Investment terms are defined in the Glossary on pages 18-19.
6 1-800-345-2021
Inflation-Adjusted Treasury--Schedule of Investments
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 78.6%
$4,127,131 U.S. Treasury Inflation Indexed
Notes, 3.625%, 7/15/02 $ 4,125,844
544,640 U.S. Treasury Inflation Indexed
Notes, 3.375%, 1/15/07 526,769
3,124,602 U.S. Treasury Inflation Indexed
Notes, 3.625%, 1/15/08 3,053,324
3,556,838 U.S. Treasury Inflation Indexed
Notes, 3.875%, 1/15/09 3,527,942
1,866,901 U.S. Treasury Inflation Indexed
Notes, 4.25%, 1/15/10 1,907,740
7,889,247 U.S. Treasury Inflation Indexed
Bonds, 3.875%, 4/15/29 7,839,941
-----------
TOTAL U.S. TREASURY SECURITIES 20,981,560
-----------
(Cost $20,860,856)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 21.4%
669,000 FNMA Discount Notes, 6.32%,
10/2/00(1) $ 669,000
5,391,936 TVA Inflation Indexed Notes,
3.375%, 1/15/07 5,054,239
-----------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 5,723,239
-----------
(Cost $5,811,756)
TOTAL INVESTMENT SECURITIES -- 100.0% $26,704,799
===========
(Cost $26,672,612)
NOTES TO SCHEDULE OF INVESTMENTS
FNMA = Federal National Mortgage Association
TVA = Tennessee Valley Authority
(1) Rate indicated is the yield to maturity at purchase.
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 payables) 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, 2000 (UNAUDITED)
ASSETS
Investment securities, at value (identified
cost of $26,672,612) (Note 3) ............................. $ 26,704,799
Cash ........................................................ 87,691
Receivable for capital shares sold .......................... 2,960
Interest receivable ......................................... 270,200
------------
27,065,650
------------
LIABILITIES
Accrued management fees (Note 2) ............................ 10,903
Distribution fees payable (Note 2) .......................... 81
Service fees payable (Note 2) ............................... 81
Dividends payable ........................................... 7,238
Payable for trustees' fees and expenses ..................... 62
------------
18,365
------------
Net Assets .................................................. $ 27,047,285
============
NET ASSETS CONSIST OF:
Capital paid in ............................................. $ 27,249,069
Accumulated net realized loss
on investment transactions ................................ (233,971)
Net unrealized appreciation on
investments (Note 3) ...................................... 32,187
------------
$ 27,047,285
============
Investor Class
Net assets .................................................. $ 26,649,858
Shares outstanding .......................................... 2,828,831
Net asset value per share ................................... $ 9.42
Advisor Class
Net assets .................................................. $ 397,427
Shares outstanding .......................................... 42,185
Net asset value per share ................................... $ 9.42
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 interest income, fees and expenses,
and investment gains or losses.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest .................................................... $ 927,598
---------
Expenses (Note 2):
Management fees ............................................. 55,424
Distribution fees -- Advisor Class .......................... 341
Service fees -- Advisor Class ............................... 341
Trustees' fees and expenses ................................. 358
---------
56,464
---------
Net investment income ....................................... 871,134
---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ............................ (42,852)
Change in net unrealized
appreciation on investments ............................... 86,193
---------
Net realized and unrealized
gain on investments ....................................... 43,341
---------
Net Increase in Net Assets
Resulting from Operations ................................. $ 914,475
=========
See Notes to Financial Statements www.americancentury.com 9
Statement 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, 2000 (UNAUDITED) AND YEAR ENDED MARCH 31, 2000
SEPTEMBER 30, MARCH 31,
Increase in Net Assets 2000 2000
OPERATIONS
Net investment income ........................ $ 871,134 $ 885,152
Net realized loss on investments ............. (42,852) (120,522)
Change in net unrealized
appreciation on investments ................ 86,193 109,626
------------ ------------
Net increase in net assets
resulting from operations .................. 914,475 874,256
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ............................. (860,813) (881,060)
Advisor Class .............................. (10,321) (4,092)
------------ ------------
Decrease in net assets
from distributions ......................... (871,134) (885,152)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from
capital share transactions ................. 8,216,521 9,807,658
------------ ------------
Net increase in net assets ................... 8,259,862 9,796,762
NET ASSETS
Beginning of period .......................... 18,787,423 8,990,661
------------ ------------
End of period ................................ $ 27,047,285 $ 18,787,423
============ ============
10 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000 (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 (the 1940 Act) as an
open-end management investment company. Inflation-Adjusted Treasury Fund (the
fund) is one of the eight funds issued by the trust. The fund is diversified
under the 1940 Act. 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 following significant accounting policies are
in accordance with generally accepted accounting principles; the policies may
require the use of estimates by fund management.
MULTIPLE CLASS -- 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 two classes of shares differ principally in their
respective shareholder servicing and distribution expenses and arrangements.
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.
At March 31, 2000, accumulated net realized capital loss carryovers of
$162,117 (expiring in 2006 through 2008) may be used to offset future taxable
gains.
The fund has elected to treat $26,406 of net realized losses incurred in the
five month period ended March 31, 2000 as having been incurred in the following
fiscal year.
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.
www.americancentury.com 11
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (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 1940 Act (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The fee is calculated daily and
paid monthly. It consists of an Investment Category Fee based on the average net
assets of the funds in a specific fund's investment category and a Complex Fee
based on the average net assets of all the funds managed by ACIM. The rates for
the Investment Category fee range from 0.1625% to 0.2800% and the rates for the
Complex Fee (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 month
period ended September 30, 2000, 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 month period ended September 30, 2000
were $682.
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, the
distributor of the trust, American Century Investment Services, Inc., 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, totaled $13,353,031 and $6,437,671, respectively.
As of September 30, 2000, accumulated net unrealized appreciation was
$29,591, based on the aggregate cost of investments for federal income tax
purposes of $26,675,208. Accumulated net unrealized depreciation consisted of
unrealized appreciation of $119,322 and unrealized depreciation of $89,731.
12 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 2000 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (unlimited number of
shares authorized):
SHARES AMOUNT
INVESTOR CLASS
Six months ended September 30, 2000
Sold ........................................... 1,271,254 $ 11,856,768
Issued in reinvestment of distributions ........ 82,912 778,383
Redeemed ....................................... (502,899) (4,637,811)
------------ ------------
Net increase ................................... 851,267 $ 7,997,340
============ ============
Year ended March 31, 2000
Sold ........................................... 2,322,695 $ 21,670,799
Issued in reinvestment of distributions ........ 83,545 779,006
Redeemed ....................................... (1,376,192) (12,806,248)
------------ ------------
Net increase ................................... 1,030,048 $ 9,643,557
============ ============
ADVISOR CLASS
Six months ended September 30, 2000
Sold ........................................... 25,803 $ 241,574
Issued in reinvestment of distributions ........ 1,071 10,065
Redeemed ....................................... (3,558) (32,458)
------------ ------------
Net increase ................................... 23,316 $ 219,181
============ ============
Year ended March 31, 2000
Sold ........................................... 22,770 $ 215,525
Issued in reinvestment of distributions ........ 429 3,981
Redeemed ....................................... (5,410) (55,405)
------------ ------------
Net increase ................................... 17,789 $ 164,101
============ ============
--------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
six month period ended September 30, 2000.
www.americancentury.com 13
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
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 2000 1999 1998 1997(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 9.41 $ 9.48 $ 9.63 $ 9.74 $ 10.00
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................. 0.38 0.58 0.47 0.44 0.06
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............ 0.01 (0.07) (0.15) (0.11) (0.26)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ...... 0.39 0.51 0.32 0.33 (0.20)
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ............ (0.38) (0.58) (0.47) (0.44) (0.06)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .......... $ 9.42 $ 9.41 $ 9.48 $ 9.63 $ 9.74
========== ========== ========== ========== ==========
Total Return(3) ....................... 4.23% 5.52% 3.37% 3.45% (1.98)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.51%(4) 0.51% 0.49% 0.50% 0.50%(4)
Ratio of Net Investment Income
to Average Net Assets ................. 7.93%(4) 6.06% 4.84% 4.45% 5.03%(4)
Portfolio Turnover Rate ................. 30% 52% 127% 69% --
Net Assets, End of Period
(in thousands) ........................ $ 26,650 $ 18,610 $ 8,980 $ 5,279 $ 2,277
</TABLE>
(1) Six months ended September 30, 2000 (unaudited).
(2) February 10, 1997 (inception) through March 31, 1997.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return 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 YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
Advisor Class
2000(1) 2000 1999(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ..... $9.41 $9.48 $9.64
---------- --------- ----------
Income From Investment Operations
Net Investment Income .................. 0.37 0.56 0.34
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ...... 0.01 (0.07) (0.16)
---------- --------- ----------
Total From Investment Operations ....... 0.38 0.49 0.18
---------- --------- ----------
Distributions
From Net Investment Income ............. (0.37) (0.56) (0.34)
---------- --------- ----------
Net Asset Value, End of Period ........... $9.42 $9.41 $9.48
========== ========= ==========
Total Return(3) ........................ 4.10% 5.26% 1.94%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.76%(4) 0.76% 0.74%(4)
Ratio of Net Investment Income
to Average Net Assets .................. 7.68%(4) 5.81% 4.56%(4)
Portfolio Turnover Rate .................. 30% 52% 127%
Net Assets, End of Period
(in thousands) ......................... $397 $178 $10
(1) Six months ended September 30, 2000 (unaudited).
(2) June 15, 1998 (inception) through March 31, 1999.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return 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 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 tax 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. Visit our Web site
(www.americancentury.com) or call us 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 following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The SALOMON 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 total 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 includes
both 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 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.
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
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive
yields, as well as a strong and stable foundation and generally lower volatility
levels than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 19
Notes
--------------------------------------------------------------------------------
20 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0011 American Century Investment Services, Inc.
SH-SAN-22591 (c)2000 American Century Services Corporation
