--------------------------------------------------------------------------------
March 31, 2000
A M E R I C A N C E N T U R Y
Annual Report
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[GRAPHIC OMITTED]
GNMA
[LOGO]
AMERICAN
CENTURY(R)
<PAGE>
GNMA
(BGNMX)
--------------------------------------------------------------------------------
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<PAGE>
Our Message to You
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
The 12 months ended March 31, 2000, proved relatively difficult for bond
investors. The pace of U.S. economic growth quickened, with the economy
expanding at a better than 7% annual rate during the fourth quarter of 1999--the
strongest quarter in nearly 16 years. In addition, inflation turned up, spurred
by an increase in oil prices.
Trying to keep economic growth and inflation under control, the Federal
Reserve raised short-term interest rates five times between June 30 and March
31. That put significant pressure on bond prices.
Despite this challenging environment, American Century GNMA continued to
provide an above-average yield and below-average expenses (according to Lipper
Inc., an independent mutual fund ranking service that evaluated 56 funds in the
GNMA fund's category). These key factors helped the fund beat its peer group
average total return for the last 10 years (see page 4 for more performance
information).
We are proud of our fund's performance and the numerous ways we can help
investors like you meet your goals. We are equally proud of our dedication to
creating a positive, safe, and productive work environment for American Century
staff. This commitment was recognized and rewarded in 1999, when American
Century ranked in the top 40 of Fortune magazine's "100 Best Companies to Work
For."
We do not take this recognition lightly; acknowledgements like this allow
us to recruit talented and dedicated people, from service representatives to
investment professionals. This "intellectual capital" is our most valuable
resource and an essential one in our efforts to provide you with excellent
investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
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
Statements of Changes in Net Assets ..................................... 10
Notes to Financial Statements ........................................... 11
Financial Highlights .................................................... 14
Report of Independent Accountants ....................................... 16
Other Information
Share Class and Retirement Account Information .......................... 17
Background Information
Investment Philosophy and Policies ................................... 18
Comparative Indices .................................................. 18
Lipper Rankings ...................................................... 18
Investment Team Leaders .............................................. 18
Glossary .................................................................. 19
www.americancentury.com 1
<PAGE>
Report Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
GNMA(1)
(BGNMX)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months .............................. 2.04%(2)
1 Year ................................ 2.01%
30-Day SEC Yield: 6.64%
Inception Date: 9/23/85
--------------------------------------------------------------------------------
Net Assets: $1.3billion(3)
--------------------------------------------------------------------------------
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 19-20.
Market Perspective
o Rising interest rates limited returns for mortgage-backed securities. For
the 12 months ended March 31, 2000, the Salomon Brothers 30-Year GNMA
Index returned 2.95%.
o Economic growth surged in 1999. Inflation also ticked up, though much of
the increase can be attributed to higher oil prices.
o To head off inflation, the Federal Reserve raised short-term interest
rates five times, beginning in the summer of 1999.
o Despite the increase in borrowing costs, the housing market remained
strong thanks to record high consumer confidence and the lowest
unemployment rate in almost 30 years.
o Though short-term rates rose sharply, long-term Treasury bond yields were
held down by the Treasury Department's plan to buy back existing bonds and
issue less debt going forward.
o As a result, government agency and mortgage-backed securities lagged
intermediate- and longer-term Treasury bonds. However, GNMAs outperformed
other agency bonds for the 12 months.
Management Q&A
o The portfolio performed well relative to other GNMA funds. In addition,
American Century GNMA's 30-day SEC yield ranked in the top 15% of the
Lipper group as of March 31.
o We positioned the portfolio conservatively, shortening its duration to 4.1
years. A shorter duration meant the fund's share price fell less as
interest rates rose.
o We held a modest position in Treasury inflation-indexed securities, or
TIIS. That helped returns because TIIS outperformed nominal Treasury and
mortgage-backed securities last year.
o With the economy surging, we expect the Fed to raise interest rates
further.
o Though rates are likely headed higher, we think GNMAs could hold up better
than Treasury and other government agency bonds.
o Because of our cautious outlook for inflation and interest rates, we're
likely to maintain a shorter duration and a small allocation to TIIS.
2 1-800-345-2021
<PAGE>
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of Randall W. Merk, chief investment officer of fixed income at American
Century]
Limited Performance
The fiscal year ended March 31, 2000, was somewhat disappointing for
mortgage bond investors. Higher interest rates, a red-hot economy, rising
inflation, and a rough patch for government agency securities all weighed on the
prices of mortgage-backed securities. For the 12 months, the Salomon Brothers
30-Year GNMA Index returned 2.95%.
Surging Economy
Economic growth surged over the last 12 months, when the economy expanded
by 4.5%. Rapid growth put upward pressure on inflation--consumer prices rose
3.7%. Much of that increase can be attributed to rising oil prices. But even
after stripping out volatile food and energy costs, prices jumped in early 2000
at the fastest quarterly rate since 1996.
Rate Volatility
Higher inflation led the Federal Reserve to raise short-term interest
rates five times beginning in the summer of 1999. For the 12 months, the yield
on the 10-year Treasury note (an important benchmark for mortgage rates) jumped
from about 5.25% to 6.0%.
But long-term Treasury yields rose less. Demand for long bonds surged in
the first quarter after the Treasury Department announced plans to buy back
existing bonds and trim sales of new securities going forward.
These yield changes resulted in an unusual situation called an "inverted"
yield curve, where long-term Treasury yields fell below those of shorter-term
securities.
Agencys Struggle
In March, government agency securities stumbled after Congress started
debate on legislation that would make it clear that agencies such as FNMA
(Fannie Mae) and FHLMC (Freddie Mac) don't enjoy the direct backing of the
federal government. However, it's important to note that GNMA securities are
backed by the government's "full faith and credit" pledge. As a result, GNMAs
held up better than other agency bonds.
Mortgage Market
Higher interest rates pushed mortgage rates above 8% by March 31, 2000.
Despite the increase in borrowing costs, record high consumer confidence and the
lowest unemployment rate in nearly 30 years made for a surprisingly healthy
housing market. Home sales remained strong, while 1999 was the best year for
housing starts since 1986.
Mortgage refinancing activity slowed, but remained healthy (see graph
above). Homeowners with adjustable-rate mortgages who worried that rates might
head higher swapped into fixed-rate loans.
All the refinancing and home sales activity in recent years means the
mortgage market is increasingly concentrated in lower-coupon mortgages. By the
end of March, three-quarters of the mortgages in the Salomon Brothers index had
coupons of 8% or less. What's more, there are no mortgages with double-digit
coupons remaining in the index.
"Higher interest rates, a red-hot economy, rising inflation, and a rough patch
for government agency securities all weighed on the prices of mortgage-backed
securities."
Refinancing Slows as Rates Rise
[The following information was depicted as a chart in the printed material.]
Mortgage Bankers Association
Index of 10-Year Treasury Yields
Refinancing Applications (right scale) (left scale)
1241.3 5.307
1153.3 5.151
1332.6 5.164
1177.2 5.199
1086.2 5.187
1203.9 5.053
1155.7 5.221
1093.4 5.252
1062.9 5.348
1042.1 5.542
867.1 5.628
832.2 5.504
853.7 5.62
606.8 5.807
702.7 6.032
636.1 5.827
612.2 6.014
588.4 5.827
417.6 5.825
508.3 5.667
490.8 5.835
458.1 5.902
462.3 6.038
449.2 5.979
440.4 5.876
456.4 5.864
395.9 5.888
315.3 5.898
398.7 5.871
388.4 5.772
414.6 5.973
412.2 6.033
356.7 6.067
383.2 6.194
415.9 6.024
443.7 5.926
398.8 5.928
481.8 6.056
292.6 6.117
386.4 6.161
388.1 6.072
354.1 6.282
270.5 6.407
242.3 6.442
350.8 6.515
390.5 6.679
372.2 6.765
384.4 6.657
436.7 6.549
373.1 6.603
335.6 6.489
311.9 6.326
377.5 6.388
361.8 6.383
346.2 6.194
386.6 6.191
340.6 6.004
Source: Bloomberg Financial Markets
www.americancentury.com 3
<PAGE>
GNMA -- Performance
--------------------------------------------------------------------------------
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------- ---------------------------------
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) ........... 2.04% 2.34% 1.70% -- 1.92% 2.34%
1 Year ................ 2.01% 2.95% 1.53% 15 out of 56 1.76% 2.95%
--------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
--------------------------------------------------------------------------------------------------------------------------------
3 Years ............... 5.91% 6.65% 5.81% 25 out of 48 -- --
5 Years ............... 6.72% 7.34% 6.37% 11 out of 42 -- --
10 Years .............. 7.62% 8.14% 7.25% 5 out of 24 -- --
Life of Fund .......... 8.13% 9.02%(3) 7.71%(4) 3 out of 14(4) 4.23% 5.26%(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 17-19 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
Growth of $10,000 Over 10 Years
[The following was depicted as a mountain graph in the printed material.]
Salomon 30-Year
GNMA $20,842 GNMA Index $21,866
'90 10000 10000
'91 11316 11409
'92 12656 12789
'93 14083 14246
'94 14266 14447
'95 15055 15341
'96 16573 17007
'97 17546 18023
'98 19337 19982
'99 20432 21239
'00 20842 21866
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.
One-Year Returns Over 10 Years (Periods ended March 31)
[The following table was depicted as a line graph in the printed material.]
GNMA Solomon 30-Year GNMA Index
3/91 13.16% 14.09%
3/92 11.84% 12.10%
3/93 11.28% 11.39%
3/94 1.30% 1.41%
3/95 5.53% 8.19%
3/96 10.08% 10.86%
3/97 5.87% 5.97%
3/98 10.21% 10.87%
3/99 5.66% 6.29%
3/00 2.01% 2.95%
4 1-800-345-2021
<PAGE>
GNMA -- Q&A
--------------------------------------------------------------------------------
[PHOTO OMITTED]
An interview with Casey Colton, a portfolio manager on the GNMA investment
team.
How did GNMA perform during the fiscal year ended March 31, 2000?
Higher interest rates weighed on bond returns, though the portfolio
performed well relative to other GNMA funds. GNMA's 2.01%* return for the 12
months ranked in the top 30% of the Lipper group, which had an average return of
1.53%. In addition, GNMA's longer-term returns are all better than the Lipper
group average (see the previous page for detailed performance comparisons).
How did GNMA's yield stack up?
The portfolio continued to deliver more current income than the average
GNMA fund. At the end of March, GNMA had a 30-day SEC yield of 6.64%, while the
Lipper group average yield was an even 6%. Our fund's yield was good enough to
rank in the top 15% of the Lipper group.
Can you talk a little bit about how you positioned the portfolio, particularly
since your last report to shareholders in September?
In general, we tried to position the fund to ride out the sharp volatility
in the bond market. The last six months saw inflation resurface, short- and
long-term interest rates move in opposite directions, and government agency debt
come under pressure (see page 3).
In terms of duration, that meant we took a relatively conservative
position. In terms of coupon structure, we continued to track closely the
composition of our benchmark index. The GNMA market's increasingly narrow
concentration in lower-coupon mortgages means we aren't seeing as many
opportunities to make relative value plays as we have in the past. Instead,
we've tried to add value on the margin by making tactical allocations to
Treasury bonds with a small piece of the portfolio.
Let's start with duration. What is it, and how did you manage it?
Duration measures a bond or bond fund's price sensitivity to changes in
interest rates -- the longer the duration, the more a fund's share price tends
to move when rates change. The duration of mortgage-backed securities actually
extends when rates rise because homeowners are less likely to refinance their
mortgage.
You can see duration extension at work as the portfolio's duration
lengthened from 3.2 years on March 31, 1999, to about 4.9 years by December 31.
We made some trades in early 2000 to help shorten duration to around 4.1 years
on March 31 by adding a modest position in shorter-term Treasurys.
What opportunities did you see in Treasury securities?
We added a relatively small position (about 8% of assets) in
intermediate-term Treasurys around year's end to improve the fund's liquidity
ahead of Y2K. But we traded out of these securities in the first quarter, after
Y2K went off without a hitch and the Treasury
* All fund returns and yields referenced in this interview are for Investor
Class shares.
"Higher interest rates weighed on bond returns, though the portfolio performed
well relative to other GNMA funds."
Portfolio at a Glance
--------------------------------------------------------------------------------
3/31/00 3/31/99
--------------------------------------------------------------------------------
Number of Securities 3,204 3,383
Average Duration 4.1 yrs 3.2 yrs
Average Life 7.9 yrs 6.5 yrs
Expense Ratio (for Investor Class) 0.59% 0.59%
Yields as of March 31, 2000
--------------------------------------------------------------------------------
Investor Advisor
Class Class
--------------------------------------------------------------------------------
30-Day SEC Yield 6.64% 6.39%
Investment terms are defined in the Glossary on pages 19-20.
www.americancentury.com 5
<PAGE>
GNMA -- Q&A
--------------------------------------------------------------------------------
(Continued)
"Despite our outlook for higher rates, we are generally positive on GNMAs going
forward."
[The following table was depicted as a pie chart in the printed material.]
Types of Investments in the Portfolio
--------------------------------------------------------------------------------
As of March 31, 2000
--------------------------------------------------------------------------------
o GNMAs 93%
o U.S. Treasury Securities 7%
[The following table was depicted as a pie chart in the printed material.]
--------------------------------------------------------------------------------
As of September 30, 1999
--------------------------------------------------------------------------------
o GNMAs 94%
o U.S. Treasury Securities 3%
o U.S. Govt. Agency Securities 3%
Investment terms are defined in the Glossary on pages 19-20.
Department sparked a rally in intermediate- to longer-term Treasurys by
announcing a plan to reduce supply. We sold these bonds and locked in our
profits, putting that money back to work in shorter-term, inflation-indexed
Treasury bonds.
What's the attraction of inflation-indexed Treasurys?
The last year--when inflation and interest rates both rose--was a perfect
example of how an allocation to Treasury inflation-indexed securities, or TIIS,
can benefit a bond portfolio. Over the last 12 months, the Salomon
Inflation-Linked Securities Index returned 6.39%, while the Salomon Treasury
Index was up just 2.80%.
In March, we moved about 7% of the portfolio into TIIS, because we felt
they offered very attractive yields. In April and May alone, the annualized
yield for TIIS will be about 12%. By comparison, at the end of March the nominal
10-year Treasury yielded 6%, while 30-year bonds were yielding 5.84%.
What's your outlook for interest rates?
We think the Federal Reserve will probably raise short-term interest rates
in the coming months to try to slow the economy and head off inflation. In
addition, intermediate- and long- term Treasury yields are very low right now
because of concerns about Treasury supply.
But once the buy-backs actually happen, we expect the Treasury market to
shift its attention away from supply and focus more on the economic situation.
As a result, we think that longer-term Treasury yields will rise even more than
short-term yields over the next six months.
What's your outlook for the GNMA market?
Despite our outlook for higher rates, we're generally positive on GNMAs
going forward. We like GNMAs relative to other government agency mortgages
because GNMA securities are backed by the government's "full faith and credit
pledge." So while Fannie Mae and Freddie Mac bonds are likely to be hurt by talk
in Congress of cutting their government line of credit, we think GNMAs should
hold up better.
GNMAs could also hold up better than Treasurys if intermediate- and
long-term Treasury yields rise substantially.
Given that outlook, how will you position the portfolio in the coming months?
We're committed to giving shareholders an investment that moves in line
with the GNMA market. That means we'll continue to track movements in our
benchmark index closely. But because we think rates are headed higher, we're
going to work to maintain a shorter duration. And with inflation rising, we're
likely to keep holding inflation-indexed securities, which could perform well
relative to both mortgages and nominal Treasurys.
6 1-800-345-2021
<PAGE>
GNMA -- Schedule of Investments
--------------------------------------------------------------------------------
MARCH 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 6.7%
--------------------------------------------------------------------------------
$84,262,400 U.S. Treasury Inflation Indexed
Notes, 3.625%, 7/15/02 $ 84,030,501
--------------
(Cost $83,851,723)
--------------------------------------------------------------------------------
GNMA SECURITIES(1) -- 93.2%
--------------------------------------------------------------------------------
53,472,631 GNMA, 6.00%, 7/20/16 to
3/15/29 48,955,826
307,942,076 GNMA, 6.50%, 10/15/08 to
7/15/29 291,021,316
381,674,214 GNMA, 7.00%, 9/15/08 to
12/20/29 369,879,012
8,184,703 GNMA, 7.25%, 7/20/20 to
12/20/25 7,978,520
198,455,458 GNMA, 7.50%, 1/15/06 to
1/15/28 197,360,692
3,728,029 GNMA, 7.65%, 6/15/16 to
2/15/18 3,720,475
7,091,652 GNMA, 7.75%, 9/20/17 to
1/20/26 7,047,711
4,220,305 GNMA, 7.77%, 4/15/20 to
1/15/21 4,245,763
2,411,734 GNMA, 7.85%, 11/20/20 to
10/20/22 2,418,750
877,778 GNMA, 7.89%, 9/20/22 881,804
2,842,192 GNMA, 7.98%, 6/15/19 2,889,088
71,108,938 GNMA, 8.00%, 6/15/06 to
1/15/30 72,086,065
1,031,150 GNMA, 8.15%, 11/15/19 to
2/15/21 1,044,302
14,531,220 GNMA, 8.25%, 2/15/06 to
5/15/27 14,686,246
5,531,471 GNMA, 8.35%, 1/15/19 to
12/15/20 5,665,043
57,123,395 GNMA, 8.50%, 12/15/04 to
5/15/31 58,686,192
1,786,929 GNMA, 8.625%, 1/15/32 1,837,231
7,648,297 GNMA, 8.75%, 2/15/16 to
7/15/27 7,850,829
29,081,832 GNMA, 9.00%, 11/15/04 to
3/15/25 30,231,780
7,184,941 GNMA, 9.25%, 5/15/16 to
8/15/26 7,395,703
11,849,552 GNMA, 9.50%, 6/15/09 to
7/20/25 12,356,151
2,331,455 GNMA, 9.75%, 6/15/05 to
11/15/21 2,434,294
1,858,332 GNMA, 10.00%, 11/15/09 to
1/20/22 1,972,712
1,248,957 GNMA, 10.25%, 5/15/12 to
2/15/21 1,333,269
602,719 GNMA, 10.50%, 8/15/00 to
3/15/21 652,444
368,895 GNMA, 10.75%, 12/15/09 to
8/15/19 397,494
1,294,540 GNMA, 11.00%, 12/15/09 to
8/15/20 1,409,357
27,498 GNMA, 11.25%, 10/20/15 to
2/20/16 30,073
314,016 GNMA, 11.50%, 7/15/10 to
2/20/20 345,067
251,860 GNMA, 12.00%, 6/15/00 to
1/20/15 275,998
95,000 GNMA, 12.25%, 8/15/13 to
5/15/15 105,504
368,669 GNMA, 12.50%, 4/15/10 to
5/15/15 415,542
8,292 GNMA, 12.75%, 12/15/13 9,327
884,178 GNMA, 13.00%, 1/15/11 to
8/15/15 1,009,042
35,064 GNMA, 13.25%, 1/20/15 40,511
367,524 GNMA, 13.50%, 5/15/10 to
11/15/14 422,367
10,892 GNMA, 13.75%, 8/15/14 12,460
16,146 GNMA, 14.00%, 6/15/11 to
10/15/12 18,745
141,398 GNMA, 14.50%, 9/15/12 to
12/15/12 163,807
295,718 GNMA, 15.00%, 6/15/11 to
10/15/12 351,439
72,755 GNMA, 16.00%, 10/15/11 to
4/15/12 86,081
--------------
TOTAL GNMA SECURITIES 1,159,724,032
--------------
(Cost $1,192,399,385)
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.1%
--------------------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.08%, dated 3/31/00,
due 4/3/00 (Delivery value $1,282,650) 1,282,000
--------------
(Cost $1,282,000)
TOTAL INVESTMENT SECURITIES - 100.0% $1,245,036,533
==============
(Cost $1,277,533,108)
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
<PAGE>
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's assets (such as securities, cash, and
other receivables) and liabilities (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's net
assets. For each class of shares, the net assets divided by shares outstanding
is the share price, or net asset value per share. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
MARCH 31, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------------------------------
<S> <C>
Investment securities, at value (identified cost of $1,277,533,108) (Note 3) $ 1,245,036,533
Cash ....................................................................... 74,221
Receivable for investments sold ............................................ 86,257,547
Interest receivable ........................................................ 8,101,879
---------------
1,339,470,180
---------------
----------------------------------------------------------------------------------------------
LIABILITIES
----------------------------------------------------------------------------------------------
Payable for investments purchased .......................................... 85,598,779
Accrued management fees (Note 2) ........................................... 617,708
Distribution fees payable (Note 2) ......................................... 2,800
Service fees payable (Note 2) .............................................. 2,800
Dividends payable .......................................................... 157,894
Accrued trustees' fees and expenses ........................................ 5,612
Accrued expenses and other liabilities ..................................... 1,186
---------------
86,386,779
---------------
Net Assets ................................................................. $ 1,253,083,401
===============
----------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
----------------------------------------------------------------------------------------------
Capital paid in ............................................................ $ 1,319,762,011
Accumulated net realized loss on investments ............................... (34,182,035)
Net unrealized depreciation on investments (Note 3) ........................ (32,496,575)
---------------
$ 1,253,083,401
===============
Investor Class
Net assets ................................................................. $ 1,240,003,154
Shares outstanding ......................................................... 122,020,483
Net asset value per share .................................................. $10.16
Advisor Class
Net assets ................................................................. $13,080,247
Shares outstanding ......................................................... 1,287,153
Net asset value per share .................................................. $10.16
</TABLE>
8 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED MARCH 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME
--------------------------------------------------------------------------------
Income:
Interest ..................................................... $ 94,613,014
------------
Expenses (Note 2):
Management fees .............................................. 7,887,121
Distribution fees - Advisor Class ............................ 23,966
Service fees - Advisor Class ................................. 23,966
Trustees' fees and expenses .................................. 39,314
------------
7,974,367
------------
Net investment income ........................................ 86,638,647
------------
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3)
--------------------------------------------------------------------------------
Net realized loss on investments ............................. (12,625,280)
Change in net unrealized appreciation on investments ......... (49,501,818)
------------
Net realized and unrealized loss on investments .............. (62,127,098)
------------
Net Increase in Net Assets Resulting from Operations ......... $ 24,511,549
============
See Notes to Financial Statements www.americancentury.com 9
<PAGE>
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
<TABLE>
<CAPTION>
Increase (Decrease) in Net Assets 2000 1999
---------------------------------------------------------------------------------------------------------------
OPERATIONS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income ............................................... $ 86,638,647 $ 80,843,520
Net realized gain (loss) on investments ............................. (12,625,280) 2,433,855
Change in net unrealized appreciation on investments ................ (49,501,818) (9,003,273)
--------------- ---------------
Net increase in net assets resulting from operations ................ 24,511,549 74,274,102
--------------- ---------------
---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------------------------------------------------
From net investment income:
Investor Class .................................................... (86,043,341) (80,723,297)
Advisor Class ..................................................... (595,306) (192,401)
--------------- ---------------
Decrease in net assets from distributions ........................... (86,638,647) (80,915,698)
--------------- ---------------
---------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital share transactions (107,306,222) 143,057,929
--------------- ---------------
Net increase (decrease) in net assets ............................... (169,433,320) 136,416,333
---------------------------------------------------------------------------------------------------------------
NET ASSETS
---------------------------------------------------------------------------------------------------------------
Beginning of period ................................................. 1,422,516,721 1,286,100,388
--------------- ---------------
End of period ....................................................... $ 1,253,083,401 $ 1,422,516,721
=============== ===============
</TABLE>
10 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
MARCH 31, 2000
--------------------------------------------------------------------------------
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.
Additional Information -- Funds Distributor, Inc. (FDI) is a distributor
of the trust. Certain officers of FDI are also officers of the trust.
www.americancentury.com 11
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
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 year ended
March 31, 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 March 31, 2000 were $47,932.
Effective March 13, 2000, American Century Investment Services, Inc.
(ACIS), became a distributor of the trust.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
--------------------------------------------------------------------------------
3. Investment Transactions
Purchases and sales of U.S. Treasury and Agency obligations, excluding
short-term investments, for the year ended March 31, 2000, were $1,801,378,180
and $1,875,047,489, respectively.
On March 31, 2000, accumulated net unrealized depreciation was
$33,006,135, based on the aggregate cost of investments for federal income tax
purposes of $1,278,042,668, which consisted of unrealized appreciation of
$4,351,904 and unrealized depreciation of $37,358,039.
12 1-800-345-2021
<PAGE>
13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
4. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of
shares authorized):
Shares Amount
--------------------------------------------------------------------------------
INVESTOR CLASS
--------------------------------------------------------------------------------
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)
========== =============
Year ended March 31, 1999
Sold ..................................... 53,378,360 $ 570,181,601
Issued in reinvestment of distributions .. 6,062,643 64,763,962
Redeemed ................................. (46,668,723) (498,381,229)
---------- -------------
Net increase ............................. 12,772,280 $ 136,564,334
========== =============
--------------------------------------------------------------------------------
ADVISOR CLASS
--------------------------------------------------------------------------------
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
========== =============
Year ended March 31, 1999
Sold ..................................... 748,340 $ 7,995,760
Issued in reinvestment of distributions .. 16,340 174,448
Redeemed ................................. (157,042) (1,676,613)
---------- -------------
Net increase ............................. 607,638 $ 6,493,595
========== =============
--------------------------------------------------------------------------------
5. Bank Loans
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended March 31, 2000.
www.americancentury.com 13
<PAGE>
GNMA -- Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including total return, income ratio (net
income as a percentage of average net assets), expense ratio (operating expenses
as a percentage of average net assets), and portfolio turnover (a gauge of the
fund's trading activity).
For a Share Outstanding Throughout the Years Ended March 31
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Investor Class
--------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $10.62 $10.67 $10.33 $10.45 $10.18
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............................... 0.67 0.64 0.69 0.71 0.74
Net Realized and Unrealized Gain (Loss) on
Investment Transactions ............................. (0.46) (0.05) 0.34 (0.12) 0.27
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .................... 0.21 0.59 1.03 0.59 1.01
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......................... (0.67) (0.64) (0.69) (0.71) (0.74)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........................ $10.16 $10.62 $10.67 $10.33 $10.45
========== ========== ========== ========== ==========
Total Return(1) ..................................... 2.01% 5.66% 10.21% 5.84% 10.08%
--------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets(2) .. 0.59% 0.59% 0.58% 0.55% 0.58%
Ratio of Net Investment Income to Average Net Assets .. 6.42% 5.98% 6.49% 6.84% 6.98%
Portfolio Turnover Rate ............................... 133% 119% 133% 105% 64%
Net Assets, End of Period (in thousands) .............. $1,240,003 $1,415,607 $1,285,641 $1,119,165 $1,120,019
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) The ratios for years ended March 31, 1997 and March 31, 1996, include
expenses paid through expense offset arrangements.
14 1-800-345-2021 See Notes to Financial Statements
<PAGE>
GNMA -- Financial Highlights
--------------------------------------------------------------------------------
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
<TABLE>
<CAPTION>
-------------------------------
Advisor Class
-------------------------------
2000 1999 1998(1)
-----------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ..................................... $10.62 $10.67 $10.63
------ ------ ------
Income From Investment Operations
Net Investment Income .................................................. 0.64 0.61 0.31
Net Realized and Unrealized Gain (Loss) on Investment Transactions ..... (0.46) (0.05) 0.04
------ ------ ------
Total From Investment Operations ....................................... 0.18 0.56 0.35
------ ------ ------
Distributions
From Net Investment Income ............................................. (0.64) (0.61) (0.31)
------ ------ ------
Net Asset Value, End of Period ........................................... $10.16 $10.62 $10.67
====== ====== ======
Total Return(2) ........................................................ 1.76% 5.40% 3.30%
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ........................ 0.84% 0.84% 0.84%(3)
Ratio of Net Investment Income to Average Net Assets ..................... 6.17% 5.73% 5.92%(3)
Portfolio Turnover Rate .................................................. 133% 119% 133%
Net Assets, End of Period (in thousands) ................................. $13,080 $6,910 $460
</TABLE>
(1) October 9, 1997 (commencement of sale) through March 31, 1998.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(3) Annualized.
See Notes to Financial Statements www.americancentury.com 15
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of the American Century Government Income Trust and Shareholders
of the GNMA Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the GNMA Fund (one of the eight
funds in the American Century Government Income Trust hereafter referred to as
the "Fund") at March 31, 2000, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, in conformity with accounting principles generally accepted
in the United States. The financial highlights for each of the two years in the
period ended March 31, 1997 were audited by other auditors, whose report dated
May 2, 1997, expressed an unqualified opinion on those statements. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at March 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
May 8, 2000
16 1-800-345-2021
<PAGE>
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
Share Classes
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
Investor Class shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
Advisor Class shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the fund and
generally have the same rights and preferences.
Retirement Account Information
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are
liable for paying income tax on the taxable portion of your withdrawal. If you
elect not to have income tax withheld or you don't have enough income tax
withheld, you may be responsible for payment of estimated tax. You may incur
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
www.americancentury.com 17
<PAGE>
Background Information
--------------------------------------------------------------------------------
Investment Team Leaders
--------------------------------------------------------------------------------
Portfolio Manager
--------------------------------------------------------------------------------
Casey Colton
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.
18 1-800-345-2021
<PAGE>
Glossary
--------------------------------------------------------------------------------
Returns
o 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.
o 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
o 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
o Basis Point -- one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%).
o Coupon -- the stated interest rate of a security.
o 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.
o 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
o Number of Securities -- the number of different securities held by a fund on a
given date.
o 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.
o 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.
o Expense Ratio -- the operating expenses of the fund, expressed as a percentage
of average net assets.
Types of Securities
o 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.
o 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).
www.americancentury.com 19
<PAGE>
Glossary
--------------------------------------------------------------------------------
(Continued)
o 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).
o 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).
o 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.
o Capital Preservation -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
o 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.
o 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.
o 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.
o Conservative -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
o Moderate -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
o Aggressive -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
20 1-800-345-2021
<PAGE>
INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
-------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs. For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
<PAGE>
[LOGO] AMERICAN CENTURY(R)
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
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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.
Who we are [GRAPHIC OMITTED]
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.
--------------------------------------------------------------------------------
-----------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
-----------------
0005 American Century Investment Services, Inc.
SH-ANN-20578 (C)2000 American Century Services Corporation
<PAGE>
--------------------------------------------------------------------------------
March 31, 2000
A M E R I C A N C E N T U R Y
Annual Report
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Short-Term Government
[LOGO]
AMERICAN
CENTURY(R)
<PAGE>
Short-Term Government
(TWUSX)
--------------------------------------------------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
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<PAGE>
Our Message to You
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
The 12 months ended March 31, 2000, proved relatively difficult for bond
investors. The pace of U.S. economic growth quickened, with the economy
expanding at a better than 7% annual rate during the fourth quarter of 1999 --
the strongest quarter in nearly 16 years. In addition, inflation turned up,
spurred by an increase in oil prices.
Trying to keep economic growth and inflation under control, the Federal
Reserve raised short-term interest rates five times between June 30 and March
31. That put significant pressure on bond prices.
In this challenging environment, American Century Short-Term Government's
performance was disappointing. But in January 2000, the fund gained a new
management team, whose plans for improving performance are discussed in the Q&A
section of this report.
Besides serving the nearly two million investors who look to American
Century for investment management, we also have an obligation to the 3,000
people who work on your behalf -- to create a positive, safe, and productive
work environment for American Century staff. This commitment was recognized and
rewarded in 1999, when American Century ranked in the top 40 of Fortune
magazine's "100 Best Companies to Work For."
We do not take this recognition lightly -- acknowledgements like this
allow us to recruit talented and dedicated people, from service representatives
to investment professionals. This intellectual capital is our most valuable
resource and an essential one in our efforts to provide you with excellent
investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights ........................................................ 2
Market Perspective ....................................................... 3
Short-Term Government
Performance Information .................................................. 4
Management Q&A ........................................................... 5
Portfolio at a Glance .................................................... 5
Yields ................................................................... 5
Types of Investments ..................................................... 6
Schedule of Investments .................................................. 7
Financial Statements
Statement of Assets and
Liabilities ........................................................... 10
Statement of Operations .................................................. 11
Statements of Changes
in Net Assets ......................................................... 12
Notes to Financial
Statements ............................................................ 13
Financial Highlights ..................................................... 16
Report of Independent
Accountants ........................................................... 18
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
<PAGE>
Report Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-Term Government(1)
(TWUSX)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months ............................. 1.77%(2)
1 Year ............................... 2.51%
30-Day SEC Yield: 6.09%
Inception Date: 12/15/82
--------------------------------------------------------------------------------
Net Assets: $762.8 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 21-22.
Market Perspective
o Rising interest rates limited returns for Treasury and government agency
securities for the 12 months ended March 31, 2000.
o Economic growth surged in 1999. Inflation also ticked up, though much of
the increase can be attributed to higher oil prices.
o To head off inflation, the Federal Reserve raised short-term interest
rates five times, beginning in the summer of 1999.
o Though short-term rates rose sharply, long-term bond yields were held down
by the Treasury Department's plan to buy back existing bonds and issue
less debt going forward.
o As short-term Treasury yields rose and long-term yields fell during the
first quarter of 2000, the Treasury yield curve "inverted." That meant the
yield of the two-year note was higher than that of the 30-year bond.
o Government agency and mortgage-backed securities lagged Treasury bonds for
the 12 months.
o Heavy supply and talk about cutting the Treasury line of credit for
government agencies Fannie Mae and Freddie Mac hurt agency debt.
Management Q&A
o The fund has new managers. Dave Schroeder -- head of American Century's
government bond fund team -- and Michael Shearer -- head of the
quantitative strategies group -- have been co-managers of Short-Term
Government since January 2000.
o The portfolio underperformed other short government funds because the fund
had a longer duration and was overweight mortgages in 1999.
o So far this year, we have been working to get the portfolio's duration and
sector weightings more in line with the benchmark and Lipper group
average.
o We held a modest position in Treasury inflation-indexed securities, or
TIIS, because their yields were attractive.
o We also took a more conservative duration and maturity position within our
Treasury holdings.
o With the economy surging, we think the Federal Reserve is likely to raise
rates aggressively.
o Because of our cautious outlook for inflation and interest rates, we're
likely to maintain a shorter duration and a small allocation to TIIS.
2 1-800-345-2021
<PAGE>
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of Randall W. Merk, chief investment officer of fixed income at American
Century]
Limited Performance
The fiscal year ended March 31, 2000, was relatively difficult for bond
investors. Rising interest rates, a red-hot economy, higher inflation, and a
rough patch for government agency securities all weighed on the prices of U.S.
government bonds (see the table at right).
Surging Economy
Economic growth surged over the last 12 months, as the economy expanded by
4.5%. Rapid growth put upward pressure on inflation -- consumer prices rose 3.7%
for the 12 months. Much of the increase in inflation can be attributed to the
big jump in oil prices last year.
Rate Volatility
Concern about inflation led the Federal Reserve to raise short-term
interest rates beginning in the summer of 1999. For the 12-month period, the
yield on the two-year Treasury note jumped from near 5% to almost 6.5%.
But long-term Treasury yields rose much less. Investor demand for long
bonds surged in early 2000 after the Treasury Department announced plans to trim
sales of new securities and use part of the budget surplus to buy back $30
billion in existing bonds.
These yield changes resulted in an unusual situation called an "inverted"
yield curve, where long-term bond yields fell below those on shorter-term
securities. Ordinarily, longer-term bonds have higher yields than short-term
bonds to compensate for the greater risk of inflation over time. But by the end
of March, the yield on the 30-year Treasury bond was lower than the yields of
two-, five-, and 10-year notes (see the graph at right).
Agencys and Mortgages Lag
Government agency and mortgage-backed securities lagged Treasury bonds for
the 12 months. Much of that underperformance came in the first quarter of 2000.
Agency bond prices sagged in part because of an increase in supply at a time
when the Treasury was paying down its debt.
Agencys were dealt another blow early in 2000 after Congress started
debate on legislation that would change oversight for agencies such as Fannie
Mae and Freddie Mac and cut their line of credit with the Treasury. However, we
believe it's highly unlikely Fannie and Freddie will lose their status as
government sponsored entities given their importance in supporting the housing
market.
Higher rates presented an additional challenge for mortgage-backed bonds.
Increased borrowing costs reduce the likelihood that homeowners will refinance
their mortgages, effectively lengthening the average life of mortgage-backed
securities. A longer average life means these securities become more sensitive
to changes in interest rates.
"Rising interest rates, a red-hot economy, higher inflation, and a rough patch
for government agency securities all weighed on the prices of U.S. government
bonds."
Bond Index Returns
For the year ended March 31, 2000
Salomon Brothers 1- to 3-Year
Treasury/Agency Index ..................................... 3.72%
Salomon Brothers 15-Year
Mortgage Index ............................................ 2.47%
Source: Bloomberg Financial Markets
Inverting Treasury Yield Curve
[The following was depicted as a mountain graph in the printed material.]
3/31/1999 12/31/1999 3/31/2000
1 4.72 5.96 6.24
4.99 6.24 6.48
5.03 6.28 6.42
5.07 6.32 6.37
5 5.10 6.35 6.32
5.13 6.37 6.25
5.16 6.39 6.19
5.19 6.41 6.13
5.22 6.43 6.07
10 5.24 6.44 6.01
5.26 6.44 6.00
5.28 6.44 5.99
5.30 6.44 5.98
5.32 6.44 5.97
15 5.34 6.45 5.96
5.36 6.45 5.95
5.38 6.45 5.94
5.40 6.45 5.93
5.42 6.45 5.92
20 5.44 6.46 5.91
5.46 6.46 5.90
5.48 6.46 5.89
5.50 6.46 5.88
5.52 6.46 5.87
25 5.54 6.47 5.86
5.56 6.47 5.85
5.58 6.47 5.84
5.60 6.47 5.83
5.62 6.47 5.83
30 5.63 6.48 5.83
Source: Bloomberg Financial Markets
www.americancentury.com 3
<PAGE>
Short-Term Government -- Performance
--------------------------------------------------------------------------------
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Advisor Class
Investor Class (inception 12/15/82) (inception 7/8/98)
-------------------------------------------------------------------------------------------------
Salomon Salomon
1- to 3-Yr. Short U.S. Government Funds(2) 1- to 3-Yr.
Short-Term Treas./ Short-Term Treas./
Government Agency Index Average Return Funds Ranking Government Agency Index
<S> <C> <C> <C> <C> <C> <C>
6 Months(1) ............. 1.77% 1.86% 1.97% -- 1.65% 1.86%
1 Year .................. 2.51% 3.72% 3.27% 61 out of 77 2.26% 3.72%
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
------------------------------------------------------------------------------------------------------------------------------------
3 Years ................. 4.84% 5.76% 4.86% 46 out of 70 -- --
5 Years ................. 5.25% 6.06% 5.21% 29 out of 54 -- --
10 Years ................ 5.67% 6.61% 5.78% 9 out of 14 -- --
Life of Fund ............ 6.81% 7.94%(3) 7.04%(3) 2 out of 3(3) 3.26% 4.70%(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 19-21 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
Growth of $10,000 Over 10 Years
[The following was depicted as a mountain graph in the printed material.]
Salomon 1- to 3-Year
Short-Term Government $17,365 Treasury/Agency Index $18,961
'90 10000 10000
'91 10966 11117
'92 11943 12161
'93 12811 13187
'94 12963 13537
'95 13447 14127
'96 14395 15211
'97 15070 16031
'98 16074 17232
'99 16941 18282
'00 17365 18961
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.
One-Year Returns Over 10 Years (Periods ended March 31)
[The following table was depicted as a line graph in the printed material.]
Salomon 1- to 3-Year
Short-Term Government Treasury/Agency Index
Mar-91 9.66 11.17
Mar-92 8.91 9.37
Mar-93 7.27 8.44
Mar-94 1.18 2.67
Mar-95 3.74 4.35
Mar-96 7.05 7.66
Mar-97 4.69 5.34
Mar-98 6.66 7.47
Mar-99 5.39 6.10
Mar-00 2.51 3.72
4 1-800-345-2021
<PAGE>
Short-Term Government -- Q&A
--------------------------------------------------------------------------------
[PHOTOS OMITTED]
An interview with Dave Schroeder (left) and Michael Shearer, portfolio
managers on the Short-Term Government fund investment team since January 2000.
Dave heads the government bond fund team at American Century, while Michael is
the director of fixed-income quantitative strategies for the company.
Dave has been with the company since 1990 and has 20 years of investment
experience. Michael joined the firm in February 1998 and has eight years of
investment experience. They replaced Newlin Rankin, who now represents American
Century's entire fixed-income product line to institutional clients.
How did Short-Term Government perform during the fiscal year ended March 31,
2000?
The fund's performance was disappointing. Short-Term Government's 2.51%
return for the 12 months lagged the 3.27% average return of the 77 "Short
Government" funds tracked by Lipper Inc.* (See the previous page for detailed
performance comparisons.)
The fund underperformed because of its overweight in mortgage-backed
securities and its longer duration (sensitivity to interest rate changes)
relative to its peers in 1999.
What are you doing to improve performance?
Most of the changes we've been making are tactical asset allocation
decisions to get the portfolio's duration and sector weightings more in line
with the fund's benchmark index and Lipper group average. From there, we'll try
to improve returns by making modest adjustments to the portfolio, looking for
the best relative values in the market.
Let's start with sector weightings. What changes did you make to the portfolio's
Treasury position?
We bumped up our Treasury holdings (see the graphs on page 6). That has
the portfolio looking a lot more like the average fund in our peer group, which
has a weighting of about 40% in Treasurys.
Within our Treasury position, we maintained a shorter average maturity
because we were worried about rising rates. And in March, we moved about 5% of
assets into Treasury inflation-indexed securities, or TIIS.
What's the attraction of inflation-indexed Treasurys?
In April and May alone, the annualized yield for TIIS will be about 12%.
By comparison, the nominal two-year Treasury note yielded about 6.5%, while
30-year bonds were yielding just 5.83% at the end of March.
Explain some of the changes you made to the fund's mortgage position.
We reduced the portfolio's position in collateralized mortgage obligations
(CMOs), bringing these down to a little more than 15% of the portfolio. That
compares with a CMO position of about 12% for the average fund in our peer
group.
"We'll try to improve returns by making modest adjustments to the portfolio,
looking for the best relative values in the market."
Portfolio at a Glance
--------------------------------------------------------------------------------
3/31/00 3/31/99
--------------------------------------------------------------------------------
Number of Securities ................... 107 107
Weighted Average
Maturity ............................ 2.8 yrs 2.9 yrs
Average Duration ....................... 1.9 yrs 1.9 yrs
Expense Ratio (for
InvestorClass) ...................... 0.59% 0.59%
Yields as of March 31, 2000
--------------------------------------------------------------------------------
Investor Advisor
Class Class
--------------------------------------------------------------------------------
30-Day SEC Yield ....................... 6.09% 5.84%
Investment terms are defined in the Glossary on pages 21-22.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
www.americancentury.com 5
<PAGE>
Short-Term Government -- Q&A
--------------------------------------------------------------------------------
(Continued)
"We think the Fed will raise short-term interest rates in the coming months."
Types of Investments in the Portfolio
[The following table was depicted as a pie chart in the printed material.]
--------------------------------------------------------------------------------
As of March 31, 2000
--------------------------------------------------------------------------------
o Mortgage-Backed Securities 48%
o U.S. Treasury Securities 42%
o U.S. Govt. Agency Securities 7%
o Temporary Cash Investments 3%
[The following table was depicted as a pie chart in the printed material.]
--------------------------------------------------------------------------------
As of September 30, 1999
--------------------------------------------------------------------------------
o Mortgage-Backed Securities 65%
o U.S. Treasury Securities 23%
o Temporary Cash Investments 12%
Investment terms are defined in the Glossary on pages 21-22.
In place of CMOs we bought more liquid (easily bought and sold) agency
mortgage pass-through securities. We added these bonds because we thought their
yields were very attractive relative to both Treasury and agency securities. We
also liked the supply and demand outlook for mortgages better than for other
agency bonds, which have been hurt by heavy supply.
We bought mortgages with coupons below 6.5%. That's because refinancing
activity remained healthy last quarter, when mortgage rates hovered around 8%,
and we felt the market was underestimating the prepayment risk for mortgages
with 7.5%-8.0% coupons.
How did you position the fund in terms of duration?
The portfolio's duration is very close to neutral relative to its
benchmark index. But we also look at the duration of each of the fund's sector
weightings.
For example, we've taken a much more conservative duration and maturity
position with our Treasury holdings because we think the Federal Reserve is
likely to raise rates aggressively. Treasurys with short-term maturities tend to
be very responsive to changes in Fed policy. If we're right, yields on these
bonds could rise significantly.
We're more comfortable holding a modest overweight in attractively valued,
15-year maturity mortgage pass-through securities. We think these securities
could hold up better than Treasurys if rates rise. The spread, or difference in
yield, between these bonds and Treasurys is very wide by historical standards.
Okay, so why do you think interest rates are headed higher?
In the last six months, the economy grew at an annual rate of more than
6%. That's about twice as fast as the Federal Reserve would like to see. In
addition, inflation is rising at a faster rate than it has in the past several
years, though it's still relatively low by historical standards.
Add it all up, and we think the Fed will raise short-term interest rates
in the coming months to tap the brakes and try to bring the economy back below
its speed limit for non-inflationary growth.
Given that outlook, how will you position the portfolio in the coming months?
We're committed to giving shareholders a competitive investment that
delivers yields and returns in line with short-term government bonds. To try to
deliver on that, our basic asset allocation is to Treasurys, agencys, and
mortgages.
We're likely to continue overweighting mortgage pass-throughs because they
offer such attractive yields over Treasurys. We also plan to keep another 10% or
so of the fund in agencys and about 20% in CMOs and adjustable-rate mortgages as
long as we feel they offer a significant yield advantage versus comparable
Treasurys.
Within our Treasury position, we're likely to maintain a modest stake in
inflation-indexed securities. We think these bonds could perform well relative
to both mortgages and nominal Treasurys. And because we believe rates are headed
higher, we're going to work to maintain a shorter duration, particularly in
relation to our Treasury holdings, where we see the most risk from higher rates.
6 1-800-345-2021
<PAGE>
Short-Term Government -- Schedule of Investments
--------------------------------------------------------------------------------
MARCH 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 41.9%
--------------------------------------------------------------------------------
$142,000 U.S. Treasury Notes, 4.625%,
12/31/00 $ 140,230
100,000 U.S. Treasury Notes, 5.50%,
8/31/01(1) 98,722
64,000 U.S. Treasury Notes, 6.625%,
3/31/02(1) 64,170
36,865 U.S. Treasury Inflation Indexed
Notes, 3.625%, 7/15/02 36,763
----------
TOTAL U.S. TREASURY SECURITIES 339,885
----------
(Cost $340,901)
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 6.7%
--------------------------------------------------------------------------------
55,000 FHLB, 6.25%, 11/15/02 53,980
----------
(Cost $53,973)
--------------------------------------------------------------------------------
ADJUSTABLE-RATE MORTGAGE-BACKED
SECURITIES(2) -- 3.6%
--------------------------------------------------------------------------------
FHLMC -- 0.4%
33 FHLMC Pool #635104, 6.60%,
8/1/18 33
352 FHLMC Pool #606095, 6.96%,
11/1/18 357
1,641 FHLMC Pool #755188, 7.21%,
9/1/20 1,686
318 FHLMC Pool #390263, 6.25%,
1/1/21 313
52 FHLMC Pool #775473, 6.86%,
6/1/21 52
642 FHLMC Pool #876559, 8.12%,
3/1/24 661
----------
3,102
----------
FNMA -- 3.1%
315 FNMA Pool #020155, 7.49%,
8/1/14 314
57 FNMA Pool #009781, 7.07%,
10/1/14 56
162 FNMA Pool #025432, 6.375%,
4/1/16 167
225 FNMA Pool #036922, 7.12%,
8/1/16 233
283 FNMA Pool #105843, 7.28%,
1/1/17 292
1,213 FNMA Pool #061401, 7.30%,
5/1/17 1,268
773 FNMA Pool #066415, 6.86%,
7/1/17 800
199 FNMA Pool #061392, 7.33%,
7/1/17 207
787 FNMA Pool #070030, 6.90%,
2/1/18 799
189 FNMA Pool #064708, 7.875%,
2/1/18 196
98 FNMA Pool #162880, 6.70%,
5/1/18 100
207 FNMA Pool #070186, 7.00%,
6/1/18 215
545 FNMA Pool #013786, 6.88%,
8/1/18 525
177 FNMA Pool #116473, 6.63%,
12/1/18 182
400 FNMA Pool #244477, 7.01%,
8/1/19 409
2,179 FNMA Pool #142402, 7.11%,
9/1/19 2,246
817 FNMA Pool #070595, 6.92%,
1/1/20 832
374 FNMA Pool #336479, 7.32%,
3/1/21 385
340 FNMA Pool #129482, 6.49%,
8/1/21 334
534 FNMA Pool #145556, 7.75%,
1/1/22 544
732 FNMA Pool #163993, 6.89%,
5/1/22 754
266 FNMA Pool #334441, 6.98%,
5/1/22 271
420 FNMA Pool #169868, 7.81%,
6/1/22 433
317 FNMA Pool #173165, 7.81%,
7/1/22 326
135 FNMA Pool #178295, 7.78%,
9/1/22 139
95 FNMA Pool #328733, 7.36%,
1/1/23 97
140 FNMA Pool #220498, 7.13%,
6/1/23 147
140 FNMA Pool #222649, 7.13%,
7/1/23 147
1,523 FNMA Pool #303336, 6.88%,
8/1/23 1,565
381 FNMA Pool #190647, 7.05%,
8/1/23 396
9,766 FNMA Pool #328192, 7.42%,
5/1/25 10,043
72 FNMA Pool #318767, 7.94%,
10/1/25 74
70 FNMA Pool #062836, 6.23%,
4/1/26 68
125 FNMA Pool #062835, 6.29%,
1/1/27 122
132 FNMA Pool #070184, 7.21%,
1/1/27 137
220 FNMA Pool #070716, 6.38%,
1/1/29 216
----------
25,039
----------
GNMA -- 0.1%
98 GNMA Pool #008230, 6.375%,
5/20/17 98
276 GNMA Pool 008763, 6.875%,
2/20/21 281
178 GNMA Pool 0008872, 7.625%,
11/20/21 182
See Notes to Financial Statements www.americancentury.com 7
<PAGE>
Short-Term Government -- Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 7 GNMA Pool 008902, 6.375%,
1/20/22 $ 7
184 GNMA Pool 008964, 7.25%,
8/20/26 188
----------
756
----------
TOTAL ADJUSTABLE-RATE
MORTGAGE-BACKED SECURITIES 28,897
----------
(Cost $29,022)
--------------------------------------------------------------------------------
FIXED-RATE MORTGAGE-BACKED SECURITIES(2) -- 23.1%
--------------------------------------------------------------------------------
FHLMC -- 12.5%
4,536 FHLMC Pool G40164, 6.50%,
11/1/02 4,479
3,928 FHLMC Pool G10439, 6.50%,
1/1/11 3,807
6,562 FHLMC Pool E64136, 6.50%,
5/1/11 6,345
12,950 FHLMC Pool E00526, 6.00%,
12/1/12 12,217
7,997 FHLMC Pool E00523, 6.50%,
12/1/12 7,709
11,960 FHLMC Pool E00535, 6.00%,
2/1/13 11,283
8,010 FHLMC Pool E00540, 6.00%,
3/1/13 7,545
10,674 FHLMC Pool E00678, 6.50%,
6/1/14 10,276
1,149 FHLMC Pool E77805, 6.50%,
7/1/14 1,106
3,176 FHLMC Pool E78329, 6.50%,
8/1/14 3,058
10,000 FHLMC Pool E78664, 7.00%,
9/1/14 9,816
10,567 FHLMC Pool G10979, 6.50%,
12/1/14 10,172
2,000 FHLMC Pool E79039, 7.00%,
12/1/14 1,963
12,000 FHLMC Pool E79748, 7.00%,
1/1/15 11,779
----------
101,555
----------
FNMA -- 10.5%
7,671 FNMA Pool 356801, 6.00%,
12/1/08 7,300
4,697 FNMA Pool 332814, 6.00%,
7/1/09 4,470
29,944 FNMA Pool 313958, 6.50%,
1/1/13 28,893
5,705 FNMA Pool 398280, 6.00%,
3/1/13 5,369
3,024 FNMA Pool 430978, 6.00%,
6/1/13 2,848
2,156 FNMA Pool 433206, 6.00%,
6/1/13 2,030
9,879 FNMA Pool 456635, 5.50%,
1/1/14 9,112
11,828 FNMA Pool 252345, 6.00%,
3/1/14 11,132
5,000 FNMA Pool 484851, 6.00%,
4/1/14 4,706
5,000 FNMA Pool 494982, 6.00%,
6/1/14 4,706
5,000 FNMA Pool 252566, 6.00%,
7/1/14 4,706
----------
85,272
----------
GNMA -- 0.1%
1 GNMA Pool 127619, 12.50%,
6/15/00 1
3 GNMA Pool 126325, 11.50%,
8/15/00 3
181 GNMA Pool 001565, 5.50%,
1/20/09 168
69 GNMA Pool 179457, 9.00%,
12/20/16 71
84 GNMA Pool 199973, 9.00%,
12/20/16 87
168 GNMA Pool 220128, 9.00%,
8/20/17 174
89 GNMA Pool 220134, 9.50%,
8/20/17 93
76 GNMA Pool 234860, 9.50%,
10/20/17 80
390 GNMA Pool 001291, 9.50%,
11/20/19 408
----------
1,085
----------
TOTAL FIXED-RATE
MORTGAGE-BACKED SECURITIES 187,912
----------
(Cost $190,177)
--------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS(2) -- 15.3%
--------------------------------------------------------------------------------
FHLMC -- 7.8%
2,776 FHLMC REMIC, Series 1587,
Class EB PAC-1, 5.50%,
5/15/07 2,761
4,342 FHLMC REMIC, Series 1678,
Class PE PAC, 5.60%,
7/15/07 4,309
7,843 FHLMC REMIC, Series 1873,
Class C SEQ, 7.00%, 6/15/08 7,836
5,449 FHLMC REMIC, Series 1861,
Class E SEQ, 6.50%, 8/15/20 5,382
27,165 FHLMC REMIC, Series 35, Class
PG PAC-1, 7.50%, 10/17/20 27,212
3,322 FHLMC REMIC, Series 1934,
Class HB SEQ, 6.50%,
8/17/21 3,296
7,755 FHLMC REMIC, Series 1896,
Class C SEQ, 7.00%,
11/15/21 7,726
4,334 FHLMC REMIC, Series 1558,
Class A TAC, 6.00%, 5/15/22 4,231
----------
62,753
----------
8 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Short-Term Government -- Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
FNMA -- 4.4%
$ 7,362 FNMA REMIC, Series 1991-146,
Class Z PAC, 8.00%,
10/25/06 $ 7,436
8,833 FNMA REMIC, Series 1992-140,
Class ZA PAC, 9.00%,
11/25/06 8,972
4,523 FNMA REMIC, Series 1994-7,
Class PD PAC-1, 6.05%,
7/25/07 4,497
6,614 FNMA REMIC, Series 1993-233,
Class J, 6.00%, 6/25/08 6,486
1,066 FNMA REMIC, Series 1996-10,
Class A SEQ, 6.50%,
11/25/17 1,061
1,943 FNMA REMIC, Series 1996-12,
Class A SEQ, 6.50%,
12/25/17 1,931
5,582 FNMA REMIC, Series 1996-64,
Class PB PAC, 6.50%,
1/18/19 5,537
----------
35,920
----------
GNMA -- 3.1%
1,335 GNMA REMIC, Series 1996-15,
Class K SEQ, 7.00%, 9/16/06 1,332
2,422 GNMA REMIC, Series 1996-15,
Class J SEQ, 7.00%, 1/16/07 2,415
22,178 GNMA REMIC, Series 1999-28,
Class VA SUP, 6.50%,
1/20/07 21,572
----------
25,319
----------
PRIVATE LABEL(3)
$ 76 Dean Witter Trust I Floater,
Series I, Class A, Underlying
Collateral FHLMC, 6.69%,
4/20/00, resets quarterly off
the 3-month LIBOR plus 0.50%
with a 0.50% floor and a
13.00% cap(4) $ 75
----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS 124,067
----------
(Cost $125,006)
--------------------------------------------------------------------------------
FORWARD COMMITMENTS -- 6.9%
--------------------------------------------------------------------------------
30,000 FHLMC, 5.50%, settlement
4/18/00 27,628
30,000 FHLMC, 6.60%, settlement
4/18/00 28,237
----------
TOTAL FORWARD COMMITMENTS 55,865
(Cost $55,952) ----------
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.5%
--------------------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.08%, dated 3/31/00,
due 4/3/00 (Delivery value $20,582) 20,572
(Cost $20,572) ----------
TOTAL INVESTMENT SECURITIES -- 100.0% $ 811,178
(Cost $815,603) ==========
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, of 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 March 31, 2000.
See Notes to Financial Statements www.americancentury.com 9
<PAGE>
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's assets (such as securities, cash, and
other receivables) and liabilities (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's net
assets. For each class of shares, the net assets divided by shares outstanding
is the share price, or net asset value per share. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
MARCH 31, 2000
--------------------------------------------------------------------------------
ASSETS (In Thousands Except Per-Share Amounts)
--------------------------------------------------------------------------------
Investment securities, at value
(identified cost of $815,603) (Note 3) ...................... $811,178
Cash ......................................................... 2,409
Receivable for investments sold .............................. 10
Interest receivable .......................................... 5,737
-------------
819,334
-------------
--------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------
Payable for investments purchased ............................ 56,115
Accrued management fees (Note 2) ............................. 381
Dividends payable ............................................ 10
Accrued trustees' fees and expenses .......................... 4
-------------
56,510
-------------
Net Assets ................................................... $762,824
=============
--------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
--------------------------------------------------------------------------------
Capital paid in .............................................. $866,980
Accumulated net realized loss on investment transactions ..... (99,731)
Net unrealized depreciation on investments (Note 3) .......... (4,425)
-------------
$762,824
=============
Investor Class ($ and shares in full)
Net assets ................................................... $762,363,117
Shares outstanding ........................................... 82,974,401
Net asset value per share .................................... $9.19
Advisor Class ($ and shares in full)
Net assets ................................................... $460,702
Shares outstanding ........................................... 50,144
Net asset value per share .................................... $9.19
10 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
YEAR ENDED MARCH 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME (In Thousands)
--------------------------------------------------------------------------------
Income:
Interest ..................................................... $ 48,242
--------
Expenses (Note 2):
Management fees .............................................. 4,657
Distribution fees -- Advisor Class ........................... 1
Service fees -- Advisor Class ................................ 1
Trustees' fees and expenses .................................. 23
--------
4,682
--------
Net investment income ........................................ 43,560
--------
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3)
--------------------------------------------------------------------------------
Net realized loss on investments ............................. (20,193)
Change in net unrealized depreciation on investments ......... (4,264)
--------
Net realized and unrealized loss on investments .............. (24,457)
--------
Net Increase in Net Assets Resulting from Operations ......... $ 19,103
========
See Notes to Financial Statements www.americancentury.com 11
<PAGE>
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Increase (Decrease) in Net Assets 2000 1999
--------------------------------------------------------------------------------
OPERATIONS (In Thousands)
--------------------------------------------------------------------------------
Net investment income ............................ $ 43,560 $ 42,401
Net realized gain (loss) on investments .......... (20,193) 586
Change in net unrealized appreciation
(depreciation) on investments ................... (4,264) 287
--------- ---------
Net increase in net assets resulting
from operations ................................. 19,103 43,274
--------- ---------
--------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------------------------------------
From net investment income:
Investor Class .................................. (43,547) (42,400)
Advisor Class ................................... (13) (1)
--------- ---------
Decrease in net assets from distributions ........ (43,560) (42,401)
--------- ---------
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions ...................... (45,157) 23,101
--------- ---------
Net increase (decrease) in net assets ............ (69,614) 23,974
--------------------------------------------------------------------------------
NET ASSETS
--------------------------------------------------------------------------------
Beginning of period .............................. 832,438 808,464
--------- ---------
End of period .................................... $ 762,824 $ 832,438
========= =========
12 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
MARCH 31, 2000
--------------------------------------------------------------------------------
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.
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 an accumulated net realized capital
loss carryover 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.
Additional Information -- Funds Distributor, Inc. (FDI) is a distributor
of the trust. Certain officers of FDI are also officers of the trust.
www.americancentury.com 13
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
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 year ended
March 31, 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 bro kers, 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 March 31, 2000, were $1,204.
Effective March 13, 2000, American Century Investment Services, Inc.
(ACIS), became a distributor of the trust.
Certain officers and trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
--------------------------------------------------------------------------------
3. Investment Transactions
Purchases and sales of U.S. government and agency securities, excluding
short-term investments, for the year ended March 31, 2000, were $2,176,217,676
and $2,114,791,842, respectively.
On March 31, 2000, accumulated net unrealized depreciation was $4,725,319,
based on the aggregate cost of investments for federal income tax purposes of
$815,902,867, which consisted of unrealized appreciation of $765,125 and
unrealized depreciation of $5,490,444.
14 1-800-345-2021
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
4. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of
shares authorized):
Shares Amount
--------------------------------------------------------------------------------
INVESTOR CLASS (In Thousands)
--------------------------------------------------------------------------------
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)
========= =========
Year ended March 31, 1999
Sold ........................................... 18,555 $ 176,717
Issued in reinvestment of distributions ........ 4,159 39,563
Redeemed ....................................... (20,283) (193,273)
--------- ---------
Net increase ................................... 2,431 $ 23,007
========= =========
--------------------------------------------------------------------------------
ADVISOR CLASS (In Thousands)
--------------------------------------------------------------------------------
Year ended March 31, 2000
Sold ........................................... 63 $ 579
Issued in reinvestment of distributions ........ 1 9
Redeemed ....................................... (23) (216)
--------- ---------
Net increase ................................... 41 $ 372
========= =========
July 8, 1998(1) through March 31, 1999
Sold ........................................... 12 $ 117
Issued in reinvestment of distributions ........ -- 1
Redeemed ....................................... (2) (24)
--------- ---------
Net increase ................................... 10 $ 94
========= =========
(1) Commencement of sale of the Advisor Class.
--------------------------------------------------------------------------------
5. Bank Loans
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended March 31, 2000.
www.americancentury.com 15
<PAGE>
Short-Term Government -- Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including total return, income ratio (net
income as a percentage of average net assets), expense ratio (operating expenses
as a percentage of average net assets), and portfolio turnover (a gauge of the
fund's trading activity).
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Investor Class
-----------------------------------------------------------------------------------------
2000 1999 1998(1) 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 9.47 $ 9.46 $ 9.49 $ 9.47 $ 9.51 $ 9.27
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ................ 0.52 0.49 0.21 0.52 0.51 0.52
Net Realized and Unrealized
Gain (Loss) on Investments ........... (0.28) 0.01 (0.03) 0.02 (0.04) 0.24
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ..... 0.24 0.50 0.18 0.54 0.47 0.76
--------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income ........... (0.52) (0.49) (0.21) (0.52) (0.51) (0.52)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period ......... $ 9.19 $ 9.47 $ 9.46 $ 9.49 $ 9.47 $ 9.51
========= ========= ========= ========= ========= =========
Total Return(2) ...................... 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% 0.59% 0.59% 0.68% 0.70% 0.70%
Ratio of Net Investment Income to
Average Net Assets ..................... 5.48% 5.15% 5.43% 5.53% 5.39% 5.53%
Portfolio Turnover Rate ................ 323% 196% 54% 293% 246% 128%
Net Assets, End of Period (in thousands) $ 762,363 $ 832,344 $ 808,464 $ 519,332 $ 349,772 $ 391,331
</TABLE>
(1) The fund's fiscal year end was changed from October 31 to March 31
resulting in a five month reporting period. For years ended prior to 1998,
the fund's fiscal year end was October 31.
(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.
16 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Short-Term Government -- Financial Highlights
--------------------------------------------------------------------------------
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
---------------------
Advisor Class
---------------------
2000 1999(1)
--------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .................. $ 9.47 $ 9.49
------ ------
Income From Investment Operations
Net Investment Income ............................... 0.49 0.33
Net Realized and Unrealized Loss on
Investment Transactions ........................... (0.28) (0.02)
------ ------
Total From Investment Operations .................... 0.21 0.31
------ ------
Distributions
From Net Investment Income .......................... (0.49) (0.33)
------ ------
Net Asset Value, End of Period ........................ $ 9.19 $ 9.47
====== ======
Total Return(2) ..................................... 2.26% 3.37%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ..... 0.84% 0.84%(3)
Ratio of Net Investment Income to Average Net Assets .. 5.23% 4.77%(3)
Portfolio Turnover Rate ............................... 323% 196%
Net Assets, End of Period (in thousands) .............. $ 461 $ 94
(1) July 8, 1998 (commencement of sale) through March 31, 1999.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(3) Annualized.
See Notes to Financial Statements www.americancentury.com 17
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of the American Century Government Income Trust and Shareholders
of the Short-Term Government Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Short-Term Government Fund (one
of the eight funds in the American Century Government Income Trust hereafter
referred to as the "Fund") at March 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the four years in
the period then ended, in conformity with accounting principles generally
accepted in the United States. The financial highlights for each of the two
years in the period ended October 31, 1996 were audited by other auditors, whose
report dated November 20, 1996, expressed an unqualified opinion on those
statements. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
May 8, 2000
18 1-800-345-2021
<PAGE>
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
Share Classes
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
Investor Class shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
Advisor Class shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the fund and
generally have the same rights and preferences.
Retirement Account Information
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are
liable for paying income tax on the taxable portion of your withdrawal. If you
elect not to have income tax withheld or you don't have enough income tax
withheld, you may be responsible for payment of estimated tax. You may incur
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
www.americancentury.com 19
<PAGE>
Background Information
--------------------------------------------------------------------------------
Investment Team Leaders
-----------------------
Portfolio Managers
-----------------------
Dave Schroeder
Michael Shearer
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.
20 1-800-345-2021
<PAGE>
Glossary
--------------------------------------------------------------------------------
Returns
o 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.
o 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
o 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
o Number of Securities -- the number of different securities held by the fund on
a given date.
o 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.
o 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.
o 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
o 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.
o Coupon -- the stated interest rate of a security.
o 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
o 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.
o 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.
www.americancentury.com 21
<PAGE>
Glossary
--------------------------------------------------------------------------------
(Continued)
o 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).
o 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.
o 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.
o Capital Preservation -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
o 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.
o 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.
o 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.
o Conservative -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
o Moderate -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
o Aggressive -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
22 1-800-345-2021
<PAGE>
Notes
--------------------------------------------------------------------------------
www.americancentury.com 23
<PAGE>
Notes
--------------------------------------------------------------------------------
24 1-800-345-2021
<PAGE>
INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
-------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs. For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
<PAGE>
[LOGO] AMERICAN CENTURY(R)
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.
Who we are [GRAPHIC OMITTED]
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.
--------------------------------------------------------------------------------
-----------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
-----------------
0005 American Century Investment Services, Inc.
SH-ANN-20574 (C)2000 American Century Services Corporation
<PAGE>
--------------------------------------------------------------------------------
March 31, 2000
A M E R I C A N C E N T U R Y
Annual Report
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Capital Preservation
Government Agency
[LOGO]
AMERICAN
CENTURY(R)
<PAGE>
Capital Preservation
(CPFXX)
--------------------------------------------------------------------------------
Government Agency
(BGAXX)
--------------------------------------------------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
They say hindsight is 20/20. But what about insight? That's what you
really want when choosing mutual funds. Now you can get the insight you need
with Fund Advisor, an online tool that helps you select the right no-load funds
for your goals--short-term and long-term. Fund Advisor helps you:
Get organized.
Compile all your investments in one place, review their performance, and
see if you're on track to meet your personal financial goals.
Get direction.
Get recommendations based on funds available through your current fund
family or financial service provider -- not just American Century funds. This
innovative service brings expert guidance directly to you based on your needs,
your goals and your life.
Get control.
Whether you want to analyze your current investments, or find new ones,
Fund Advisor can help you feel confident with the decisions you make.
How does it work?
Just tell Fund Advisor about your investing style, your current
investments and goals. It will analyze your investments and offer impartial
recommendations to help you get on track for your future.
To get Fund Advisor's unique perspective, go to www.americancentury.com
and select Fund Advisor at the top of the page. For the initial set-up, you will
need:
o Your OnePIN to log in to Fund Advisor
o Your latest tax return
o Your most recent investment account statements
To learn more about this new tool and how it can help you better manage
your financial future, select the "Online Demo" from the Fund Advisor
introduction page.
*Patent pending. Fund Advisor is guided by the portfolio management expertise of
leading investment professionals. It was developed for Acumation, Inc., a
registered investment advisor and wholly owned subsidiary of American Century.
American Century does not receive sales commissions or direct compensation for
recommending any fund, although it may receive management, service or other fees
from funds recommended through Fund Advisor. These agreements are described in
Acumation, Inc.'s Form ADV Part II.
--------------------------------------------------------------------------------
Receive Your Annual Reports Online
----------------------------------
Now you can receive documents such as annual reports, prospectuses, and
newsletters online rather than regular mail. Your link to American Century
documents is a click away with the Electronic Communication option.
o Receive links to documents by email
o Download select documents and file electronically to save space in
your file cabinets
o Read documents at your convenience
To sign up for this option, visit www.americancentury.com and log in with
your secure OnePIN. Then simply select an account on your account list and
choose the Electronic Communication link. Questions? Call 1-800-345-2021. Log in
and take control today!
<PAGE>
Our Message to You
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
The 12 months ended March 31, 2000, provided a nearly ideal environment
for money market funds--rising interest rates, low inflation, and stock market
volatility. Trying to keep U.S. economic growth and inflation under control, the
Federal Reserve raised short-term interest rates times five times between June
1999 and March 2000, boosting money market yields. While rates rose, inflation
remained low, which helped money market instruments maintain their purchasing
power. In addition, stock market volatility made money market fund stability
look attractive for investors with near-term financial goals.
The American Century Capital Preservation and Government Agency funds
continued to provide above-average yields and below-average expenses (according
to Lipper Inc., an independent mutual fund ranking service that evaluated 92
funds in Capital Preservation's category and 125 funds in Government Agency's).
The funds' consistently low expenses and competitive yields helped them place in
the top quartile of their peer groups for the last 10 years (see pages 4 and 7
for more performance information).
We are proud of our funds' performance and the numerous ways we can help
investors like you meet your goals. We are equally proud of our dedication to
creating a positive, safe, and productive work environment for American Century
staff. This commitment was recognized and rewarded in 1999 when American Century
ranked in the top 40 of Fortune magazine's "100 Best Companies to Work For."
We do not take this recognition lightly; acknowledgements like this allow
us to recruit talented and dedicated people, from service representatives to
investment professionals. This "intellectual capital" is our most valuable
resource and an essential one in our efforts to provide you with excellent
investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights ....................................................... 2
Frequently Asked
Questions ............................................................ 3
Capital Preservation
Performance Information ................................................. 4
Management Q&A .......................................................... 5
Types of Investments .................................................... 5
Schedule of Investments ................................................. 6
Government Agency
Performance Information ................................................. 7
Management Q&A .......................................................... 8
Types of Investments .................................................... 8
Schedule of Investments ................................................. 9
Financial Statements
Statements of Assets and
Liabilities .......................................................... 11
Statements of Operations ................................................ 12
Statements of Changes
in Net Assets ........................................................ 13
Notes to Financial
Statements ........................................................... 14
Financial Highlights .................................................... 16
Report of Independent
Accountants .......................................................... 19
Other Information
Share Class and Retirement
Account Information .................................................. 20
Background Information
Investment Philosophy
and Policies ...................................................... 21
Comparative Indices .................................................. 21
Lipper Rankings ...................................................... 21
Investment Team
Leaders ........................................................... 21
Glossary ................................................................ 22
www.americancentury.com 1
<PAGE>
Report Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Capital Preservation
(CPFXX)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months ......................... 2.41%(2)
1 Year ........................... 4.63%
7-Day Current Yield: 5.28%
Inception Date: 10/13/72
--------------------------------------------------------------------------------
Net Assets: $3.4 billion
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Government Agency(1)
(BGAXX)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months ......................... 2.62%(2)
1 Year ........................... 4.98%
7-Day Current Yield: 5.50%
Inception Date: 12/5/89
--------------------------------------------------------------------------------
Net Assets: $558.0 million(3)
--------------------------------------------------------------------------------
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on pages 4 and 7. Investment terms are defined in the Glossary
on pages 22-23.
Capital Preservation
o Capital Preservation continued to perform well versus its peers while
providing more yield than the average U.S. Treasury money market fund
tracked by Lipper Inc. (See page 4 for detailed performance comparisons.)
o Capital Preservation's yield rose sharply during the year ended March 31,
2000, thanks primarily to five short-term interest rate hikes by the
Federal Reserve (the Fed).
o In that rising rate environment, we generally kept Capital Preservation's
weighted average maturity in a range of 50 to 60 days, roughly neutral to
the Lipper group.
o We built up the portfolio's exposure to Treasury bills--the most liquid
type of security--while reducing its Treasury note holdings.
o We think it very likely that the Fed will adjust rates higher, especially
if the economy continues to grow at such a robust pace. So we're
positioning the portfolio for just such a scenario.
Government Agency
o Government Agency continued to perform well versus its peers, providing
higher total returns and yields than average. (See page 7 for detailed
performance comparisons.)
o Five rate hikes by the Federal Reserve (the Fed) were at the heart of
Government Agency's higher yield.
o The catalysts for the Fed's rate hikes were overly robust U.S. economic
growth and tight labor markets, combined with recent evidence that
inflation may be rising.
o Government Agency's weighted average maturity declined late in 1999, when
we enhanced the fund's liquidity with overnight securities as a Y2K
precaution, but was roughly in line with the fund's peers by February.
o We think it very likely that the Fed will adjust rates higher, especially
if the economy continues to grow at such a robust pace. So we're
positioning the portfolio for just such a scenario.
2 1-800-345-2021
<PAGE>
Money Market Funds -- Frequently Asked Questions
--------------------------------------------------------------------------------
Can I make direct deposits into my money market fund account?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, Treasury Direct interest payment, military allotment, or payments from
other government agencies. Give us a call, and we will send you the necessary
information to set it up.
What is the holding period on new deposits into my account?
There is a 10-business-day holding period for deposited funds -- including
your initial investment in a new account. There is a one-business-day holding
period for wire transfers.
Is there a cost for writing checks on my money market account?
As long as each check is for $100 or more, you can write as many checks as
you like at no charge.
How can I keep track of my money market fund transactions between account
statements?
You can access your investments any time through our automated telephone
line and the American Century Web site. These services provide fund yields,
returns, account information, and transaction services.
You can keep tabs on your investments by:
o visiting our Web site at www.americancentury.com*
o using our Automated Information Line (1-800 -345-8765)*
o calling an Investor Relations Representative at 1-800-345-2021* weekdays,
7 a.m.-7 p.m. Central time Saturdays, 9 a.m.-2 p.m. Central time
Why does my money fund yield fluctuate?
Money market funds are managed to maintain a stable $1 share price, but
their yields will fluctuate with changes in market conditions. Common reasons
for changes in your fund's yield are adjustments to Federal Reserve interest
rate policy, the outlook for inflation, and supply and demand for money market
securities.
Keep in mind that no money market fund is guaranteed or insured by the
U.S. government. And although money 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.
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:
o You can have distributions deposited directly into your money market
account. The money will be deposited the same day that the distributions
are paid.
o Distributions can be sent electronically to your bank account. The money
will be available in your bank account within three days.
Contact our Investor Relations Representatives to set up either of these
options.
* Before you can make an exchange by calling an Investor Relations
Representative, using our Automated Information Line, or visiting our Web site,
you first must have provided us with written authorization to do so.
www.americancentury.com 3
<PAGE>
Capital Preservation -- Performance
--------------------------------------------------------------------------------
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Capital 90-Day U.S. Treasury Money Market Funds(2)
Preservation Treasury Bill Index Average Return Fund's Ranking
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 Months(1) ............. 2.41% 2.67% 2.34% --
1 Year .................. 4.63% 5.03% 4.45% 23 out of 92
----------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
----------------------------------------------------------------------------------------------------
3 Years ................. 4.80% 4.97% 4.60% 16 out of 82
5 Years ................. 4.88% 5.10% 4.74% 16 out of 72
10 Years ................ 4.66% 4.90% 4.56% 5 out of 22
</TABLE>
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 21-22 for more information about returns and Lipper fund rankings.
Portfolio at a Glance
-----------------------------------------
3/31/00 3/31/99
-----------------------------------------
Number of Securities 21 20
Weighted Average
Maturity 56 days 64 days
Expense Ratio 0.48% 0.48%
Yields as of March 31, 2000
-----------------------------------------
-----------------------------------------
7-Day Current Yield 5.28%
7-Day Effective Yield 5.41%
Investment terms are defined in the Glossary on pages 22-23.
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
<PAGE>
Capital Preservation -- Q&A
--------------------------------------------------------------------------------
[PHOTO OMITTED]
An interview with Beth Bunnell Hunter, a portfolio manager on the Capital
Preservation fund investment team.
How did Capital Preservation perform for the fiscal year ended March 31, 2000?
Capital Preservation continued to perform well versus its peers. The
fund's one-year total return of 4.63% outpaced the 4.45% average return of the
92 "U.S. Treasury Money Market Funds" tracked by Lipper Inc. The fund's
longer-term performance was equally impressive -- Capital Preservation's three-
and five-year returns ranked the fund in the top 25% of its peer group. (See
page 4 for other performance comparisons.)
The fund's yield also remained competitive. Capital Preservation's
seven-day effective yield of 5.41% on March 31 was higher than the 5.13% average
yield of its Lipper peers.
Speaking of Capital Preservation's seven-day effective yield, it rose from 4.26%
to 5.41% during the year. What sparked that increase?
Five rate hikes by the Federal Reserve (the Fed) were at the heart of
Capital Preservation's higher yield. Robust U.S. economic growth and tight labor
markets helped fuel the Fed's decision to raise the federal funds rate target --
an influential overnight bank lending rate -- from 4.75% to 6.00%. As Capital
Preservation's investments matured, we replaced them with higher-yielding
securities.
Given that rising interest rate environment, how did you position the portfolio?
Over the last six months, we generally kept Capital Preservation's
weighted average maturity (WAM) in a range of 50 to 60 days, roughly neutral to
the Lipper group. We positioned the fund defensively toward year-end, extending
Capital Preservation's WAM to decrease the fund's exposure to highly volatile
overnight investment rates. But by mid-February we had shortened back to roughly
neutral.
From a security-type standpoint, we built up the portfolio's exposure to
Treasury bills -- the most liquid type of security -- heading into Y2K, just in
case redemptions were unusually high. In the process, we reduced the fund's
Treasury note position and kept the mix of bills and notes close to that
year-end position through the end of March.
What is your interest rate outlook, and what are your plans for the portfolio?
We think it very likely that the Fed will adjust rates higher, especially
if the economy continues to grow at such a robust pace. So we're positioning the
portfolio for just such a scenario. That means we will probably maintain the
portfolio's fairly neutral WAM for now, while continuing to monitor the relative
values of Treasury bills and notes, adding to or subtracting from the
portfolio's position in these securities when it seems appropriate.
"Capital Preservation's seven-day effective yield of 5.41% on March 31 was
higher than the 5.13% average yield of its Lipper peers."
Types of Investments in the Portfolio
[The following graph was depicted as a pie chart in the printed material.]
--------------------------------------------
As of March 31, 2000
--------------------------------------------
o Treasury Bills 91%
o Treasury Notes 9%
[The following graph was depicted as a pie chart in the printed material.]
------------------------------------------------
As of September 30, 1999
------------------------------------------------
o Treasury Bills 61%
o Treasury Notes 35%
o Zero-Coupon U.S.
Treasury Securities 4%
Investment terms are defined in the Glossary on pages 22-23.
www.americancentury.com 5
<PAGE>
Capital Preservation -- Schedule of Investments
--------------------------------------------------------------------------------
MARCH 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY BILLS(1) -- 91.3%
--------------------------------------------------------------------------------
$25,000,000 U.S. Treasury Bills, 4.95%,
4/13/00 $ 24,958,750
377,000,000 U.S. Treasury Bills, 5.91%-6.00%,
4/18/00 375,938,919
250,000,000 U.S. Treasury Bills, 4.98-5.98%,
4/20/00 249,236,927
439,000,000 U.S. Treasury Bills, 5.09%-5.70%,
4/27/00 437,233,160
250,000,000 U.S. Treasury Bills, 5.22%-5.59%,
5/4/00 248,767,312
150,000,000 U.S. Treasury Bills, 5.20%-5.55%,
5/11/00 149,125,833
500,000,000 U.S. Treasury Bills, 5.22%-5.57%,
5/18/00 496,432,569
125,000,000 U.S. Treasury Bills, 5.42%-5.43%,
5/25/00 123,982,437
50,000,000 U.S. Treasury Bills, 5.33%, 6/1/00 49,548,007
100,000,000 U.S. Treasury Bills, 5.31-5.69%,
6/8/00 98,961,111
150,000,000 U.S. Treasury Bills, 5.39%-5.74%,
6/15/00 148,245,833
50,000,000 U.S. Treasury Bills, 5.76%,
6/22/00 49,344,569
100,000,000 U.S. Treasury Bills, 5.53%-5.56%,
7/20/00 98,310,278
100,000,000 U.S. Treasury Bills, 5.55%,
7/27/00 98,365,833
50,000,000 U.S. Treasury Bills, 5.80%,
9/7/00 48,718,062
50,000,000 U.S. Treasury Bills, 5.86%,
9/14/00 48,647,792
100,000,000 U.S. Treasury Bills, 5.90%,
9/21/00 97,197,500
50,000,000 U.S. Treasury Bills, 5.84%,
10/12/00 48,426,444
--------------
TOTAL U.S. TREASURY BILLS 2,891,441,336
--------------
--------------------------------------------------------------------------------
U.S. TREASURY NOTES(1) -- 8.7%
--------------------------------------------------------------------------------
127,000,000 U.S. Treasury Notes, 6.75%,
4/30/00 127,103,939
50,000,000 U.S. Treasury Notes, 6.25%,
8/31/00 49,994,254
100,000,000 U.S. Treasury Notes, 5.50%,
12/31/00 99,363,578
--------------
TOTAL U.S. TREASURY NOTES 276,461,771
--------------
TOTAL INVESTMENT SECURITIES -- 100.0% $3,167,903,107
==============
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
<PAGE>
Government Agency -- Performance
--------------------------------------------------------------------------------
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Investor Class (inception 12/5/89) Advisor Class
(inception 4/12/99)
------------------------------------------------------------------------------------------------------
U.S. Government Money Market
Funds(2) 90-Day
Government 90-Day Government Treasury Bill
Agency Treasury Bill Index Average Return Fund's Ranking Agency Index
<S> <C> <C> <C> <C> <C> <C>
6 Months(1)...... 2.62% 2.67% 2.48% -- 2.50% 2.67%
1 Year .......... 4.98% 5.03% 4.70% 19 out of 125 -- --
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
------------------------------------------------------------------------------------------------------------------------------------
3 Years ......... 5.01% 4.97% 4.82% 22 out of 109 -- --
5 Years ......... 5.05% 5.10% 4.90% 23 out of 98 -- --
10 Years ........ 4.86% 4.90% 4.64% 6 out of 51 -- --
Life of Fund..... 4.97% 5.00%(3) 4.71%(4) 4 out of 48(4) 4.58%(1) 5.03%(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 20-22 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
Portfolio at a Glance
---------------------------------------
3/31/00 3/31/99
---------------------------------------
Number of Securities 45 37
Weighted Average
Maturity 48 days 73 days
Expense Ratio (for
Investor Class) 0.48% 0.48%
Yields as of March 31, 2000
-------------------------------------
Investor Class
-------------------------------------
7-Day Current Yield 5.50%
7-Day Effective Yield 5.65%
Investment terms are defined in the Glossary on pages 22-23.
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
<PAGE>
Government Agency -- Q&A
--------------------------------------------------------------------------------
"Five rate hikes by the Federal Reserve were at the heart of Government Agency's
higher yield."
Types of Investments in the Portfolio
[The following graph was depicted as a pie chart in the printed material.]
---------------------------------------------------
As of March 31, 2000
---------------------------------------------------
o Government Agency Discount Notes 47%
o Floating-Rate Agency Notes 36%
o Government Agency Notes 15%
o Treasury Bills 2%
[The following graph was depicted as a pie chart in the printed material.]
---------------------------------------------------
As of September 30, 1999
---------------------------------------------------
o Government Agency Discount Notes 40%
o Floating-Rate Agency Notes 48%
o Government Agency Notes 12%
Investment terms are defined in the Glossary on pages 22-23.
An interview with Beth Bunnell Hunter (pictured on page 5), a portfolio
manager on the Government Agency fund investment team.
How did Government Agency perform for the fiscal year ended March 31, 2000?
Government Agency continued to perform well versus its peers. The fund's
one-year total return of 4.98%* solidly outpaced the 4.70% average return of the
125 "U.S. Government Money Market Funds" tracked by Lipper Inc. Based on that
performance, the fund ranked in the top 20% of its Lipper group. (See page 7 for
other performance comparisons.)
The fund's yield also remained competitive. Government Agency's seven-day
effective yield of 5.65% on March 31 was higher than the 5.34% average yield of
its Lipper peers.
Speaking of Government Agency's seven-day effective yield, it rose from 4.47% to
5.65% during the year. What sparked that increase?
Five rate hikes by the Federal Reserve (the Fed) were at the heart of
Government Agency's higher yield. The Fed raised the federal funds rate target
(an influential overnight bank lending rate) from 4.75% to 6.00%. As Government
Agency's investments matured, we replaced them with higher-yielding securities.
What prompted the Fed to raise rates?
The catalysts for the Fed's actions were overly robust U.S. economic
growth and tight labor markets. These two factors generally can spark
inflationary pressures. And although consumer prices were surprisingly well
behaved for most of the period, recent evidence indicates that inflation may be
rising.
Given that environment, what types of securities did you favor?
We added floating-rate agency notes late in 1999, when they began offering
very attractive yields due in part to the market's Y2K concerns. Many investors
hesitated to buy securities whose yields were tied to Treasury bills because
they expected Treasury yields to fall sharply as demand rose in anticipation of
Y2K. We viewed this situation as an opportunity to lock in very attractive
yields for the fund, and as its performance for the period shows, that choice
proved timely.
How did those decisions affect the portfolio's weighted average maturity (WAM)?
Government Agency's WAM declined late in 1999, when we enhanced the fund's
liquidity with overnight securities as a Y2K precaution. We began lengthening
again by late January, adding one-year agency securities at prices that seemed
to reflect future Fed tightenings. From February on, the fund's WAM remained
fairly neutral to the Lipper group, in a range of 40 to 50 days.
What is your interest rate outlook, and what are your plans for the portfolio?
We think it very likely that the Fed will adjust rates higher, especially
if the economy continues to grow at such a robust pace. So we're positioning the
portfolio for just such a scenario. That means we will probably maintain the
portfolio's fairly neutral WAM for now, while continuing to monitor the relative
values of agency securities, adding to or subtracting from the portfolio's
positions as conditions warrant.
8 1-800-345-2021 * All fund returns and yields referenced in this interview
are for Investor Class shares.
<PAGE>
Government Agency -- Schedule of Investments
--------------------------------------------------------------------------------
MARCH 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY BILLS(1) -- 2.4%
--------------------------------------------------------------------------------
$13,000,000 U.S. Treasury Bills, 6.01%,
4/18/00 $ 12,963,128
------------
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES(1) -- 46.7%
--------------------------------------------------------------------------------
8,000,000 FFCB Discount Notes, 5.70%,
4/14/00 7,983,533
12,950,000 FFCB Discount Notes, 5.85%,
6/1/00 12,821,633
5,000,000 FFCB Discount Notes, 5.94%,
1/2/01 4,772,300
9,200,000 FHLB Discount Notes, 6.05%,
4/3/00 9,196,908
1,839,000 FHLB Discount Notes, 5.53%,
4/7/00 1,837,305
30,000,000 FHLB Discount Notes,
5.72%-5.85%, 4/12/00 29,947,170
35,000,000 FHLB Discount Notes,
5.67%-5.72%, 4/14/00 34,928,138
11,230,000 FHLB Discount Notes, 5.73%,
4/19/00 11,197,826
6,000,000 FHLB Discount Notes, 5.58%,
4/20/00 5,982,321
28,776,000 FHLB Discount Notes,
5.53%-5.75%, 4/26/00 28,661,673
4,021,000 FHLB Discount Notes, 5.57%,
4/28/00 4,004,203
29,862,000 FHLB Discount Notes,
5.76%-5.85%, 6/2/00 29,562,669
14,000,000 FHLB Discount Notes, 5.92%,
6/14/00 13,829,636
17,782,000 FHLB Discount Notes, 5.78%,
7/12/00 17,490,790
10,000,000 FHLB Discount Notes, 5.78%,
7/21/00 9,821,938
2,153,000 FHLB Discount Notes, 6.09%,
8/16/00 2,103,102
5,331,000 FHLB Discount Notes, 6.09%,
8/18/00 5,205,646
20,000,000 FHLB Discount Notes, 6.16%,
9/22/00 19,404,630
4,000,000 FHLB Discount Notes, 5.95%,
1/8/01 3,813,567
5,000,000 FHLB Discount Notes, 6.06%,
2/9/01 4,735,717
------------
TOTAL U.S. GOVERNMENT
AGENCY DISCOUNT NOTES 257,300,705
------------
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES(1) -- 50.9%
--------------------------------------------------------------------------------
4,331,000 FFCB, 5.68%, 5/1/00 4,329,776
1,300,000 FFCB, 5.37%, 2/7/01 1,286,117
1,000,000 FFCB MTN, 5.53%, 7/17/00 998,441
1,000,000 FFCB MTN, 5.80%, 10/10/00 997,974
15,000,000 FFCB MTN, VRN, 5.88%,
4/3/00, resets quarterly off the
3-month T-Bill rate plus 0.42%
with no caps 15,000,037
23,000,000 FFCB MTN, VRN, 6.18%,
4/3/00, resets monthly off the
3-month T-Bill rate plus 0.36%
with no caps 22,999,813
10,000,000 FHLB, 5.05%, 4/26/00 9,999,704
7,000,000 FHLB, 5.08%, 4/28/00 6,995,950
2,000,000 FHLB, 6.59%, 5/8/00 2,001,460
5,000,000 FHLB, 5.125%, 5/19/00 4,993,491
5,700,000 FHLB, 5.14%, 5/24/00 5,700,000
4,000,000 FHLB, 5.20%, 5/26/00 4,000,000
10,000,000 FHLB, 5.51%, 6/22/00 10,000,000
15,000,000 FHLB, 5.56%, 7/14/00 14,979,076
10,000,000 FHLB, 5.00%, 8/23/00 9,952,027
7,255,000 FHLB, 6.375%, 1/24/01 7,253,993
9,000,000 FHLB, VRN, 6.35%, 4/5/00,
resets weekly off the 3-month
T-Bill rate plus 0.46% with
no caps 9,000,000
25,000,000 FHLB, VRN, 6.42%, 4/5/00,
resets weekly off the 3-month
T-Bill rate plus 0.53% with
no caps 24,992,747
5,000,000 FHLB, VRN, 5.87%, 5/12/00,
resets quarterly off the 3-month
LIBOR minus 0.225% with
no caps 5,000,000
16,000,000 SLMA, VRN, 6.34%, 4/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.45% with
no caps 15,993,445
25,000,000 SLMA MTN, VRN, 6.34%,
4/4/00, resets weekly off the
3-month T-Bill rate plus 0.45%
with no caps 24,998,508
25,500,000 SLMA, VRN, 6.39%, 4/4/00,
resets weekly off the 3-month
T-Bill rate plus 0.50% with
no caps 25,515,788
40,000,000 SLMA MTN, VRN, 6.39%,
4/4/00, resets weekly off the
3-month T-Bill rate plus 0.50%
with no caps 39,988,139
13,500,000 SLMA MTN, VRN, 6.49%,
4/4/00, resets weekly off the
3-month T-Bill rate plus 0.60%
with no caps 13,503,326
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 280,479,812
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $550,743,645
============
See Notes to Financial Statements www.americancentury.com 9
<PAGE>
Government Agency -- Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
Notes to Schedule of Investments
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
SLMA = Student Loan Marketing Association
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Coupon rate
indicated is effective March 31, 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. Treasury Bills and 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
<PAGE>
Statements of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's assets (such as securities, cash, and
other receivables) and liabilities (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's net
assets. For each class of shares, the net assets divided by shares outstanding
is the share price, or net asset value per share. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
<TABLE>
<CAPTION>
MARCH 31, 2000 CAPITAL GOVERNMENT
PRESERVATION AGENCY
---------------------------------------------------------------------------------------------------------------------
ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities, at value (amortized cost and
cost for federal income tax purposes) ..................................... $3,167,903,107 $ 550,743,645
Cash ........................................................................ 7,896,246 4,007,982
Receivable for investments sold ............................................. 361,094,283 --
Interest receivable ......................................................... 10,254,491 3,429,632
-------------- -------------
3,547,148,127 558,181,259
-------------- -------------
---------------------------------------------------------------------------------------------------------------------
LIABILITIES
---------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ........................................... 195,563,333 --
Accrued management fees (Note 2) ............................................ 1,332,214 219,299
Distribution fees payable (Note 2) .......................................... -- 556
Service fees payable (Note 2) ............................................... -- 556
Payable for trustees' fees and expenses ..................................... 15,041 2,482
Accrued expenses and other liabilities ...................................... 912 470
-------------- -------------
196,911,500 223,363
-------------- -------------
Net Assets .................................................................. $3,350,236,627 $ 557,957,896
============== =============
---------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------
Capital paid in ............................................................. $3,350,189,770 $ 557,958,274
Accumulated undistributed net realized gain (loss)
on investment transactions ................................................ 46,857 (378)
-------------- -------------
$3,350,236,627 $ 557,957,896
============== =============
Investor Class
Net assets .................................................................. $3,350,236,627 $ 555,374,346
Shares outstanding .......................................................... 3,350,189,770 555,374,723
Net asset value per share ................................................... $ 1.00 $ 1.00
Advisor Class
Net assets .................................................................. N/A $ 2,583,550
Shares outstanding .......................................................... N/A 2,583,551
Net asset value per share ................................................... N/A $ 1.00
</TABLE>
See Notes to Financial Statements www.americancentury.com 11
<PAGE>
Statements of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 2000 CAPITAL GOVERNMENT
PRESERVATION AGENCY
------------------------------------------------------------------------------------------------
INVESTMENT INCOME
------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest ............................................... $165,668,025 $ 28,592,975
------------ ------------
Expenses (Note 2):
Management fees ........................................ 15,702,285 2,519,259
Distribution fees -- Advisor Class .................... -- 4,827
Service fees -- Advisor Class ......................... -- 4,827
Trustees' fees and expenses ............................ 91,538 14,472
------------ ------------
15,793,823 2,543,385
------------ ------------
Net investment income .................................. 149,874,202 26,049,590
------------ ------------
Net realized gain (loss) on investments ................ 788,434 (378)
------------ ------------
Net Increase in Net Assets Resulting from Operations ... $150,662,636 $ 26,049,212
============ ============
</TABLE>
12 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
GOVERNMENT AGENCY CAPITAL PRESERVATION
---------------------------------------------------------------------------
Increase in Net Assets 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income ............................. $ 149,874,202 $ 144,619,496 $ 26,049,590 $ 24,050,822
Net realized gain (loss) on investments ........... 788,434 2,730,059 (378) 33,582
--------------- --------------- ------------- -------------
Net increase in net assets resulting
from operations ................................. 150,662,636 147,349,555 26,049,212 24,084,404
--------------- --------------- ------------- -------------
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------------------------
From net investment income:
Investor Class .................................. (149,874,202) (144,619,496) (25,960,326) (24,050,822)
Advisor Class ................................... -- -- (89,264) --
From net realized gains on investment transactions:
Investor Class .................................. (741,577) (2,673,276) -- (11,109)
--------------- --------------- ------------- -------------
Decrease in net assets
from distributions .............................. (150,615,779) (147,292,772) (26,049,590) (24,061,931)
--------------- --------------- ------------- -------------
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions ...................... 25,384,830 180,164,550 30,116,273 40,028,181
--------------- --------------- ------------- -------------
Net increase in net assets ........................ 25,431,687 180,221,333 30,115,895 40,050,654
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Beginning of period ............................... 3,324,804,940 3,144,583,607 527,842,001 487,791,347
--------------- --------------- ------------- -------------
End of period ..................................... $ 3,350,236,627 $ 3,324,804,940 $ 557,957,896 $ 527,842,001
=============== =============== ============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 13
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
MARCH 31, 2000
--------------------------------------------------------------------------------
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
Government Agency commenced on April 12, 1999. Sale of the Advisor Class for
Capital Preservation had not commenced as of March 31, 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 had receivables on forward commitment
transactions of $361,094,283. 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 year ended March 31, 2000, the effective annual Investor Class
management fee for the funds was 0.48%.
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 compensa-
14 1-800-345-2021
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
tion for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred by
Government Agency under the plan during the year ended March 31, 2000, were
$9,654.
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>
<CAPTION>
------------------------------------------------------------------------
CAPITAL PRESERVATION GOVERNMENT AGENCY
------------------------------------------------------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
============== ============== ============ ============
Year ended March 31, 1999
Sold .................................. 2,907,552,494 $ 2,907,552,494 431,797,001 $ 431,797,001
Issued in reinvestment of distributions 140,391,935 140,391,935 23,167,326 23,167,326
Redeemed .............................. (2,867,779,879) (2,867,779,879) (414,936,146) (414,936,146)
-------------- -------------- ------------ ------------
Net increase .......................... 180,164,550 $ 180,164,550 40,028,181 $ 40,028,181
============== ============== ============ ============
--------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
--------------------------------------------------------------------------------------------------------------------
Period ended 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
<PAGE>
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 income as a percentage of average net assets), and
expense ratio (operating expenses as a percentage of average net assets).
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................ 0.05 0.05 0.05 0.05 0.05
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ........... (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
========== ========== ========== ========== ==========
Total Return(1) ...................... 4.63% 4.72% 5.06% 4.82% 5.21%
---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to
Average Net Assets(2) ................ 0.48% 0.48% 0.49% 0.49% 0.51%
Ratio of Net Investment Income
to Average Net Assets ................ 4.51% 4.53% 4.90% 4.66% 5.07%
Net Assets, End of Period
(in thousands) ....................... $3,350,237 $3,324,805 $3,144,584 $2,978,015 $3,077,558
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) The ratios for years ended March 31, 1997 and March 31, 1996 include
expenses paid through expense offset arrangements.
16 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Government Agency -- Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including total return, income ratio (net
income as a percentage of average net assets), and expense ratio (operating
expenses as a percentage of average net assets).
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31
--------------------------------------------------------------------
Investor Class
--------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............................ 0.05 0.05 0.05 0.05 0.05
-------- -------- -------- -------- --------
Distributions
From Net Investment Income ....................... 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
======== ======== ======== ======== ========
Total Return(1) .................................. 4.98% 4.91% 5.14% 4.89% 5.35%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets(2) 0.48% 0.48% 0.51% 0.57% 0.51%
Ratio of Net Investment Income to Average Net Assets 4.88% 4.79% 5.02% 4.76% 5.20%
Net Assets, End of Period (in thousands) ........... $555,374 $527,842 $487,791 $470,759 $503,328
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) The ratios for years ended March 31, 1997 and March 31, 1996 include
expenses paid through expense offset arrangements.
See Notes to Financial Statements www.americancentury.com 17
<PAGE>
Government Agency--Financial Highlights
--------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period Indicated
-------------------------------
Advisor Class
-------------------------------
2000(1)
--------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ............... $ 1.00
---------
Income From Investment Operations
Net Investment Income ............................ 0.04
---------
Distributions
From Net Investment Income ....................... (0.04)
---------
Net Asset Value, End of Period ..................... $ 1.00
=========
Total Return(2) .................................. 4.58%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .. 0.73%(3)
Ratio of Net Investment Income to Average Net Assets 4.66%(3)
Net Assets, End of Period (in thousands) ........... $ 2,584
(1) April 12, 1999 (commencement of sale) through March 31, 2000.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
18 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of the American Century Government Income Trust and Shareholders
of the Capital Preservation Fund and the Government Agency Money Market Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Capital Preservation Fund and
the Government Agency Money Market Fund (two of the eight funds in the American
Century Government Income Trust hereafter referred to as the "Funds") at March
31, 2000, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the three years in the period
then ended, in conformity with accounting principles generally accepted in the
United States. The financial highlights for each of the two years in the period
ended March 31, 1997 were audited by other auditors, whose report dated May 2,
1997, expressed an unqualified opinion on those statements. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
May 8, 2000
www.americancentury.com 19
<PAGE>
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 March 31, 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 with
hold 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. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are
liable for paying income tax on the taxable portion of your withdrawal. If you
elect not to have income tax withheld or you don't have enough income tax
withheld, you may be responsible for payment of estimated tax. You may incur
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
20 1-800-345-2021
<PAGE>
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.
Investment Team Leaders
--------------------
Capital Preservation
--------------------
Beth Bunnell Hunter
--------------------
Government Agency
--------------------
Beth Bunnell Hunter
www.americancentury.com 21
<PAGE>
Glossary
--------------------------------------------------------------------------------
Returns
o 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.
o 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
o 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.
o 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
o Number of Securities --the number of different securities held by a fund on a
given date.
o 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.
o Expense Ratio -- the operating expenses of the fund, expressed as a percentage
of average net assets. Share holders 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
o 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).
o 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.
o 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).
o 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.
o 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
o 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.
o 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.
22 1-800-345-2021
<PAGE>
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.
o Capital Preservation -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
o 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.
o 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.
o 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.
o Conservative -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
o Moderate -- these funds generally provide moderate return potential with
moderate price- fluctuation risk.
o Aggressive-- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 23
<PAGE>
INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
-------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs. For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
<PAGE>
[LOGO] AMERICAN CENTURY(R)
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.
Who we are [GRAPHIC OMITTED]
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.
--------------------------------------------------------------------------------
-----------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
-----------------
0005 American Century Investment Services, Inc.
SH-ANN-20572 (C)2000 American Century Services Corporation
<PAGE>
March 31, 2000
A M E R I C A N C E N T U R Y (R)
Annual Report
[GRAPHIC OMITTED]
Inflation-Adjusted Treasury
[LOGO]
AMERICAN
CENTURY(R)
<PAGE>
Inflation-Adjusted Treasury
--------------------------------------------------------------------------------
Turn to the inside back cover of this report to see a list of American Century
funds classified by objective and risk.
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
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<PAGE>
Our Message to You
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
The year ended March 31, 2000, was a rewarding one for inflation-indexed
bond investors. Strong U.S. economic growth and rising inflation led the Federal
Reserve to raise short-term interest rates five times between June 1999 and
March 2000, putting pressure on U.S. bond prices.
This is the type of environment for which inflation-indexed bonds were
created. With inflation on the rise and conventional bonds suffering price
declines, inflation-indexed bonds held their value and benefited from healthy
inflation adjustments. For the one-year period, inflation-indexed Treasury bonds
were the best-performing U.S. bond sector, and they were second only to
emerging-market bonds on a global scale.
The current market conditions reinforce the importance of a diversified
investment portfolio. Investing in different types of stock and bond funds can
help cushion your portfolio against the effects of a decline in any single
investment. Investors' need for diversification was one reason why we created
the Inflation-Adjusted Treasury fund, the first of its kind.
Besides serving the nearly two million investors who look to American
Century for investment management, we also have an obligation to the 3,000
people who work on your behalf -- to create a positive, safe, and productive
work environment for American Century staff. This commitment was recognized and
rewarded in 1999 when American Century ranked in the top 40 of Fortune
magazine's "100 Best Companies to Work For."
We do not take this recognition lightly -- acknowledgements like this
allow us to recruit talented and dedi cated people, from service representatives
to investment professionals. This intellectual capital is our most valuable
resource and an essential one in our efforts to provide you with excellent
investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights ........................................................ 2
Market Perspective ....................................................... 3
Inflation-Adjusted Treasury
Performance Information .................................................. 4
Management Q&A ........................................................... 5
Portfolio at a Glance .................................................... 5
Yields ................................................................... 5
Types of Investments ..................................................... 6
Schedule of Investments .................................................. 7
Financial Statements
Statement of Assets and Liabilities ...................................... 8
Statement of Operations .................................................. 9
Statements of Changes in Net Assets ...................................... 10
Notes to Financial Statements ............................................ 11
Financial Highlights ..................................................... 14
Report of Independent Accountants ........................................ 16
Other Information
Share Class and Retirement Account Information .......................... 17
Background Information
Investment Philosophy and Policies .................................... 18
Comparative Indices ................................................... 18
Investment Team Leaders ............................................... 18
Glossary ................................................................. 19
www.americancentury.com 1
<PAGE>
Report Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Inflation-Adjusted Treasury(1)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months ............................................. 3.90%(2)
1 Year ............................................... 5.52%
30-Day SEC Yield: 5.67%
Inception Date: 2/10/97
Net Assets: $18.8 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 19-20.
Market Perspective
o Treasury inflation-indexed securities (TIIS) were the top-performing
sector in the U.S. bond market during the year ended March 31, 2000.
o U.S. inflation increased by 3.7%, mainly because of a dramatic rise in
energy prices.
o In response to rising inflation, the Federal Reserve raised short-term
interest rates five times in nine months.
o Reduced issuance of Treasury bonds -- the result of a federal budget
surplus -- boosted the performance of TIIS.
o The Treasury eliminated one auction of 30-year TIIS per year, leaving two
10-year auctions and one 30-year auction of TIIS annually.
o The principal adjustments for TIIS, based on the change in the consumer
price index, totaled 3.67% during the one-year period.
Fund Performance
o Inflation-Adjusted Treasury's performance reflected the strong
performance of TIIS during the fiscal year.
o The fund trailed its benchmark index because of the fund's government
agency bond, which made up about 25% of the portfolio.
o The reduced supply of Treasury bonds, combined with increased supply of
agency bonds, caused Treasurys to outperform agency securities by a wide
margin.
Fund Strategy
o We overweighted 10-year TIIS in the fund because they were the
highest-yielding bonds in the TIIS market.
o We kept the fund's duration (a measure of price volatility as interest
rates change) close to the nine-year duration of the benchmark index.
Outlook
o The inflation rate rose from 1.5% to 3.5% over the past year.
o Although this was largely due to soaring oil prices, we saw a modest
increase in other prices as well.
o We expect the inflation rate to drift lower as the Fed raises interest
rates more aggressively and oil prices stabilize.
o We think TIIS currently offer a slightly better value than traditional
Treasury bonds if, as we expect, inflation is higher than 2.2% going
forward.
o We intend to maintain the fund's stake in government agency bonds, which
currently offer an extra 60 basis points (0.60%) in yield over TIIS.
2 1-800-345-2021
<PAGE>
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of Randall W. Merk, chief investment officer of fixed income at American
Century]
Performance Overview
Rising inflation boosted the performance of Treasury inflation-indexed
securities (TIIS) during the year ended March 31, 2000. In fact, TIIS were the
best-performing sector of the U.S. bond market and second only to
emerging-market bonds worldwide. The Salomon U.S. Inflation-Linked Index
returned 6.39% for the one-year period, while the Salomon Treasury Index
returned 3.00%.
Energized Inflation
TIIS benefited from a significant increase in the inflation rate. The
consumer price index (CPI), a widely watched inflation gauge, rose 3.7% dur ing
the year ended March 31. This compares to a 1.6% increase in calendar 1998 and a
2.7% increase for calendar 1999.
The main reason for the faster pace of inflation was a dramatic increase
in energy prices. The price of oil tripled between mid-1999 and the early part
of 2000. As a result, energy prices soared by nearly 25% over the past year.
With inflation on the rise, the Federal Reserve took steps to curb it. The
Fed raised short-term interest rates five times between June 1999 and March
2000. Although the first three were a reversal of the rate cuts the Fed made in
late 1998, the more recent rate hikes were designed to slow down a red-hot U.S.
economy, which grew at its fastest rate in 16 years during the fourth quarter of
1999.
The Fed's actions caused nominal Treasury bond yields to rise, pushing
bond prices lower. In contrast, TIIS yields were relatively stable (see the
graph below).
Surplus Shrinks Supply
Another factor affecting the Treasury bond market was the federal budget
surplus. The U.S. Treasury took advantage of the surplus to reduce the public
debt. One way to do this was to cut back new issuance of Treasury bonds,
especially longer-term ones like the 30-year bond.
In addition, the Treasury began a bond buy-back program in March. The
Treasury will periodically buy back its own bonds, mainly those with longer
maturities, at market prices. The amounts will depend on the budget surplus and
tax receipts, but the Treasury has projected $30 billion in buy-backs for 2000.
Although the Treasury will only buy back nominal Treasury bonds, the
issuance cutbacks had an impact on the TIIS market. The Treasury eliminated one
auction of 30-year TIIS per year, leaving two 10-year auctions and one 30-year
auction of TIIS annually.
Inflation Adjustment
Reflecting the increase in the CPI, the inflation adjustments to the
principal value of TIIS totaled 3.67% for the one-year period. This is the
largest annual inflation adjustment since TIIS were first issued in 1997.
"Inflation-indexed Treasury bonds were the best-performing sector of the U.S.
bond market."
10-Year Treasury Yield Comparison
[The following was depicted as a mountain graph in the printed material.]
10-year Nominal Treasury 10-year TIIS Yield
3/31/1999 5.28 3.91
4/9/1999 5.04 3.92
4/16/1999 5.22 3.93
4/26/1999 5.25 3.91
4/30/1999 5.36 3.90
5/7/1999 5.54 3.86
5/14/1999 5.68 3.83
5/21/1999 5.60 3.88
5/28/1999 5.71 3.87
6/4/1999 5.89 3.90
6/11/1999 6.10 3.93
6/18/1999 5.92 4.02
6/25/1999 6.11 4.02
7/2/1999 5.92 3.98
7/9/1999 5.93 4.02
7/16/1999 5.77 4.02
7/23/1999 5.92 4.03
7/30/1999 5.99 4.04
8/6/1999 6.11 4.01
8/13/1999 6.12 4.05
8/20/1999 6.01 4.03
8/27/1999 5.98 4.03
9/3/1999 6.03 4.05
9/10/1999 6.02 4.04
9/17/1999 6.00 4.06
9/24/1999 5.89 4.06
10/1/1999 6.15 4.07
10/8/1999 6.19 4.14
10/15/1999 6.25 4.15
10/22/1999 6.36 4.13
10/29/1999 6.13 4.12
11/5/1999 6.01 4.08
11/12/1999 6.01 4.08
11/19/1999 6.12 4.11
11/26/1999 6.20 4.12
12/3/1999 6.24 4.17
12/10/1999 6.11 4.18
12/17/1999 6.37 4.31
12/24/1999 6.48 4.34
12/31/1999 6.53 4.33
1/7/2000 6.59 4.39
1/14/2000 6.74 4.41
1/21/2000 6.83 4.39
1/28/2000 6.70 4.34
2/4/2000 6.61 4.30
2/11/2000 6.79 4.35
2/18/2000 6.69 4.32
2/25/2000 6.53 4.31
3/3/2000 6.56 4.27
3/10/2000 6.59 4.23
3/17/2000 6.38 4.18
3/24/2000 6.42 4.10
3/31/2000 6.22 4.02
Source: Yield Book
"With inflation on the rise, the Federal Reserve took steps to curb it, raising
short-term interest rates five times between June 1999 and March 2000."
www.americancentury.com 3
<PAGE>
Inflation-Adjusted Treasury -- Performance
--------------------------------------------------------------------------------
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
----------------------------------- ------------------------------------
Investor Class (inception 2/10/97) Advisor Class (inception 6/15/98)
----------------------------------- ------------------------------------
Salomon Salomon
Inflation- Inflation- Salomon Inflation- Inflation- Salomon
Adjusted Linked Treasury Adjusted Linked Treasury
Treasury Index Index Index Index Index
<S> <C> <C> <C> <C> <C> <C>
6 Months(1) .......... 3.90% 4.44% 5.80% 3.77% 4.44% 5.80%
1 Year ............... 5.52% 6.39% 3.00% 5.26% 6.39% 3.00%
-------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
-------------------------------------------------------------------------------------------------------
3 Years .............. 4.11% 4.80% 9.99% -- -- --
Life of Fund ......... 3.27% 3.91%(2) 8.55%(2) 4.01% 5.24%(3) 3.04%(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Since 1/31/97, the date nearest the class's inception for which data are
available.
(3) Since 6/30/98, the date nearest the class's inception for which data are
available.
See pages 17-19 for more information about share classes, returns, and the
comparative indices.
Growth of $10,000 Over Life of Fund
[The following was depicted as a mountain graph in the printed material.]
Inflation-Adjusted Salomon Inflation-Linked Salomon Treasury
Treasury $11,125 Index $11,354 Index $12,980
2/28/1997 10000 10000 10000
3/31/1997 9858 9863 9756
6/30/1997 9942 9953 10291
9/30/1997 10076 10097 10884
12/31/1997 10160 10215 11593
3/31/1998 10198 10251 11768
6/30/1998 10315 10383 12317
9/30/1998 10549 10673 13290
12/31/1998 10510 10615 13157
3/31/1999 10542 10672 12602
6/30/1999 10670 10814 12283
9/30/1999 10707 10872 12268
12/31/1999 10688 10869 12011
3/31/2000 11125 11354 12980
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Salomon Treasury and Salomon Inflation-Linked indices are provided for
comparison. Inflation-Adjusted Treasury's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not. The graphs are based on Investor
Class shares only; performance for other classes will vary due to differences in
fee structures (see the Total Returns table above). Past performance does not
guarantee future results. Investment return and principal value will fluctuate,
and redemption value may be more or less than original cost.
One-Year Returns Over Life of Fund (Periods ended March 31)
[The table below was depicted as a bar graph in its printed material.]
3/97* 3/98 3/99 3/00
--------------------------------------------
Inflation-Adjusted Treasury -1.42% 3.45% 3.37% 5.52%
Salomon Inflation-Linked Index -1.37% 3.92% 4.10% 6.39%
* From 2/28/97 (the date nearest the class's inception for which index data
are available).
4 1-800-345-2021
<PAGE>
Inflation-Adjusted Treasury -- Q&A
--------------------------------------------------------------------------------
[PHOTO OMITTED]
An interview with Dave Schroeder, a portfolio manager on the
Inflation-Adjusted Treasury fund investment team.
How did the fund perform during the year ended March 31, 2000?
Inflation-Adjusted Treasury posted a very solid return, reflecting the
generally healthy performance of Treasury inflation-indexed securities (TIIS).
For the fiscal year, the fund returned 5.52%, compared with the 6.39% return of
its performance benchmark, the Salomon U.S. Inflation-Linked Index.* (See the
previous page for other fund performance comparisons.)
Why did the fund underperform the index?
The main reason was the fund's holding of a government agency
inflation-indexed bond, which made up about 25% of the portfolio. Government
agency bonds underperformed Treasury bonds, especially in the last six months.
The existing supply of longer-term Treasury bonds is expected to shrink
going forward, so demand for these securities has been huge in recent months.
That's contributed to lower longer-term Treasury yields.
In contrast, the yields of longer-term government agency bonds rose
because of increased supply, as well as concerns that the implicit government
guarantee these bonds enjoy may be changed or weakened by congressional
legislation.
As a result, the yield gap between Treasury and agency bonds widened
substantially, and Treasurys outperformed agencys by a healthy margin. Although
these factors had the most direct impact on nominal Treasury and agency bonds,
the effect spilled over into the inflation-indexed market as well.
Do you plan to hold onto Inflation-Adjusted Treasury's government agency bond?
Absolutely. We think that a change in the government-sponsored status of
agency bonds is extremely unlikely. On top of that, government agencies have not
issued any inflation-indexed bonds since 1997, so the supply situation is much
more favorable than the rest of the agency market.
The fund's agency bond was issued by the Tennessee Valley Authority (TVA),
and we originally bought it a couple of years ago when it offered an extra 20
basis points (0.20%) in yield over TIIS of comparable maturity. This yield
advantage widened out to 40 basis points a year ago and 60 basis points by the
end of March. As new investments came into the fund, we added to our agency bond
to maintain a 25% stake.
We view it as a pay-me-now-or-pay-me-later proposition -- agency bonds may
be producing lagging returns now, but that also means we're getting higher
yields going forward. Over the long term, we expect the higher yields of the TVA
bond to boost the fund's overall return.
"Inflation-Adjusted Treasury posted a very solid return, reflecting the
generally healthy performance of Treasury inflation-indexed securities."
Portfolio at a Glance
--------------------------------------------------------------------------------
3/31/00 3/31/99
--------------------------------------------------------------------------------
Number of Securities 5 4
Weighted Average
Maturity 12.7 yrs 11.3 yrs
Average Duration 8.9 yrs 8.5 yrs
Expense Ratio (for
Investor Class) 0.51% 0.49%
Yields as of March 31, 2000
--------------------------------------------------------------------------------
Investor Advisor
Class Class
--------------------------------------------------------------------------------
30-Day SEC Yield 5.67% 5.42%
Investment terms are defined in the Glossary on pages 19-20.
* All fund returns referenced in this interview are for Investor Class shares.
www.americancentury.com 5
<PAGE>
Inflation-Adjusted Treasury -- Q&A
--------------------------------------------------------------------------------
(Continued)
"Despite outperforming the rest of the bond market over the past year,
inflation-indexed bonds still offer some value in our opinion."
[The following information was depicted as a pie chart in the printed material.]
Types of Investments in the Portfolio
--------------------------------------------------------------------------------
As of March 31, 2000
--------------------------------------------------------------------------------
o U.S. Treasury Securities 74%
o U.S. Government Agency Securities 26%
[The following information was depicted as a pie chart in the printed material.]
--------------------------------------------------------------------------------
As of September 30, 1999
--------------------------------------------------------------------------------
o U.S. Treasury Securities 75%
o U.S. Government Agency Securities 25%
Investment terms are defined in the Glossary on pages 19-20.
How did the fund's portfolio change over the past year?
We shifted to an overweight in 10-year TIIS because they've been offering
the highest yields among inflation-indexed Treasury bonds. That probably also
contributed a little to the fund's underperformance relative to the index -- we
had a corresponding underweight in 30-year TIIS, which were the best performers
during the past year.
Other than that, the fund's portfolio basically mirrored the composition
and duration of the Salomon Inflation-Linked Index, which tends to reflect the
overall TIIS market. The fund's duration (a measure of price volatility as
interest rates change) is now around nine years, matching that of the index.
Looking ahead, what are your expectations for inflation?
At around 3.5%, the inflation rate is significantly higher than it was a
year ago, when it was closer to 1.5%. But you can chalk most of that up to
surging oil prices, which have fallen back a little since the oil-producing
countries recently agreed to increase their output.
To gauge long-term inflation prospects, we like to look at the "core"
inflation rate. The core rate excludes energy and food prices, which tend to be
very volatile over shorter time periods. As a result, the core rate tends to
provide a smoother, more stable look at inflation over time.
Over the past year, the core inflation rate was about 2.5%, up from 2% in
1999. This was largely due to rising costs in the service sector, which was a
little disturbing because it suggests that price increases may be taking hold
more broadly across the economy.
However, we think that the Federal Reserve will raise interest rates
aggressively in the coming months to fight inflation. With a more assertive Fed
and greater stability in oil prices, we expect inflation to drift back below 3%
and approach the core rate.
What does that mean for the inflation-indexed bond market?
Despite outperforming the rest of the bond market over the past year,
inflation-indexed bonds still offer some value in our opinion. They're certainly
not as attractive as they were a year ago, but they still look good when
compared with traditional Treasury bonds.
As of the end of March, a 10-year TIIS had a real yield of 4%, while the
nominal yield of a 10-year Treasury bond was around 6.2%. The difference between
the two is known as the "breakeven" inflation rate. If inflation is below the
2.2% breakeven rate going forward, then traditional Treasurys will outperform.
If inflation is more than 2.2% -- as we expect -- then TIIS are the better
investment.
What are your plans for Inflation-Adjusted Treasury going forward?
We aren't planning to make any changes to the portfolio at the current
time. That means we expect to keep the fund's duration very close to that of the
benchmark index.
We also plan to maintain our overweight in 10-year TIIS. In making this
decision, we compared the 10-year TIIS yield to a combination of two-year and
30-year TIIS yields. A year ago, the 10-year TIIS yield was around 7 basis
points higher than the combined yield, but today that yield advantage is almost
25 basis points. We think that makes 10-year TIIS attractive.
6 1-800-345-2021
<PAGE>
Inflation-Adjusted Treasury -- Schedule of Investments
--------------------------------------------------------------------------------
MARCH 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 73.6%
--------------------------------------------------------------------------------
$1,211,272 U.S. Treasury Inflation Indexed
Notes, 3.625%, 7/15/02 $ 1,207,938
2,636,479 U.S. Treasury Inflation Indexed
Notes, 3.625%, 1/15/08 2,569,074
5,328,044 U.S. Treasury Inflation Indexed
Notes, 3.875%, 1/15/09 5,278,878
4,643,193 U.S. Treasury Inflation Indexed
Bonds, 3.875%, 4/15/29 4,607,106
------------
TOTAL U.S. TREASURY SECURITIES 13,662,996
(Cost $13,612,084) ------------
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 26.4%
--------------------------------------------------------------------------------
$5,270,314 TVA Inflation Indexed Notes,
3.375%, 1/15/07$ 4,898,963
(Cost $5,003,881) ------------
TOTAL INVESTMENT SECURITIES - 100.0% $ 18,561,959
(Cost $18,615,965) =============
Notes to Schedule of Investments
TVA = Tennessee Valley Authority
See Notes to Financial Statements www.americancentury.com 7
<PAGE>
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's assets (such as securities, cash, and
other receivables) and liabilities (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's net
assets. For each class of shares, the net assets divided by shares outstanding
is the share price, or net asset value per share. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
MARCH 31, 2000
--------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------
Investment securities, at value
(identified cost of $18,615,965) (Note 3) ................ $18,561,959
Cash ...................................................... 52,239
Interest receivable ....................................... 187,126
------------
18,801,324
------------
--------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------
Accrued management fees (Note 2) .......................... 7,877
Distribution fees payable (Note 2) ........................ 37
Service fees payable (Note 2) ............................. 37
Dividends payable ......................................... 5,867
Payable for trustees' fees and expenses ................... 83
------------
13,901
------------
Net Assets ................................................ $18,787,423
============
--------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
--------------------------------------------------------------------------------
Capital paid in ........................................... $19,032,548
Accumulated net realized loss on investments .............. (191,119)
Net unrealized depreciation on investments (Note 3) ....... (54,006)
------------
$18,787,423
============
Investor Class
Net assets ................................................ $18,609,857
Shares outstanding ........................................ 1,977,564
Net asset value per share ................................. $9.41
Advisor Class
Net assets ................................................ $177,566
Shares outstanding ........................................ 18,869
Net asset value per share ................................. $9.41
8 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
YEAR ENDED MARCH 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME
--------------------------------------------------------------------------------
Income:
Interest ...................................................... $959,658
---------
Expenses (Note 2):
Management fees ............................................... 73,712
Distribution fees -- Advisor Class ............................ 187
Service fees -- Advisor Class ................................. 187
Trustees' fees and expenses ................................... 420
---------
74,506
---------
Net investment income ......................................... 885,152
---------
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
--------------------------------------------------------------------------------
Net realized loss on investments .............................. (120,522)
Change in net unrealized depreciation on investments .......... 109,626
---------
Net realized and unrealized loss on investments ............... (10,896)
---------
Net Increase in Net Assets Resulting from Operations .......... $874,256
=========
See Notes to Financial Statements www.americancentury.com 9
<PAGE>
Statements of Changes inNet Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999
<TABLE>
<CAPTION>
Increase in Net Assets 2000 1999
-----------------------------------------------------------------------------------------
OPERATIONS
-----------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income .................................... $ 885,152 $ 338,501
Net realized loss on investments ......................... (120,522) (20,024)
Change in net unrealized depreciation on investments ..... 109,626 (111,410)
------------ ------------
Net increase in net assets resulting from operations ..... 874,256 207,067
------------ ------------
-----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------------------------
From net investment income:
Investor Class .......................................... (881,060) (338,135)
Advisor Class ........................................... (4,092) (366)
------------ ------------
Decrease in net assets from distributions ................ (885,152) (338,501)
------------ ------------
-----------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
-----------------------------------------------------------------------------------------
Net increase in net assets from capital
share transactions....................................... 9,807,658 3,842,717
------------ ------------
Net increase in net assets ............................... 9,796,762 3,711,283
-----------------------------------------------------------------------------------------
NET ASSETS
-----------------------------------------------------------------------------------------
Beginning of period ...................................... 8,990,661 5,279,378
------------ ------------
End of period ............................................ $ 18,787,423 $ 8,990,661
============ ============
</TABLE>
10 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
MARCH 31, 2000
--------------------------------------------------------------------------------
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.
Additional Information -- Funds Distributor, Inc. (FDI) is a distributor
of the trust. Certain officers of FDI are also officers of the trust.
www.americancentury.com 11
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
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, port folio
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 year ended
March 31, 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 year ended March 31, 2000 were $374.
Effective March 13, 2000, American Century Investment Services, Inc.
(ACIS), became a distributor of the trust.
Certain officers and Trustees of the trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
--------------------------------------------------------------------------------
3. Investment Transactions
Purchases and sales of U.S. Treasury and Agency obligations, excluding
short-term investments, totaled $16,815,854 and $7,381,011 respectively.
As of March 31, 2000, accumulated net unrealized depreciation was $56,602,
based on the aggregate cost of investments for federal income tax purposes of
$18,618,561. Accumulated net unrealized depreciation consisted of unrealized
appreciation of $52,589 and unrealized depreciation of $109,191.
12 1-800-345-2021
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
4. Capital Share Transactions
Transactions in shares of the fund were as follows (unlimited number of
shares authorized):
Shares Amount
--------------------------------------------------------------------------------
INVESTOR CLASS
--------------------------------------------------------------------------------
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
============ ============
Year ended March 31, 1999
Sold ....................................... 663,668 $6,372,276
Issued in reinvestment of distributions .... 31,279 300,195
Redeemed ................................... (295,763) (2,840,158)
------------ ------------
Net increase ............................... 399,184 $3,832,313
============ ============
--------------------------------------------------------------------------------
ADVISOR CLASS
--------------------------------------------------------------------------------
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
============ ============
June 15, 1998(1) through March 31, 1999
Sold ....................................... 1,043 $10,051
Issued in reinvestment of distributions .... 37 353
Redeemed ................................... -- --
------------ ------------
Net increase ............................... 1,080 $10,404
============ ============
(1) Commencement of sale of the Advisor Class.
--------------------------------------------------------------------------------
5. Bank Loans
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended March 31, 2000.
www.americancentury.com 13
<PAGE>
Inflation-Adjusted Treasury -- Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including total return, income ratio (net
income as a percentage of average net assets), expense ratio (operating expenses
as a percentage of average net assets), and portfolio turnover (a gauge of the
fund's trading activity).
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
--------------------------------------------------------
Investor Class
--------------------------------------------------------
2000 1999 1998 1997(1)
---------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............... $9.48 $9.63 $9.74 $10.00
---------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ............................ 0.58 0.47 0.44 0.06
Net Realized and Unrealized Loss on
Investment Transactions ........................ (0.07) (0.15) (0.11) (0.26)
---------- --------- --------- ---------
Total From Investment Operations ................. 0.51 0.32 0.33 (0.20)
---------- --------- --------- ---------
Distributions
From Net Investment Income ....................... (0.58) (0.47) (0.44) (0.06)
---------- --------- --------- ---------
Net Asset Value, End of Period ..................... $9.41 $9.48 $9.63 $9.74
========== ========= ========= =========
Total Return(2) .................................. 5.52% 3.37% 3.45% (1.98)%
---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets .. 0.51% 0.49% 0.50% 0.50%(3)
Ratio of Net Investment Income to
Average Net Assets................................ 6.06% 4.84% 4.45% 5.03%(3)
Portfolio Turnover Rate ............................ 52% 127% 69% --
Net Assets, End of Period (in thousands) ........... $18,610 $8,980 $5,279 $2,277
</TABLE>
(1) February 10, 1997 (inception) through March 31, 1997.
(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.
14 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Inflation-Adjusted Treasury -- Financial Highlights
--------------------------------------------------------------------------------
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
-----------------------
Advisor Class
-----------------------
2000 1999(1)
--------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .................. $9.48 $9.64
------- -------
Income From Investment Operations
Net Investment Income ............................... 0.56 0.34
Net Realized and Unrealized Loss on
Investment Transactions ........................... (0.07) (0.16)
------- -------
Total From Investment Operations .................... 0.49 0.18
------- -------
Distributions
From Net Investment Income .......................... (0.56) (0.34)
------- -------
Net Asset Value, End of Period ........................ $9.41 $9.48
======= =======
Total Return(2) ..................................... 5.26% 1.94%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ..... 0.76% 0.74%(3)
Ratio of Net Investment Income to Average Net Assets .. 5.81% 4.56%(3)
Portfolio Turnover Rate ............................... 52% 127%
Net Assets, End of Period (in thousands) .............. $178 $10
(1) June 15, 1998 (commencement of sale) through March 31, 1999.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(3) Annualized.
See Notes to Financial Statements www.americancentury.com 15
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of the American Century Government Income Trust and
Shareholders of the Inflation-Adjusted Treasury Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Inflation-Adjusted Treasury
Fund (one of the eight funds in the American Century Government Income Trust
hereafter referred to as the "Fund") at March 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, in conformity with accounting
principles generally accepted in the United States. The financial highlights for
the period ended March 31, 1997 were audited by other auditors, whose report
dated May 2, 1997, expressed an unqualified opinion on those statements. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at March 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
May 8, 2000
16 1-800-345-2021
<PAGE>
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 com
panies and financial advisors. Advisor Class shares are subject to a 0.50% Rule
12b-1 service and distribution fee. Half of that fee is available to pay for
recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the fund and
generally have the same rights and preferences.
Retirement Account Information
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are
liable for paying income tax on the taxable portion of your withdrawal. If you
elect not to have income tax withheld or you don't have enough income tax
withheld, you may be responsible for payment of estimated tax. You may incur
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
www.americancentury.com 17
<PAGE>
Background Information
--------------------------------------------------------------------------------
Investment Team Leaders
-----------------------
Portfolio Manager
-----------------------
Dave Schroeder
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 matur ity limitations. 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 Treasury Index is an index of U.S. Treasury securities with
maturities greater than 10 years.
The Salomon U.S. Inflation-Linked Index is an index of inflation-linked
U.S. Treasury securities.
18 1-800-345-2021
<PAGE>
Glossary
--------------------------------------------------------------------------------
Returns
o 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.
o 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
o 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
o Number of Securities -- the number of different securities held by the fund on
a given date.
o 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.
o Average Duration -- another measure of the sensitivity of a fixed-income port
folio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio.
o 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
o Basis Point -- one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%).
o Coupon -- the stated interest rate of a security.
Security Types
o 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.
o 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.
www.americancentury.com 19
<PAGE>
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.
o Capital Preservation -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
o 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.
o 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.
o 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.
o Conservative -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
o Moderate -- these funds generally provide moderate return potential with
moderate price- fluctuation risk.
o Aggressive -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
20 1-800-345-2021
<PAGE>
INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
RISK LEVEL CAPITAL PRESERVATION INCOME
Taxable Tax-Fre Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AGGRESSIVE
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
---------------------------------------------------------------------------------------------------------
MODERATE Long-Term Treasury CA Long-Term
Tax-Free
Target 2005*
Long-Term Tax-Free
Bond
CA Insured Tax-Free
Premium Bond
---------------------------------------------------------------------------------------------------------
CONSERVATIVE Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Tax-Free
Intermediate-Term
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market Municipal
GNMA
Premium CA Tax-Free FL Intermediate-Term
Government Reserve Money Market Inflation-Adjusted Municipal
Treasury
Government Agency Tax-Free Intermediate-Term
Money Market Money Market Limited-Term Bond Tax-Free
Capital Preservation Target 2000* CA Limited-Term
Tax-Free
Short-Term Government
Limited-Term
Short-Term Treasury Tax-Free
---------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
RISK LEVEL GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE Veedot(2)
Small Cap Quantitative New Opportunities Global Gold Emerging Markets
Small Cap Value Giftrust(R) International
Discovery
Vista
International
Heritage Growth
Growth Global Growth
Ultra(R)
Select
------------------------------------------------------------------------------------------------------------------------------------
MODERATE Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Resources
Equity Index Real Estate
Balanced
Large Cap Value
Strategic Allocation:
Moderate Tax-Managed Value
Strategic Allocation: Income & Growth
Conservative
Value
Equity Income
------------------------------------------------------------------------------------------------------------------------------------
CONSERVATIVE
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
<PAGE>
[LOGO]
AMERICAN
CENTURY(R)
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.
Who we are [GRAPHIC OMITTED]
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.
--------------------------------------------------------------------------------
-----------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
-----------------
0005 American Century Investment Services, Inc.
SH-ANN-20575 (C)2000 American Century Services Corporation
<PAGE>
March 31, 2000
A M E R I C A N C E N T U R Y (R)
Annual Report
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Short-Term Treasury
Intermediate-Term Treasury
Long-Term Treasury
[LOGO]
AMERICAN
CENTURY(R)
<PAGE>
Short-Term Treasury
(BSTAX)
--------------------------------------------------------------------------------
Intermediate-Term Treasury
(CPTNX)
--------------------------------------------------------------------------------
Long-Term Treasury
(BLAGX)
--------------------------------------------------------------------------------
Turn to the inside back cover of this report to see a list of American
Century funds classified by objective and risk.
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--------------------------------------------------------------------------------
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<PAGE>
Our Message to You
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
The 12 months ended March 31, 2000, provided a difficult environment for
U.S. bond funds -- a booming economy, inflation fears, and rising interest
rates. Trying to keep economic growth, inflation, and the U.S. stock market
under control, the Federal Reserve raised short-term interest rates five times
between June and March, putting pressure on bond prices.
Despite these challenges, American Century's Short-, Intermediate-, and
Long-Term Treasury funds continued to provide above-average yields and
below-average expenses (according to Lipper, Inc., an independent mutual fund
ranking service). These key factors helped the funds place in the top half or
better in their peer groups for the past year (see pages 4, 8, and 12 for more
performance information).
We are proud of the performance of these funds and of the numerous other
ways we can help investors like you meet your goals. We are equally proud of our
dedication to creating a positive, safe, and productive work environment for
American Century staff. This commitment was recognized and rewarded in 1999 when
American Century ranked in the top 40 of Fortune magazine's "100 Best Companies
to Work For."
We do not take this recognition lightly; acknowledgements like this allow
us to recruit talented and dedicated people, from service representatives to
investment professionals. This "intellectual capital" is our most valuable
resource and an essential one in our efforts to provide you with excellent
investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights ..................................................... 2
Market Perspective .................................................... 3
Short-Term Treasury
Performance Information ............................................... 4
Management Q&A ........................................................ 5
Portfolio at a Glance ................................................. 5
Schedule of Investments ............................................... 7
Intermediate-Term Treasury
Performance Information ............................................... 8
Management Q&A ........................................................ 9
Portfolio at a Glance ................................................. 9
Schedule of Investments ............................................... 11
Long-Term Treasury
Performance Information ............................................... 12
Management Q&A ........................................................ 13
Portfolio at a Glance ................................................. 13
Schedule of Investments ............................................... 15
Financial Statements
Statements of Assets and
Liabilities ........................................................ 16
Statements of Operations .............................................. 17
Statements of Changes
in Net Assets ...................................................... 18
Notes to Financial
Statements ......................................................... 19
Financial Highlights .................................................. 22
Report of Independent
Accountants ........................................................ 28
Other Information
Share Class and Retirement
Account Information ................................................ 29
Background Information
Investment Philosophy
and Policies .................................................... 30
Comparative Indices ................................................ 30
Lipper Rankings .................................................... 30
Investment Team
Leaders ......................................................... 30
Glossary .............................................................. 31
www.americancentury.com 1
<PAGE>
Report Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-Term Treasury(1)
(BSTAX)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months ................ 1.63%(2)
1 Year .................. 2.86%
30-Day SEC Yield: 6.04%
Inception Date: 9/8/92
--------------------------------------------------------------------------------
Net Assets: $61.3 million(3)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Intermediate-Term Treasury(1)
(CPTNX)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months ................ 1.67%(2)
1 Year .................. 1.51%
30-Day SEC Yield: 6.07%
Inception Date: 5/16/80
--------------------------------------------------------------------------------
Net Assets: $341.7 million(3)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Long-Term Treasury(1)
(BLAGX)
--------------------------------------------------------------------------------
Total Returns: AS OF 3/31/00
6 Months ................ 5.58%(2)
1 Year .................. 2.86%
30-Day SEC Yield: 5.85%
Inception Date: 9/8/92
--------------------------------------------------------------------------------
Net Assets: $90.6 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 31-32.
Market Perspective
o The Federal Reserve raised short-term interest rates five times between
June 1999 and March 2000.
o Short-term Treasurys outpaced longer-term Treasurys for the full period.
However, longer-term Treasury bonds outperformed in the first quarter of
2000, benefiting from reduced issuance and buybacks.
o As short-term Treasury yields rose and long-term yields fell in 2000, the
Treasury yield curve "inverted" -- the yield of the two-year note was
higher than that of the 30-year bond.
o Treasurys generally outpaced agency bonds for the full period. The
best-performing Treasurys were inflation-indexed securities.
Short-Term Treasury
o The portfolio performed well relative to other short Treasury funds,
producing above-average yields and returns (see page 4).
o We positioned the portfolio conservatively, shortening its duration. A
shorter duration meant the fund's share price fell less as interest rates
rose.
o Our "barbell" maturity structure helped returns -- we overweighted one-
and five-year notes while underweighting two-year Treasurys, whose rates
rose sharply.
o We held a modest position in Treasury inflation-indexed securities (TIIS).
That helped returns because TIIS outperformed other government bonds.
o We have a cautious outlook for inflation and interest rates, so we're
likely to maintain a shorter duration and a small allocation to TIIS going
forward.
Intermediate-Term Treasury
o The fund ranked third in its Lipper category, based on its return for the
year ended March 31, 2000 (see page 8).
o Below-average expenses and an above-average yield contributed to the
portfolio's strong relative performance. So did keeping its interest rate
sensitivity (duration) lower than that of its peers.
o Reducing our exposure to intermediate-term securities also helped fund
performance. Buying agencys when yields were high and investing in
inflation-indexed bonds further enhanced fund returns.
o We plan to keep duration short, and to add agency and inflation-indexed
bonds when we think they can enhance returns.
Long-Term Treasury
o The fund ranked number one in its Lipper category, based on its return for
the year ended March 31, 2000 (see page 12).
o Below-average expenses and an above-average yield contributed to the
fund's success. So did the port folio's interest rate sensitivity
(duration), which is typically greater than that of its peers. This was
beneficial when long-term Treasury yields plunged in the first quarter of
2000.
o Our use of Treasury inflation-indexed securities (TIIS) and a cautious
approach toward agency securities also improved performance.
o Because we anticipate higher interest rates, we plan to shorten the port
folio's duration. We also plan to avoid agency securities and continue to
use TIIS.
2 1-800-345-2021
<PAGE>
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[PHOTO OMITTED]
[Photo of Randall W. Merk, chief investment officer of fixed income at American
Century]
Performance Overview
An extended series of interest rate hikes and persistent inflationary
worries muted the performance of U.S. Treasury and agency securities during the
12 months ended March 31, 2000 (see the return table at right). The Federal
Reserve (the Fed) raised short-term interest rates five times, hoping to curb
the economy and the U.S. stock market. The Fed's efforts seemingly went
unrewarded -- the economy continued to grow at an estimated annual rate of over
5% in the first quarter of 2000, and U.S. stock indexes hit record highs.
The Long and Short of It
While short-term notes, which are less interest rate sensitive, performed
best for the 12 months, they significantly lagged longer-term bonds in the
second half of the period. Longer-term bond yields fell in the first quarter of
2000 as the Treasury scaled back its auctions in response to a swelling federal
budget surplus. The Treasury also announced plans to repurchase $30 billion of
its outstanding, higher-yielding bonds to cut financing costs.
The performance and yield disparities between the short and long ends of
the Treasury yield curve caused the curve to "invert" for the first time since
1990 (see the graph at right). The 30-year Treasury bond yield fell to 5.83% on
March 31, 2000, 65 basis points (0.65%) lower than the 6.48% yield on the 2-year
Treasury note.
Agency Bonds Underperform
Treasury securities dramatically outperformed agency bonds during the
12-month period. Supply was one reason. While the Treasury was scaling back its
issuance, agency issuance swelled last fall as agencys accelerated their debt
release schedules to avoid potential Y2K complications.
Uncertainty was another factor. Invest ors began to unload agency
securities after Congress was asked to consider cutting some longstanding but
never-used lines of credit that give some government agencies (such as Fannie
Mae and Freddie Mac) implicit government backing. By March 31, 2000, the spread
between 10-year Treasurys and 10-year agency bonds was over 110 basis points,
versus about 80 basis points just six months earlier. When yield spreads widen,
Treasurys out perform agencys.
Bright Spot
One glimmer of sunshine in the U.S. bond market gloom was the performance
of Treasury inflation-indexed securities (TIIS). As the consumer price index
(CPI) rose 3.7% during the 12 months ended March 31, 2000, the Salomon U.S.
Inflation-Linked Index returned 6.39%, significantly more than other Treasury
indexes. Reflecting the increase in CPI, the inflation adjustments to the
principal value of TIIS totaled 3.67% for the one-year period. That was the
largest annual inflation adjustment since TIIS were first issued in 1997.
"The performance and yield disparities between the short and long ends of the
Treasury yield curve caused the curve to `invert' for the first time since
1990."
Bond Index Returns
For the year ended March 31, 2000
Salomon Brothers 1- to 3-Year
Treasury Index 3.70%
Salomon Brothers 3- to 10-Year
Treasury Index 1.93%
Salomon Brothers Long-Term
Treasury Index 3.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Source: Russell/Mellon Analytical Services and Bloomberg Financial Markets
Inverting Treasury Yield Curve
[The following was depicted as a mountain graph in the printed material.]
3/31/1999 12/31/1999 3/31/2000
1 4.72 5.96 6.24
4.99 6.24 6.48
5.03 6.28 6.42
5.07 6.32 6.37
5 5.10 6.35 6.32
5.13 6.37 6.25
5.16 6.39 6.19
5.19 6.41 6.13
5.22 6.43 6.07
10 5.24 6.44 6.01
5.26 6.44 6.00
5.28 6.44 5.99
5.30 6.44 5.98
5.32 6.44 5.97
15 5.34 6.45 5.96
5.36 6.45 5.95
5.38 6.45 5.94
5.40 6.45 5.93
5.42 6.45 5.92
20 5.44 6.46 5.91
5.46 6.46 5.90
5.48 6.46 5.89
5.50 6.46 5.88
5.52 6.46 5.87
25 5.54 6.47 5.86
5.56 6.47 5.85
5.58 6.47 5.84
5.60 6.47 5.83
5.62 6.47 5.83
30 5.63 6.48 5.83
Source: Bloomberg Financial Markets
www.americancentury.com 3
<PAGE>
Short-Term Treasury -- Performance
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Investor Class (inception 9/8/92) Advisor Class (inception 10/6/97)
------------------------------------------------------------------------------------------------------
Short U.S. Treasury Funds(3)
Short-Term Salomon 1- to 3-Yr. Short-Term Salomon 1- to 3-Yr.
Treasury Treasury Index(2) Average Return Fund's Ranking Treasury Treasury Index(2)
<S> <C> <C> <C> <C> <C> <C>
6 Months(1) ........... 1.63% 1.82% 1.58% -- 1.50% 1.82%
1 Year ................ 2.86% 3.70% 2.79% 13 out of 26 2.60% 3.70%
-----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
-----------------------------------------------------------------------------------------------------------------------------------
3 Years ............... 5.10% 5.74% 5.22% 12 out of 23 -- --
5 Years ............... 5.33% 6.04% 5.53% 11 out of 16 -- --
Life of Fund .......... 4.68% 5.35%(4) 4.80%(5) 6 out of 8(5) 4.22% 5.19%(6)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) We changed the fund's benchmark from the Salomon Brothers 1- to 3-Year
Treasury/Agency Index to the Salomon Brothers 1- to 3-Year Treasury Index,
which we believe more accurately represents the fund's primarily Treasury
focus.
(3) According to Lipper Inc., an independent mutual fund ranking service.
(4) Since 8/31/92, the date nearest the class's inception for which data are
available.
(5) Since 9/30/92, the date nearest the class's inception for which data are
available.
(6) Since 9/30/97, the date nearest the class's inception for which data are
available.
See pages 29-31 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
Growth of $10,000 Over Life of Fund
[The following was depicted as a mountain graph in the printed material.]
Salomon 1- to 3-Year Salomon 1- to 3-Year
Short-Term Treasury/Agency Treasury Index
Treasury $14,088 Index $14,719 $14,707
9/30/1992 10000 10000 10000
12/31/1992 9992 10020 10022
3/31/1993 10247 10236 10237
6/30/1993 10355 10351 10352
9/30/1993 10480 10497 10499
12/31/1993 10525 10562 10563
3/31/1994 10468 10508 10511
6/30/1994 10466 10513 10515
9/30/1994 10553 10614 10616
12/31/1994 10541 10616 10619
3/31/1995 10872 10966 10967
6/30/1995 11187 11309 11313
9/30/1995 11334 11475 11476
12/31/1995 11589 11757 11760
3/31/1996 11602 11808 11808
6/30/1996 11689 11931 11929
9/30/1996 11862 12130 12127
12/31/1996 12066 12358 12354
3/31/1997 12138 12444 12438
6/30/1997 12381 12715 12709
9/30/1997 12604 12964 12958
12/31/1997 12803 13182 13176
3/31/1998 12974 13376 13367
6/30/1998 13160 13582 13572
9/30/1998 13546 13990 13990
12/31/1998 13627 14100 14096
3/31/1999 13700 14191 14182
6/30/1999 13704 14271 14263
9/30/1999 13866 14450 14444
12/31/1999 13933 14538 14525
3/31/2000 14088 14719 14707
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. Both the
new and old fund benchmarks are provided in the graph at left, while the new
fund benchmark is shown in the graph below. Short-Term Treasury's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the indices do not. The graphs are
based on Investor Class shares only; performance for other classes will vary due
to differences in fee structures (see the Total Returns table above). Past
performance does not guarantee future results. Investment return and principal
value will fluctuate, and redemption value may be more or less than original
cost.
One-Year Returns Over Life of Fund (Periods ended March 31)
[The following table was depicted as a bar chart in the printed material.]
Short-Term Treasury Salomon 1- to 3-Year Treasury Index
3/93* 2.45% 2.37%
3/94 2.16% 2.67%
3/95 3.85% 4.35%
3/96 6.71% 7.86%
3/97 4.62% 5.34%
3/98 6.89% 7.47%
3/99 5.50% 6.10%
3/00 2.86% 3.70%
* From 9/30/92 (the date nearest the class's inception for which index data are
available).
4 1-800-345-2021
<PAGE>
Short-Term Treasury -- Q&A
--------------------------------------------------------------------------------
[PHOTO OMITTED]
An interview with Bob Gahagan, a portfolio manager on the Short-Term
Treasury fund investment team since January 2000. Bob replaced Newlin Rankin,
who now represents American Century's entire fixed-income product line and
investment team to institutional clients. Bob also manages Inter mediate-Term
Treasury, and has been with American Century since 1983.
How did Short-Term Treasury perform?
The fund's most recent fiscal year wasn't the best environment for bonds.
The Federal Reserve pushed short-term interest rates higher several times,
citing heightened inflation risk as the main concern (see page 3).
In this challenging environment, the fund returned 2.86%, beating the
2.79% average return of the 26 "Short U.S. Treasury Funds" tracked by Lipper
Inc.* In addition, Short-Term Treasury's 30-day SEC yield was 6.04% on March 31
-- better than the 5.92% average yield of the Lipper group.
How did you manage to produce this relatively good performance?
We think there were several key reasons for the fund's slightly
better-than-average yield and return. First, we maintained a relatively short
duration during the period. Second, we "barbelled" the maturities of the bonds
in the portfolio. Finally, we made some adjustments to the fund's sector
weightings, adding attractively valued agency and inflation-indexed securities.
Let's start with duration. What is it, and how did you manage it?
Duration measures a bond or bond fund's price sensitivity to changes in
interest rates -- the longer the duration, the more a fund's share price tends
to move when rates change. We kept a shorter duration than the Lipper group
average, so the fund outperformed when rates rose in the past year. Of course, a
shorter duration also means we would likely underperform when rates decline.
We shortened duration throughout the fiscal year, going from 2.1 years in
March 1999 to 1.7 years six months ago. By March 31, 2000, the portfolio had a
duration of 1.3 years. One way we shortened duration was by adjusting the
maturity structure of the portfolio.
You mentioned that you used a "barbell" maturity structure. Can you explain
that?
A bond barbell is exactly what it sounds like -- a structure that's heavy
at the ends and light in the middle. In this fund, that meant concentrating the
portfolio in one- and five-year securities while underweighting two-year notes.
That structure helped returns because yields on two-year securities are
very responsive to Fed rate policy, so underweighting them helped reduce our
exposure to rising rates. The five-year notes we held did well because rates
actually came down for these securities in the first quarter, thanks to the
Treasury buy-back plan and yield curve inversion (see page 3).
One-year securities help us capture rising yields more quickly, while
keeping the portfolio's duration in check.
"We kept a shorter duration than the Lipper group average, so the fund
outperformed when rates rose in the past year."
Portfolio at a Glance
--------------------------------------------------------------------------------
3/31/00 3/31/99
--------------------------------------------------------------------------------
Number of Securities 8 8
Weighted Average
Maturity 1.6 yrs 2.2 yrs
Average Duration 1.3 yrs 2.1 yrs
Expense Ratio (for
Investor Class) 0.51% 0.51%
Yields as of March 31, 2000
--------------------------------------------------------------------------------
Investor Advisor
Class Class
--------------------------------------------------------------------------------
30-Day SEC Yield 6.04% 5.78%
Investment terms are defined in the Glossary on pages 31-32.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
www.americancentury.com 5
<PAGE>
Short-Term Treasury -- Q&A
--------------------------------------------------------------------------------
(Continued)
"Yield spreads widened dramatically in March, so we brought our agency position
back up to about 25% of assets."
Types of Investments in the Portfolio
[The following tables were represented as pie charts in the written text.]
--------------------------------------------------------------------------------
As of March 31, 2000
--------------------------------------------------------------------------------
o Treasury Notes 67%
o Agency Notes 24%
o Treasury Inflation-Indexed Notes 9%
--------------------------------------------------------------------------------
As of September 30, 1999
--------------------------------------------------------------------------------
o Treasury Notes 75%
o Agency Notes 19%
o Repos 5%
o Agency Discount Notes 1%
Investment terms are defined in the Glossary on pages 31-32.
What changes did you make to the fund's sector weightings?
The fund's asset mix looks about the same -- with roughly 75% of the port
folio in Treasury and 25% in agency securities -- but we've made some
adjustments within these sectors.
For example, we traded in and out of agency bonds as yield spreads (or the
difference in yield between Treasurys and agencys) changed. The wider the yield
spread, the more attractive agencys are relative to Treasurys. Yield spreads
widened dramatically in March, so we brought our agency position back up to
about 25% of assets.
Within our Treasury position, we liked older, "off-the-run" securities.
These tend to have slightly higher yields than the current, or "on-the-run,"
bond of a given maturity because they don't trade as frequently. We also added
some inflation-indexed Treasury securities.
What's the attraction of inflation-indexed Treasurys?
The 12 months ended March 31, 2000 -- when inflation and interest rates
both rose -- was a perfect example of how an allocation to Treasury
inflation-indexed securities, or TIIS, can benefit a bond portfolio. Over the
last 12 months, the Salomon Inflation-Linked Securities Index returned 6.39%,
while the Salomon Treasury Index was up just 3.00%.
In March, we moved about 9% of the portfolio into TIIS because we felt
they offered very attractive yields. In April and May alone, the annualized
yield for TIIS will be about 12%. By comparison, the nominal two-year Treasury
yielded about 6.5%, and 30-year bonds were yielding just 5.83% at the end of
March.
What's your outlook for interest rates?
In the last six months, the economy grew at an annual rate of more than
6%. That's about twice the rate the Federal Reserve would like to see. In
addition, though inflation is still relatively low by historical standards, it
is rising at a faster rate than it has in the past several years.
Add it all up, and we think the Fed will raise short-term interest rates
in the coming months to try to tap the brakes and bring the economy back below
its speed limit for non-inflationary growth.
Given that outlook, how will you position the portfolio in the coming months?
Since we think the Fed isn't finished raising rates yet, we plan to
position the fund conservatively. That means we're likely to maintain the short
duration we've held over this last fiscal period. And with inflation rising,
we're likely to keep holding inflation-indexed securities, which could perform
well relative to nominal Treasurys.
6 1-800-345-2021
<PAGE>
Short-Term Treasury -- Schedule of Investments
--------------------------------------------------------------------------------
MARCH 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 75.5%
--------------------------------------------------------------------------------
$25,000,000 U.S. Treasury Notes, 7.75%,
2/15/01 $25,288,220
9,200,000 U.S. Treasury Notes, 8.00%,
5/15/01 9,354,044
5,266,400 U.S. Treasury Inflation Indexed
Notes, 3.625%, 7/15/02 5,251,906
5,000,000 U.S. Treasury Bonds, 10.75%,
5/15/03 5,594,392
-----------
TOTAL U.S. TREASURY SECURITIES 45,488,562
-----------
(Cost $45,681,491)
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 24.2%
--------------------------------------------------------------------------------
3,000,000 FFCB MTN, 8.90%, 6/6/00 3,011,808
5,800,000 FHLB, 6.25%, 11/15/02 5,692,398
5,900,000 FHLB, 7.00%, 2/14/03 5,890,000
-----------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 14,594,206
-----------
(Cost $14,617,654)
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 0.3%
--------------------------------------------------------------------------------
200,000 FHLB Discount Notes, 6.05%,
4/3/00(1) 200,000
-----------
(Cost $199,933)
TOTAL INVESTMENT SECURITIES -- 100.0% $60,282,768
===========
(Cost $60,499,078)
Notes to Schedule of Investments
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
MTN = Medium Term Note
(1) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 7
<PAGE>
Intermediate-Term Treasury -- Performance
--------------------------------------------------------------------------------
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Investor Class (inception 5/16/80) Advisor Class (inception 10/9/97)
----------------------------------------------------------------------------------------------------------------
Intermediate U.S. Treasury Funds(2)
Intermediate-Term Salomon 3- to 10- Intermediate-Term Salomon 3- to 10-
Treasury Year Treasury Index Average Return Fund's Ranking Treasury Year Treasury Index
<S> <C> <C> <C> <C> <C> <C>
6 Months(1) ........... 1.67% 1.94% 1.51% -- 1.55% 1.94%
1 Year ................ 1.51% 1.93% 1.07% 3 out of 14 1.25% 1.93%
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
------------------------------------------------------------------------------------------------------------------------------------
3 Years ............... 6.14% 6.79% 5.99% 6 out of 11 -- --
5 Years ............... 6.17% 6.77% 6.17% 3 out of 7 -- --
10 Years .............. 6.96% 7.47% 6.97% 3 out of 4 -- --
Life of Fund .......... 8.29% 9.27%(3) 8.29% 1 out of 1 4.43% 5.42%(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 5/31/80, the date nearest the class's inception for which data are
available.
(4) Since 9/30/97, the date nearest the class's inception for which data are
available.
See pages 29-31 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
Growth of $10,000 Over 10 Years
[The following was depicted as a mountain graph in the printed material.]
Intermediate-Term Salomon 3- to 10-Year
Treasury Treasury Index
Mar-91 11.59 11.91
Mar-92 9.92 10.49
Mar-93 12.35 12.15
Mar-94 1.84 2.32
Mar-95 3.54 4.30
Mar-96 8.42 9.18
Mar-97 4.05 4.37
Mar-98 11.04 11.55
Mar-99 6.09 7.10
Mar-00 1.51 1.93
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.
One-Year Returns Over 10 Years (Periods ended March 31)
[The following table was depicted as a bar chart in the printed material.]
Intermediate-Term Treasury Salomon 1- to 3-Year Treasury Index
3/91 11.59% 11.91%
3/92 9.92% 10.49%
3/93 12.35% 12.15%
3/94 1.84% 2.32%
3/95 3.54% 4.30%
3/96 8.42% 9.16%
3/97 4.05% 4.37%
3/98 11.04% 11.55%
3/99 6.09% 7.10%
3/00 1.51% 1.93%
8 1-800-345-2021
<PAGE>
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 its fiscal year ended March
31, 2000?
U.S. bonds struggled to their worst performance since 1994, but Inter
mediate-Term Treasury beat the average performance of its peers.
The fund returned 1.51%, outpacing the 1.07% average return of the 14
funds in the "Intermediate U.S. Treasury Funds" category tracked by Lipper Inc.*
Based on those returns, the fund ranked third in its Lipper category.
The fund's benchmark, the Salomon Brothers 3-10 Year Treasury Index,
returned 1.93% during the same 12-month period.
What about the fund's yield?
Intermediate-Term Treasury's 30-day SEC yield was 6.07% as of March 31,
2000, compared with the 5.66% average of the 14 intermediate-term Treasury funds
tracked by Lipper. The fund's 0.51% expense ratio was more than 30 basis points
(0.30%) lower than the average expense ratio for its Lipper category, which
helped boost the yield.
Why did Intermediate-Term Treasury outperform most of its peers?
Lower expenses and a higher yield were two key reasons. Another was that
we kept the fund's duration shorter than that of its peers. Duration is a
measure of a bond fund's sensitivity to interest rate changes. The shorter the
duration, the less susceptible a bond fund is to interest rate moves. With the
Federal Reserve embarking on a program of tightening monetary policy -- hiking
short-term interest rates five times to slow the economy and head off inflation
-- our short-duration strategy was the right call.
Did the way you structured the portfolio come into play at all?
Our yield curve positioning also benefited the fund. (The yield curve is a
graphic representation of the difference between short- and long-term yields --
see page 3 for examples).
During the period, yields rose overall as the Fed raised rates. But on the
long end of the yield curve the damage was mitigated somewhat by the federal
budget surplus, which led the U.S. Treasury to announce bond buy-backs and lower
issuance of longer-term Treasurys going forward. As a result, the Treasury yield
curve flattened, then inverted, with long-term yields actually falling below
short-term rates.
Fortunately, we anticipated this movement and reduced our exposure to the
intermediate part of the yield curve, which experienced the most significant
yield moves and price declines during the 12-month period. We pursued a barbell
strategy, heavily weighting the fund on either end of the maturity spectrum,
with little in between.
What about your bond selection?
We further enhanced fund performance by periodically investing in agency
securities when spreads (the difference between agency and Treasury yields) were
wide and selling them when spreads tightened. Recently, agencys became
attractive again relative to Treasurys, first because of heavy issuance and
second, because of suggestions that the federal government
"The fund's 0.51% expense ratio was more than 30 basis points (0.30%) lower than
the average expense ratio for its Lipper category, which helped boost the
yield."
Portfolio at a Glance
--------------------------------------------------------------------------------
3/31/00 3/31/99
--------------------------------------------------------------------------------
Number of Securities 18 18
Weighted Average
Maturity 6.3 yrs 5.5 yrs
Average Duration 4.7 yrs 4.1 yrs
Expense Ratio (for
Investor Class) 0.51% 0.51%
Yields as of March 31, 2000
--------------------------------------------------------------------------------
Investor Advisor
Class Class
--------------------------------------------------------------------------------
30-Day SEC Yield 6.07% 5.82%
Investment terms are defined in the Glossary on pages 31-32.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
www.americancentury.com 9
<PAGE>
Intermediate-Term Treasury -- Q&A
--------------------------------------------------------------------------------
(Continued)
Types of Investments in the Portfolio
[The following tables were represented as pie charts in the written text.]
--------------------------------------------------------------------------------
As of March 31, 2000
--------------------------------------------------------------------------------
o Treasury Notes 73%
o Agency Notes 14%
o Treasury Inflation-Indexed Notes 8%
o Treasury Bonds 5%
--------------------------------------------------------------------------------
As of September 30, 1999
--------------------------------------------------------------------------------
o Treasury Notes 60%
o Agency Bonds 5%
o Treasury Inflation-Indexed Notes 6%
o Treasury Bonds 27%
o Temporary Cash Investments 2%
should cut its implicit backing of agency debt. We believed this was unlikely to
happen, so we added to the fund's agency position, bringing it to 14% of the
portfolio at the end of the period.
About 8% of the portfolio is currently invested in Treasury inflation-indexed
securities (TIIS). What can you tell us about these bonds?
Unlike regular Treasurys, the face values of TIIS are adjusted monthly for
changes in the consumer price index (CPI). When the CPI rises, so do the yields
of funds that own TIIS. That's because the value adjustments for TIIS are con
sidered income, just like interest payments, and therefore count as part of the
funds' yields.
Over the course of the fiscal year, selective ownership of TIIS helped
Intermediate-Term Treasury's performance. The bonds maintained their value when
interest rates rose, and, periodically, they provided much higher yields than
regular Treasurys. For example, CPI surges in February and March translated into
annualized TIIS yields of 11% in April and 14% in May. That's more than double
the yield of any other Treasury security. At those yield levels, TIIS make an
attractive alternative to Treasury bills and other cash instruments.
What's your outlook for the U.S. bond market?
Looking broadly, we see that the economy continues to grow at a rapid
pace, inflation is on the upswing, retail sales are strong, and labor markets
are tight. With this in mind, it's likely that the Fed will continue to raise
rates, perhaps even more aggressively than it has thus far.
At the same time, the Treasury plans to continue its bond buy-back program
and reduce the amount of debt it brings to auction. As a result, we anticipate
that the Treasury yield curve will remain inverted or flat for the foreseeable
future.
How do you plan to manage the fund?
We plan on continuing our barbell approach, aiming to own bonds with
maturities in the area targeted by the Treasury's buy-back program. We also
expect to maintain a relatively short duration in anticipation of rising rates.
In terms of security selection, agency bonds may be somewhat volatile, but if
they continue to offer appealing yields we'll pursue them opportunistically.
Finally, we'll probably maintain the fund's TIIS holdings and perhaps add to
them when CPI increases offer attractive opportunities for higher yields.
Investment terms are defined in the Glossary on pages 31-32.
10 1-800-345-2021
<PAGE>
Intermediate-Term Treasury -- Schedule of Investments
MARCH 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 86.3%
--------------------------------------------------------------------------------
$14,000,000 U.S. Treasury Notes, 5.50%,
2/28/03 $ 13,647,932
19,500,000 U.S. Treasury Notes, 5.75%,
4/30/03 19,134,272
24,000,000 U.S. Treasury Notes, 5.75%,
8/15/03 23,524,798
16,000,000 U.S. Treasury Notes, 7.25%,
5/15/04 16,495,310
22,600,000 U.S. Treasury Notes, 7.875%,
11/15/04 23,930,105
19,900,000 U.S. Treasury Notes, 7.50%,
2/15/05 20,817,961
16,500,000 U.S. Treasury Notes, 6.50%,
5/15/05 16,626,623
29,800,000 U.S. Treasury Notes, 6.50%,
8/15/05 30,011,182
15,200,000 U.S. Treasury Notes, 6.875%,
5/15/06 15,613,265
26,800,000 U.S. Treasury Notes, 6.50%,
10/15/06 27,054,112
17,300,000 U.S. Treasury Notes, 4.75%,
11/15/08 15,633,097
24,000,000 U.S. Treasury Notes, 6.00%,
8/15/09 23,710,848
25,065,750 U.S. Treasury Inflation Indexed
Notes, 4.25%, 1/15/10 25,567,679
5,500,000 U.S. Treasury Bonds, 11.25%,
2/15/15 8,122,968
7,600,000 U.S. Treasury Bonds, 8.75%,
5/15/17 9,597,505
------------
TOTAL U.S. TREASURY SECURITIES 289,487,657
------------
(Cost $296,401,360)
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 13.6%
--------------------------------------------------------------------------------
14,500,000 FHLB, 6.25%, 11/15/02 14,230,996
10,000,000 FHLB, 5.125%, 9/15/03 9,426,440
24,000,000 FHLB, 5.80%, 9/2/08 21,919,344
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 45,576,780
------------
(Cost $45,525,223)
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.1%
--------------------------------------------------------------------------------
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a
joint trading account at 6.08%, dated
3/31/00, due 4/3/00 (Delivery value
$339,172) 339,000
------------
(Cost $339,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $335,403,437
============
(Cost $342,265,583)
Notes to Schedule of Investments
FHLB = Federal Home Loan Bank
See Notes to Financial Statements www.americancentury.com 11
<PAGE>
Long-Term Treasury -- Performance
--------------------------------------------------------------------------------
Total Returns as of March 31, 2000
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Investor Class (inception 9/8/92) Advisor Class (inception 1/12/98)
-----------------------------------------------------------------------------------------------------------
General U.S. Treasury Funds(3)
Long-Term Salomon Long-Term Long-Term Salomon Long-Term
Treasury Treasury Index(2) Average Return Fund's Ranking Treasury Treasury Index(2)
<S> <C> <C> <C> <C> <C> <C> <C>
6 Months(1) ........... 5.58% 5.80% 3.39% -- 5.45% 5.80%
1 Year ................ 2.86% 3.00% 1.95% 1 out of 19 2.61% 3.00%
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
------------------------------------------------------------------------------------------------------------------------------------
3 Years ............... 9.64% 9.99% 7.46% 2 out of 16 -- --
5 Years ............... 8.95% 9.44% 7.40% 2 out of 15 -- --
Life of Fund .......... 7.57% 8.48%(4) 6.92%(5) 2 out of 9(5) 3.27% 5.15%(6)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) We changed the fund's benchmark from the Salomon Brothers Long-Term
Treasury/Agency Index to the Salomon Brothers Long-Term Treasury Index,
which we believe more accurately represents the fund's primarily Treasury
focus.
(3) According to Lipper Inc., an independent mutual fund ranking service.
(4) Since 8/31/92, the date nearest the class's inception for which data are
available.
(5) Since 9/30/92, the date nearest the class's inception for which data are
available.
(6) Since 12/31/97, the date nearest the class's inception for which data are
available.
See pages 29-31 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
Growth of $10,000 Over Life of Fund
[The following was depicted as a mountain graph in the printed material.]
Salomon Long-Term Salomon Long-Term
Long-Term Treasury Treasury/Agency Index Treasury Index
$17,549 $18,224 $18,267
9/30/1992 10000 10000 10000
12/31/1992 10109 10106 10095
3/31/1993 10766 10772 10756
6/30/1993 11319 11364 11344
9/30/1993 12114 12071 12040
12/31/1993 11892 11874 11840
3/31/1994 11074 11145 11117
6/30/1994 10691 10848 10827
9/30/1994 10617 10766 10748
12/31/1994 10792 10958 10936
3/31/1995 11435 11661 11636
6/30/1995 12633 12946 12911
9/30/1995 12908 13242 13205
12/31/1995 13950 14347 14298
3/31/1996 12974 13386 13350
6/30/1996 12951 13366 13325
9/30/1996 13138 13574 13528
12/31/1996 13759 14224 14173
3/31/1997 13316 13783 13729
6/30/1997 14037 14543 14482
9/30/1997 14855 15381 15317
12/31/1997 15790 16372 16315
3/31/1998 16044 16631 16561
6/30/1998 16735 17409 17333
9/30/1998 17945 18745 18702
12/31/1998 17803 18563 18515
3/31/1999 17059 17783 17735
6/30/1999 16653 17307 17285
9/30/1999 16620 17294 17265
12/31/1999 16254 16930 16903
3/31/2000 17549 18224 18267
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. Both the
new and old fund benchmarks are provided in the graph at left, while the new
fund benchmark is shown in the graph below. Long-Term Treasury's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the indices do not. The graphs are
based on Investor Class shares only; performance for other classes will vary due
to differences in fee structures (see the Total Returns table above). Past
performance does not guarantee future results. Investment return and principal
value will fluctuate, and redemption value may be more or less than original
cost.
One-Year Returns Over Life of Fund (Periods ended March 31)
[The following table was depicted as a bar chart in the printed material.]
Short-Term Treasury Salomon Long-Term Treasury Index
3/93* 7.66% 7.58%
3/94 2.86% 3.35%
3/95 3.25% 4.67%
3/96 13.46% 14.73%
3/97 2.65% 2.84%
3/98 20.48% 20.63%
3/99 6.33% 7.09%
3/00 2.86% 3.00%
* From 9/30/92 (the date nearest the class's inception for which index data are
available).
12 1-800-345-2021
<PAGE>
Long-Term Treasury -- Q&A
--------------------------------------------------------------------------------
[PHOTO OMITTED]
An interview with Dave Schroeder, a portfolio manager on the Long-Term
Treasury fund investment team.
How did Long-Term Treasury perform during the 12 months ended March 31, 2000?
Despite difficult market conditions, the fund ranked number one in its
Lipper category. Long-Term Treasury posted a 2.86% return, well above the 1.95%
average return of the 19 "General U.S. Treasury Funds" tracked by Lipper.* The
fund also generated a higher yield than its peers. As of March 31, 2000,
Long-Term Treasury's 30-day SEC yield was 5.85%, compared with the 5.47% average
yield of its Lipper category.
Longer-term results were also strong. For the three- and five-year periods
ended March 31, 2000, the fund ranked number two in its Lipper category.
What strategies helped Long-Term Treasury beat its peers?
There were three main factors. First, it had lower expenses. As of March
31, 2000, Long-Term Treasury's annualized expense ratio was 0.51%, about 30
basis points (0.30%) lower than the average expense ratio of its Lipper
category. All other things being equal, lower expenses mean higher yields and
returns.
Second was the fund's heightened sensitivity to interest rate changes, as
measured by its relatively long duration. We manage the fund to deliver a pure
play on the long end of the Treasury bond market, keeping duration within 10% of
that of the Salomon Brothers index. Consequently, our duration will almost
always exceed the average of our Lipper peer group, which includes a mix of
short-, intermediate-, and long-term funds.
The value of a portfolio with a duration of 10 years -- such as Long-Term
Treasury -- would rise approximately 10% when bond yields fall 1%, and fall
approximately 10% when bond yields rise 1%, all else being equal. The value of
funds with a shorter duration would change less in response to interest rate
changes.
Although the fund's longer duration muted performance when long-term bond
yields rose in 1999, it benefited the fund when long-term Treasury yields fell
in the first quarter of 2000.
What was the third factor behind the fund's outperformance?
Our use of Treasury inflation-indexed securities (TIIS). These securities
offer a guaranteed rate of return above inflation, as measured by the consumer
price index. The price of an inflation-indexed bond typically won't fall as much
as that of a traditional Treasury bond when interest rates rise. As a result,
our TIIS holdings aided performance in periods when rates were climbing --
particularly in the final three months of 1999.
"Despite difficult market conditions, the fund ranked number one in its Lipper
category."
Portfolio at a Glance
--------------------------------------------------------------------------------
3/31/00 3/31/99
--------------------------------------------------------------------------------
Number of Securities 8 9
Weighted Average
Maturity 19.8 yrs 20.5 yrs
Average Duration 10.3 yrs 10.8 yrs
Expense Ratio (for
Investor Class) 0.51% 0.51%
Yields as of March 31, 2000
--------------------------------------------------------------------------------
Investor Advisor
Class Class
--------------------------------------------------------------------------------
30-Day SEC Yield 5.85% 5.60%
Investment terms are defined in the Glossary on pages 31-32.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
www.americancentury.com 13
<PAGE>
Long-Term Treasury -- Q&A
--------------------------------------------------------------------------------
(Continued)
"Given the unfavorable supply/demand outlook for agency securities, we didn't
view them as attractive alternatives to Treasury bonds on a total return basis."
Types of Investments in the Portfolio
[The following tables were represented as pie charts in the written text.]
--------------------------------------------------------------------------------
As of March 31, 2000
--------------------------------------------------------------------------------
o Treasury Bonds 99%
o Agency Discount Notes 1%
--------------------------------------------------------------------------------
As of September 30, 1999
--------------------------------------------------------------------------------
o Treasury Bonds 91%
o STRIPS 9%
Investment terms are defined in the Glossary on pages 31-32.
Although the fund can hold agency securities, you chose not to during most of
the past year. Why?
We don't think long-term agency securities offer enough yield to
compensate for their added risk. We believe that many federal agencies will
continue to expand their debt issuance, which would hinder any potential price
gains by agency bonds. Given the unfavorable supply/demand outlook for agency
securities, we didn't view them as attractive alternatives to Treasury bonds on
a total return basis.
Have you participated in any of the recent Treasury buy-backs?
No, because the logistics of the buybacks -- done in what's known as a
"reverse auction" -- required sellers to submit their orders to dealers five
minutes before the actual buy-back price was set. We weren't comfortable with
that process, especially in light of the fact that the Treasury didn't offer any
special incentives for participating.
However, we maintained a relatively large weighting in bonds maturing in
2015 to 2025, which we believe will be the target of further government buybacks
and have the potential to perform well as a result.
Will reduced Treasury issuance and the buy-back program make you change the
fund's investment policies?
We don't anticipate any changes at this time. The Treasury plans to buy
back $30 billion in debt this year. Counteracting that, however, is the
Treasury's plan to hold two auctions of long-term debt this year, totaling an
estimated $15 billion in 30-year bonds. So the net reduction in long-term bond
supply is expected to be only $15 billion in 2000, representing only about a 3%
reduction in the $500 billion of outstanding Treasury debt. If supply continues
to contract beyond 2000, we may contemplate changes. But for now, we think that
the Treasury market offers ample opportunities.
What's your interest rate outlook?
There's mounting evidence that inflationary pressures are building. Recent
data confirmed that the economy continued to grow at a fast clip during the
first quarter of 2000. Additionally, labor markets remained tight and prices on
some goods and services appeared to be edging higher. With these inflation
signals flashing orange, most observers expected the Federal Reserve to raise
interest rates further in May, and possibly a few more times later in the year.
If so, we believe that long-term bond yields could move higher, producing
a flatter yield curve. The restrictions on the supply of long-term Treasury
bonds, however, may mute some of the damage caused by rising rates, much as it
has over the past year.
Given that outlook, what's your current strategy?
We're likely to shorten our duration a bit in response to the threat of
higher interest rates. Also, we plan to avoid agency securities since we expect
them to continue to be plagued by oversupply.
In addition, we might increase our holdings in TIIS, which offered much
more attractive "real" yields than a regular 30-year Treasury bond at the end of
the period. To calculate the real yield on a 30-year Treasury bond, we subtract
the inflation rate (almost 4% this year) from the bond's nominal, or stated,
yield (around 6%), which nets a real yield of about 2%. TIIS, by comparison,
carried a real yield of nearly 4% this spring -- a much better value, in our
opinion.
14 1-800-345-2021
<PAGE>
Long-Term Treasury -- Schedule of Investments
--------------------------------------------------------------------------------
MARCH 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 99.1%
--------------------------------------------------------------------------------
$14,400,000 U.S. Treasury Bonds, 11.25%,
2/15/15 $21,267,409
8,000,000 U.S. Treasury Bonds, 8.875%,
2/15/19 10,338,654
10,000,000 U.S. Treasury Bonds, 8.125%,
8/15/19 12,152,051
11,500,000 U.S. Treasury Bonds, 8.50%,
2/15/20 14,496,494
5,000,000 U.S. Treasury Bonds, 8.75%,
8/15/20 6,462,866
16,000,000 U.S. Treasury Bonds, 6.875%,
8/15/25 17,566,494
3,700,000 U.S. Treasury Bonds, 6.125%,
11/15/27 3,736,722
-----------
TOTAL U.S. TREASURY SECURITIES 86,020,690
-----------
(Cost $82,265,036)
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 0.9%
--------------------------------------------------------------------------------
800,000 FHLB Discount Notes, 6.05%,
4/3/00(1) 800,000
-----------
(Cost $799,731)
TOTAL INVESTMENT SECURITIES -- 100.0% $86,820,690
===========
(Cost $83,064,767)
Notes to Schedule of Investments
FHLB = Federal Home Loan Bank
(1) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 15
<PAGE>
Statements of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's assets (such as securities, cash, and
other receivables) and liabilities (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's net
assets. For each class of shares, the net assets divided by shares outstanding
is the share price, or net asset value per share. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
<TABLE>
<CAPTION>
MARCH 31, 2000 SHORT-TERM INTERMEDIATE- LONG-TERM
TREASURY TERM TREASURY TREASURY
-----------------------------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities, at value (identified cost of $60,499,078,
$342,265,583, and $83,064,767, respectively) (Note 3) ........ $ 60,282,768 $ 335,403,437 $ 86,820,690
Cash ........................................................... 95,289 935,150 --
Investment in affiliated money market fund (Note 2) ............ 179 11 700
Receivable for investments sold ................................ 5,755,266 14,632,031 3,031,875
Interest receivable ............................................ 1,030,163 5,445,303 870,541
------------- ------------- ------------
67,163,665 356,415,932 90,723,806
------------- ------------- ------------
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash ................. -- -- 75,464
Payable for investments purchased .............................. 5,822,844 14,557,110 --
Accrued management fees (Note 2) ............................... 26,452 142,938 37,870
Distribution fees payable (Note 2) ............................. 357 2,347 1,066
Service fees payable (Note 2) .................................. 357 2,347 1,066
Dividends payable .............................................. 8,201 24,680 13,838
Payable for trustees' fees and expenses ........................ 281 1,521 407
Accrued expenses and other liabilities ......................... 62 933 257
------------- ------------- ------------
5,858,554 14,731,876 129,968
------------- ------------- ------------
Net Assets ..................................................... $ 61,305,111 $ 341,684,056 $ 90,593,838
============= ============= ============
-----------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
-----------------------------------------------------------------------------------------------------------------------
Capital paid-in ................................................ $ 62,568,207 $ 363,192,087 $ 94,961,535
Accumulated net realized loss on investment transactions ....... (1,046,786) (14,645,885) (8,123,620)
Net unrealized appreciation (depreciation) on
investments (Note 3) ......................................... (216,310) (6,862,146) 3,755,923
------------- ------------- ------------
$ 61,305,111 $ 341,684,056 $ 90,593,838
============= ============= ============
Investor Class
Net assets ..................................................... $ 59,671,103 $ 329,995,296 $ 85,886,032
Shares outstanding ............................................. 6,188,217 32,892,172 8,746,505
Net asset value per share ...................................... $ 9.64 $ 10.03 $ 9.82
Advisor Class
Net assets ..................................................... $ 1,634,008 $ 11,688,760 $ 4,707,806
Shares outstanding ............................................. 169,451 1,165,073 479,436
Net asset value per share ...................................... $ 9.64 $ 10.03 $ 9.82
</TABLE>
16 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Statements of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 2000 SHORT-TERM INTERMEDIATE- LONG-TERM
TREASURY TERM TREASURY TREASURY
---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest ................................................... $ 3,666,686 $ 21,558,592 $ 7,073,145
----------- ------------ -----------
Expenses (Note 2):
Management fees ............................................ 333,519 1,916,645 552,552
Distribution fees -- Advisor Class ........................ 7,057 25,297 11,407
Service fees -- Advisor Class ............................. 7,057 25,297 11,407
Trustees' fees and expenses ................................ 1,947 11,248 3,259
----------- ------------ -----------
349,580 1,978,487 578,625
----------- ------------ -----------
Net investment income ...................................... 3,317,106 19,580,105 6,494,520
----------- ------------ -----------
---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
---------------------------------------------------------------------------------------------------------------
Net realized loss on investments ........................... (1,041,720) (14,645,882) (7,299,656)
Change in net unrealized appreciation (depreciation)
on investments ........................................... (319,091) (644,750) 1,905,647
----------- ------------ -----------
Net realized and unrealized loss on investments ............ (1,360,811) (15,290,632) (5,394,009)
----------- ------------ -----------
Net Increase in Net Assets Resulting from Operations ....... $ 1,956,295 $ 4,289,473 $ 1,100,511
=========== ============ ===========
</TABLE>
See Notes to Financial Statements www.americancentury.com 17
<PAGE>
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEAR ENDED MARCH 31, 2000 AND MARCH 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
SHORT-TERM INTERMEDIATE-
TREASURY TERM TREASURY
-------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
OPERATIONS
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income .............. $ 3,317,106 $ 2,579,012 $ 19,580,105 $ 20,995,387
Net realized gain (loss)
on investments ................... (1,041,720) 211,046 (14,645,882) 9,269,222
Change in net unrealized
appreciation (depreciation)
on investments ................... (319,091) (65,450) (644,750) (7,602,642)
------------ ------------ ------------- -------------
Net increase in net assets
resulting from operations ........ 1,956,295 2,724,608 4,289,473 22,661,967
------------ ------------ ------------- -------------
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------------------------------------------------------------
From net investment income:
Investor Class ................... (3,186,698) (2,463,442) (19,084,472) (20,921,594)
Advisor Class .................... (130,408) (115,570) (495,633) (73,793)
From net realized gains
on investment transactions:
Investor Class ................... -- -- -- (8,543,680)
Advisor Class .................... -- -- -- (37,293)
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 ............... (3,343,474) (2,579,012) (21,354,762) (29,576,360)
------------ ------------ ------------- -------------
-------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from capital
share transactions ............... (2,192,741) 22,404,706 (82,862,309) 73,537,251
------------ ------------ ------------- -------------
Net increase (decrease) in
net assets ....................... (3,579,920) 22,550,302 (99,927,598) 66,622,858
-------------------------------------------------------------------------------------------------------------
NET ASSETS
-------------------------------------------------------------------------------------------------------------
Beginning of period ................ 64,885,031 42,334,729 441,611,654 374,988,796
------------ ------------ ------------- -------------
End of period ...................... $ 61,305,111 $ 64,885,031 $ 341,684,056 $ 441,611,654
============ ============ ============= =============
<CAPTION>
--------------------------------------------------------------------------------
LONG-TERM
TREASURY
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 2000 1999
--------------------------------------------------------------------------------
OPERATIONS
--------------------------------------------------------------------------------
Net investment income .............. $ 6,494,520 $ 7,222,769
Net realized gain (loss)
on investments ................... (7,299,656) 5,981,743
Change in net unrealized
appreciation (depreciation)
on investments ................... 1,905,647 (7,972,679)
------------- -------------
Net increase in net assets
resulting from operations ........ 1,100,511 5,231,833
------------- -------------
--------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------------------------------------
From net investment income:
Investor Class ................... (6,238,022) (7,164,769)
Advisor Class .................... (256,498) (58,000)
From net realized gains
on investment transactions:
Investor Class ................... -- (7,472,735)
Advisor Class .................... -- (48,402)
In excess of net realized gains
on investment transactions:
Investor Class ................... -- (815,722)
Advisor Class .................... -- (8,242)
------------- -------------
Decrease in net assets
from distributions ............... (6,494,520) (15,567,870)
------------- -------------
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
--------------------------------------------------------------------------------
Net increase (decrease) in
net assets from capital
share transactions ............... (44,151,482) 46,876,040
------------- -------------
Net increase (decrease) in
net assets ....................... (49,545,491) 36,540,003
--------------------------------------------------------------------------------
NET ASSETS
--------------------------------------------------------------------------------
Beginning of period ................ 140,139,329 103,599,326
------------- -------------
End of period ...................... $ 90,593,838 $ 140,139,329
============= =============
</TABLE>
18 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
MARCH 31, 2000
--------------------------------------------------------------------------------
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
pourposes 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 fund has elected to treat such
losses as having been incurred in the following fiscal year.
Additional Information -- Funds Distributor, Inc. (FDI) is a distributor
of the trust. Certain officers of FDI are also officers of the trust.
www.americancentury.com 19
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
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 year ended March 31, 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 year ended March 31, 2000, were $14,114, $50,594, and $22,814 for
Short-Term, Intermediate-Term, and Long-Term, respectively.
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.
As of March 31, 2000, Short-Term, Intermediate-Term, and Long-Term had
invested $179, $11, and $700, respectively, in shares of Capital Preservation
Fund, which is a series of American Century Government Income Trust. The terms
of the transactions were identical to those with non-related entities except
that, to avoid duplicate management fees, the funds did not pay ACIM management
fees with respect to assets invested in Capital Preservation Fund.
--------------------------------------------------------------------------------
3. Investment Transactions
Investment transactions, excluding short-term investments, for the year
ended March 31, 2000, were as follows:
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
-----------------------------------------------------------------------------------------------------------------------
PURCHASES
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury & Agency Obligations ..................................$ 115,258,988 $ 637,789,207 $200,213,634
-----------------------------------------------------------------------------------------------------------------------
PROCEEDS FROM SALES
-----------------------------------------------------------------------------------------------------------------------
U.S. Treasury & Agency Obligations ..................................$ 114,493,617 $ 695,010,229 $247,831,491
</TABLE>
On March 31, 2000, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE-TERM LONG-TERM
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Appreciation ........................................................$ 11,704 $ 2,050,713 $ 3,168,563
Depreciation ........................................................ (230,611) (8,912,859) --
------------- ------------- ------------
Net .................................................................$ (218,907) $ (6,862,146) $ 3,168,563
============= ============= ============
Federal Tax Cost ....................................................$ 60,501,675 $ 342,265,583 $ 83,652,127
============= ============= ============
</TABLE>
20 1-800-345-2021
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
MARCH 31, 2000
--------------------------------------------------------------------------------
4. Capital Share Transactions
Transactions in shares of the funds were as follows (unlimited number of
shares authorized):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
SHORT-TERM INTERMEDIATE- LONG-TERM
TREASURY TERM TREASURY TREASURY
-----------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
========= ============ ========== ============= ========== =============
Year ended March 31, 1999
Sold .................... 4,412,757 $ 43,591,614 29,173,347 $ 313,245,076 18,059,945 $ 197,964,116
Issued in reinvestment
of distributions ...... 193,505 1,909,855 2,435,272 26,094,427 1,331,429 14,361,980
Redeemed ................ (2,502,210) (24,728,630) (25,416,559) (271,906,811) (15,570,167) (167,958,607)
--------- ------------ ---------- ------------- ---------- -------------
Net increase ............ 2,104,052 $ 20,772,839 6,192,060 $ 67,432,692 3,821,207 $ 44,367,489
========= ============ ========== ============= ========== =============
-----------------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
-----------------------------------------------------------------------------------------------------------------------------------
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
========= ============ ========== ============= ========== =============
Year ended March 31, 1999
Sold .................... 242,695 $ 2,387,821 591,748 $ 6,304,918 288,248 $ 3,097,845
Issued in reinvestment
of distributions ...... 11,505 113,552 9,556 101,937 11,707 126,039
Redeemed ................ (88,171) (869,506) (27,956) (302,296) (64,830) (715,333)
--------- ------------ ---------- ------------- ---------- -------------
Net increase ............ 166,029 $ 1,631,867 573,348 $ 6,104,559 235,125 $ 2,508,551
========= ============ ========== ============= ========== =============
</TABLE>
--------------------------------------------------------------------------------
5. Bank Loans
The funds, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
year ended March 31, 2000.
www.americancentury.com 21
<PAGE>
Short-Term Treasury -- Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including total return, income ratio (net
income as a percentage of average net assets), expense ratio (operating expenses
as a percentage of average net assets), and portfolio turnover (a gauge of the
fund's trading activity).
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31
------------------------------------------------------------------------------
Investor Class
------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 9.85 $ 9.80 $ 9.68 $ 9.84 $ 9.73
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................. 0.49 0.49 0.53 0.52 0.53
Net Realized and Unrealized Gain (Loss)
on Investments ........................ (0.21) 0.05 0.12 (0.07) 0.11
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ...... 0.28 0.54 0.65 0.45 0.64
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ............ (0.49) (0.49) (0.53) (0.52) (0.53)
From Net Realized Gains ............... -- -- -- (0.09) --
In Excess of Net Realized Gains ....... --(1) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions ................... (0.49) (0.49) (0.53) (0.61) (0.53)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .......... $ 9.64 $ 9.85 $ 9.80 $ 9.68 $ 9.84
========== ========== ========== ========== ==========
Total Return(2) ....................... 2.86% 5.60% 6.89% 4.62% 6.71%
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets ................... 0.51% 0.51% 0.55% 0.61% 0.67%
Ratio of Net Investment Income
to Average Net Assets ................. 4.94% 4.92% 5.45% 5.26% 5.39%
Portfolio Turnover Rate ................. 179% 138% 140% 234% 224%
Net Assets, End of Period (in thousands) $ 59,671 $ 61,783 $ 40,874 $ 35,854 $ 35,648
</TABLE>
(1) Per-share amount was less than $0.005.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
22 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Short-Term Treasury -- Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
-----------------------------------------
Advisor Class
-----------------------------------------
2000 1999 1998(1)
------------------------------------------------------------------------------------------------------
PER-SHARE DATA
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $ 9.85 $ 9.80 $ 9.80
--------- --------- ---------
Income From Investment Operations
Net Investment Income ................................ 0.46 0.46 0.25
Net Realized and Unrealized Gain (Loss) on Investments (0.21) 0.05 --
--------- --------- ---------
Total From Investment Operations ..................... 0.25 0.51 0.25
--------- --------- ---------
Distributions
From Net Investment Income ........................... (0.46) (0.46) (0.25)
In Excess of Net Realized Gains ...................... --(2) -- --
--------- --------- ---------
Total Distributions .................................. (0.46) (0.46) (0.25)
--------- --------- ---------
Net Asset Value, End of Period ......................... $ 9.64 $ 9.85 $ 9.80
========= ========= =========
Total Return(3) ...................................... 2.60% 5.34% 2.51%
------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ...... 0.76% 0.76% 0.78%(4)
Ratio of Net Investment Income to Average Net Assets ... 4.69% 4.67% 5.20%(4)
Portfolio Turnover Rate ................................ 179% 138% 140%
Net Assets, End of Period (in thousands) ............... $ 1,634 $ 3,102 $ 1,460
</TABLE>
(1) October 6, 1997 (commencement of sale) through March 31, 1998.
(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.
See Notes to Financial Statements www.americancentury.com 23
<PAGE>
Intermediate-Term Treasury -- Financial Highlights
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including total return, income ratio (net
income as a percentage of average net assets), expense ratio (operating expenses
as a percentage of average net assets), and portfolio turnover (a gauge of the
fund's trading activity).
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31
------------------------------------------------------------------------------------
Investor Class
------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 10.45 $ 10.56 $ 10.06 $ 10.24 $ 9.99
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................. 0.53 0.54 0.59 0.58 0.58
Net Realized and Unrealized Gain (Loss)
on Investments ........................ (0.37) 0.10 0.50 (0.18) 0.25
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ...... 0.16 0.64 1.09 0.40 0.83
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ............ (0.53) (0.54) (0.59) (0.58) (0.58)
From Net Realized Gains ............... -- (0.21) -- -- --
In Excess of Net Realized Gains ....... (0.05) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ................... (0.58) (0.75) (0.59) (0.58) (0.58)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .......... $ 10.03 $ 10.45 $ 10.56 $ 10.06 $ 10.24
=========== =========== =========== =========== ===========
Total Return(1) ....................... 1.51% 6.09% 11.04% 4.05% 8.42%
----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to
Average Net Assets .................... 0.51% 0.51% 0.51% 0.51% 0.53%
Ratio of Net Investment Income to
Average Net Assets .................... 5.11% 5.01% 5.63% 5.72% 5.65%
Portfolio Turnover Rate ................. 171% 221% 194% 110% 168%
Net Assets, End of Period (in thousands) $ 329,995 $ 435,494 $ 374,861 $ 328,784 $ 311,020
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
24 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Intermediate-Term Treasury -- Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
------------------------------------------------
Advisor Class
------------------------------------------------
2000 1999 1998(1)
-------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $ 10.45 $ 10.56 $ 10.42
---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................................ 0.50 0.51 0.26
Net Realized and Unrealized Gain (Loss) on Investments (0.37) 0.10 0.14
---------- ---------- ----------
Total From Investment Operations ..................... 0.13 0.61 0.40
---------- ---------- ----------
Distributions
From Net Investment Income ........................... (0.50) (0.51) (0.26)
From Net Realized Gains .............................. -- (0.21) --
In Excess of Net Realized Gains ...................... (0.05) -- --
---------- ---------- ----------
Total Distributions .................................. (0.55) (0.72) (0.26)
---------- ---------- ----------
Net Asset Value, End of Period ......................... $ 10.03 $ 10.45 $ 10.56
========== ========== ==========
Total Return(2) ...................................... 1.25% 5.83% 3.90%
-------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets ...... 0.76% 0.76% 0.77%(3)
Ratio of Net Investment Income to Average Net Assets ... 4.86% 4.76% 5.28%(3)
Portfolio Turnover Rate ................................ 171% 221% 194%
Net Assets, End of Period (in thousands) ............... $ 11,689 $ 6,117 $ 128
</TABLE>
(1) October 9, 1997 (commencement of sale) through March 31, 1998.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(3) Annualized.
See Notes to Financial Statements www.americancentury.com 25
<PAGE>
Long-Term Treasury -- Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including total return, income ratio (net
income as a percentage of average net assets), expense ratio (operating expenses
as a percentage of average net assets), and portfolio turnover (a gauge of the
fund's trading activity).
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31
------------------------------------------------------------------------------------
Investor Class
------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 10.12 $ 10.58 $ 9.32 $ 9.67 $ 9.05
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................. 0.57 0.58 0.61 0.60 0.60
Net Realized and Unrealized Gain (Loss)
on Investments ........................ (0.30) 0.11 1.26 (0.35) 0.62
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ...... 0.27 0.69 1.87 0.25 1.22
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ............ (0.57) (0.58) (0.61) (0.60) (0.60)
From Net Realized Gains ............... -- (0.52) -- -- --
In Excess of Net Realized Gains ....... -- (0.05) -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ................... (0.57) (1.15) (0.61) (0.60) (0.60)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .......... $ 9.82 $ 10.12 $ 10.58 $ 9.32 $ 9.67
=========== =========== =========== =========== ===========
Total Return(1) ....................... 2.86% 6.33% 20.48% 2.65% 13.46%
----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to
Average Net Assets .................... 0.51% 0.51% 0.54% 0.60% 0.67%
Ratio of Net Investment Income to
Average Net Assets .................... 5.84% 5.37% 6.00% 6.28% 5.93%
Portfolio Turnover Rate ................. 182% 105% 57% 40% 112%
Net Assets, End of Period (in thousands) $ 85,886 $ 137,552 $ 103,381 $ 126,570 $ 110,741
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
26 1-800-345-2021 See Notes to Financial Statements
<PAGE>
Long-Term Treasury -- Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
---------------------------------------------
Advisor Class
---------------------------------------------
2000 1999 1998(1)
-----------------------------------------------------------------------------------------------
PER-SHARE DATA
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $ 10.12 $ 10.58 $ 10.85
--------- --------- ---------
Income From Investment Operations
Net Investment Income ..................... 0.55 0.56 0.12
Net Realized and Unrealized Gain
(Loss) on Investments ..................... (0.30) 0.11 (0.27)
--------- --------- ---------
Total From Investment Operations .......... 0.25 0.67 (0.15)
--------- --------- ---------
Distributions
From Net Investment Income ................ (0.55) (0.56) (0.12)
From Net Realized Gains ................... -- (0.52) --
In Excess of Net Realized Gains ........... -- (0.05) --
--------- --------- ---------
Total Distributions ....................... (0.55) (1.13) (0.12)
--------- --------- ---------
Net Asset Value, End of Period .............. $ 9.82 $ 10.12 $ 10.58
========= ========= =========
Total Return(2) ........................... 2.61% 6.07% (1.34)%
-----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
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Ratio of Operating Expenses to
Average Net Assets ........................ 0.76% 0.76% 0.77%(3)
Ratio of Net Investment Income to
Average Net Assets ........................ 5.59% 5.12% 5.42%(3)
Portfolio Turnover Rate ..................... 182% 105% 57%
Net Assets, End of Period (in thousands) .... $ 4,708 $ 2,587 $ 218
</TABLE>
(1) January 12, 1998 (commencement of sale) through March 31, 1998.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(3) Annualized.
See Notes to Financial Statements www.americancentury.com 27
<PAGE>
Report of Independent Accountants
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To the Trustees of the American Century Government Income Trust and Shareholders
of the Short-Term Treasury Fund, Intermediate-Term Treasury Fund, and Long-Term
Treasury Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Short-Term Treasury Fund, the
Intermediate-Term Treasury Fund and the Long-Term Treasury Fund (three of the
eight funds in the American Century Government Income Trust hereafter referred
to as the "Funds") at March 31, 2000, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended and the financial highlights for each of the
three years in the period then ended, in conformity with accounting principles
generally accepted in the United States. The financial highlights for each of
the two years in the period ended March 31, 1997 were audited by other auditors,
whose report dated May 2, 1997, expressed an unqualified opinion on those
statements. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
May 8, 2000
28 1-800-345-2021
<PAGE>
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 with
hold 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. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are
liable for paying income tax on the taxable portion of your withdrawal. If you
elect not to have income tax withheld or you don't have enough income tax
withheld, you may be responsible for payment of estimated tax. You may incur
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
www.americancentury.com 29
<PAGE>
Background Information
--------------------------------------------------------------------------------
Investment Team Leaders
--------------------------------------------------------------------------------
Portfolio Managers
--------------------------------------------------------------------------------
Bob Gahagan
Dave Schroeder
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/Agency Index is an index of
U.S. Treasury and government agency securities with remaining maturities between
1 and 3 years.
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/Agency Index is an index of
securities with remaining maturities greater than 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.
30 1-800-345-2021
<PAGE>
Glossary
--------------------------------------------------------------------------------
Returns
o 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.
o 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
o 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
o Number of Securities -- the number of different securities held by a fund on a
given date.
o 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.
o Average Duration -- another measure of the sensitivity of a fixed-income port
folio 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 port folio increases, so does the impact of a change in interest
rates on the value of the portfolio.
o Expense Ratio -- the operating expenses of the fund, expressed as a percentage
of average net assets. Share holders 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
o Basis Point -- one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%).
o Coupon -- the stated interest rate of a security.
o 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
o 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.
o 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).
o 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.
www.americancentury.com 31
<PAGE>
Glossary
--------------------------------------------------------------------------------
(Continued)
o 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).
o 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.
o Capital Preservation -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
o 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.
o 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.
o 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.
o Conservative -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
o Moderate -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
o Aggressive -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
32 1-800-345-2021
<PAGE>
INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
RISK LEVEL CAPITAL PRESERVATION INCOME
Taxable Tax-Fre Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AGGRESSIVE
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
---------------------------------------------------------------------------------------------------------
MODERATE Long-Term Treasury CA Long-Term
Tax-Free
Target 2005*
Long-Term Tax-Free
Bond
CA Insured Tax-Free
Premium Bond
---------------------------------------------------------------------------------------------------------
CONSERVATIVE Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Tax-Free
Intermediate-Term
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market Municipal
GNMA
Premium CA Tax-Free FL Intermediate-Term
Government Reserve Money Market Inflation-Adjusted Municipal
Treasury
Government Agency Tax-Free Intermediate-Term
Money Market Money Market Limited-Term Bond Tax-Free
Capital Preservation Target 2000* CA Limited-Term
Tax-Free
Short-Term Government
Limited-Term
Short-Term Treasury Tax-Free
---------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
RISK LEVEL GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE Veedot(2)
Small Cap Quantitative New Opportunities Global Gold Emerging Markets
Small Cap Value Giftrust(R) International
Discovery
Vista
International
Heritage Growth
Growth Global Growth
Ultra(R)
Select
------------------------------------------------------------------------------------------------------------------------------------
MODERATE Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Resources
Equity Index Real Estate
Balanced
Large Cap Value
Strategic Allocation:
Moderate Tax-Managed Value
Strategic Allocation: Income & Growth
Conservative
Value
Equity Income
------------------------------------------------------------------------------------------------------------------------------------
CONSERVATIVE
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
<PAGE>
[LOGO]
AMERICAN
CENTURY(R)
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 Premium Reserves, Inc.
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.
--------------------------------------------------------------------------------
Who we are [GRAPHIC OMITTED]
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: We succeed only if our investors succeed.
--------------------------------------------------------------------------------
American Century Investments -----------------
P.O. Box 419200 BULK RATE
Kansas City, MO 64141-6200 U.S. POSTAGE PAID
www.americancentury.com AMERICAN CENTURY
COMPANIES
-----------------
0005 American Century Investment Services, Inc.
SH-ANN-20578 (C)2000 American Century Services Corporation
