UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4363
---------------------------------------------
American Century Government Income Trust
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(Exact name of registrant as specified in charter)
4500 Main Street, Kansas City, Missouri 64141
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(Address of principal executive offices) (Zip code)
David C. Tucker, Esq., 4500 Main Street, 9th Floor, Kansas City, Missouri 64111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 816-531-5575
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Date of fiscal year end: March 31, 2003
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Date of reporting period: September 30, 2003
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
September 30, 2003
American Century
Semiannual Report
[photo]
Ginnie Mae
Government Bond
Inflation-Adjusted Bond
Short-Term Government
[american century logo and text logo (reg.sm)]
[inside front cover]
Table of Contents
Our Message to You....................................................... 1
GINNIE MAE
Performance.............................................................. 2
Portfolio Commentary..................................................... 3
Portfolio at a Glance................................................. 3
Types of Investments in the Portfolio................................. 4
Schedule of Investments.................................................. 5
GOVERNMENT BOND
Performance.............................................................. 7
Portfolio Commentary..................................................... 8
Portfolio at a Glance................................................. 8
Types of Investments in the Portfolio................................. 9
Schedule of Investments.................................................. 10
INFLATION-ADJUSTED BOND
Performance.............................................................. 12
Portfolio Commentary..................................................... 13
Portfolio at a Glance................................................. 13
Portfolio Composition by Maturity..................................... 14
Schedule of Investments.................................................. 15
SHORT-TERM GOVERNMENT
Performance.............................................................. 16
Portfolio Commentary..................................................... 17
Portfolio at a Glance................................................. 17
Types of Investments in the Portfolio................................. 18
Schedule of Investments.................................................. 19
FINANCIAL STATEMENTS
Statement of Assets and Liabilities...................................... 23
Statement of Operations.................................................. 25
Statement of Changes in Net Assets....................................... 26
Notes to Financial Statements............................................ 28
Financial Highlights..................................................... 35
OTHER INFORMATION
Proxy Voting Results..................................................... 45
Share Class Information.................................................. 46
Additional Information................................................... 47
Index Definitions........................................................ 48
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
Our Message to You
[photo]
James E. Stowers III with James E. Stowers, Jr.
We are pleased to provide you with the semiannual report for the American
Century Ginnie Mae, Government Bond, Inflation-Adjusted Bond, and Short-Term
Government funds for the six months ended September 30, 2003.
The report includes comparative performance figures, portfolio and market
commentary, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful.
Many of you have called or written to express your concern about allegations of
wrongdoing by other mutual fund investment management firms. We share your
concern--fund companies must put investors first and do everything possible to
maintain investor trust. Through the Investment Company Institute, the mutual
fund trade association, American Century has advocated industry-wide proposals
that strengthen protections for fund investors. We believe that decisive action
is needed to show that we are committed, as an industry, to the interests of the
95 million investors we serve.
As information about alleged trading abuses in the mutual fund industry has come
to light, we have posted messages and commentary about these issues on
www.americancentury.com. Beyond what's currently in the headlines, American
Century has been a champion of many important investor and industry issues,
which are outlined in a document titled Putting Investors First. We invite you
to visit our Web site and read about how our values have influenced these
positions.
As always, we deeply appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
Founder and Chairman
/s/James E. Stowers III
James E. Stowers III
Co-Chairman of the Board
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1
Ginnie Mae - Performance
TOTAL RETURNS AS OF SEPTEMBER 30, 2003
--------------------------------
AVERAGE ANNUAL RETURNS
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SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
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INVESTOR CLASS 2.69% 5.85% 6.32% 7.97% 9/23/85
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CITIGROUP
30-YEAR
GNMA INDEX(1) 3.30% 6.53% 6.93% 8.82%(2) --
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Advisor Class 2.44% 5.57% -- 5.88% 10/9/97
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C Class 1.93% -- -- 4.76% 6/15/01
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(1) In June 2003, the Salomon 30-Year GNMA Index, the fund's benchmark since
inception, became known as the Citigroup 30-Year GNMA Index.
(2) Since 9/30/85, the date nearest the Investor Class's inception for which
data are available.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made September 30, 1993
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended September 30
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1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
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Investor Class -1.10% 12.90% 5.07% 9.96% 7.63% 1.65% 6.97% 11.31% 6.91% 2.69%
- --------------------------------------------------------------------------------------------------
Citigroup 30-Year
GNMA Index -1.10% 13.90% 6.00% 10.18% 8.28% 2.56% 7.73% 11.90% 7.45% 3.30%
- --------------------------------------------------------------------------------------------------
The charts on the performance page give historical return data for the fund.
Returns for the index are provided for comparison. The fund'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. Unless otherwise
indicated, the charts are based on Investor Class shares; performance for other
classes will vary due to differences in fee structures. Past performance does
not guarantee future results. None of the charts reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost.
- -----
2
Ginnie Mae - Portfolio Commentary
By Casey Colton, portfolio manager
PERFORMANCE SUMMARY
Despite dramatic swings in interest rates that limited performance for
mortgage-backed securities, Ginnie Mae managed a positive total return during
the six months ended September 30, 2003. The fund returned 0.70% after expenses,
compared with 1.11% for the Citigroup 30-Year GNMA Index, whose returns are not
reduced by management fees or transaction costs.* (See the previous page for
detailed performance information.)
ECONOMIC AND MARKET REVIEW
The six months were remarkable in that they featured both a huge bond rally and
sell-off. First, the rally--bonds got off to an excellent start as economic
growth and inflation ran slower than average and the unemployment rate touched
its highest level in more than nine years during the second quarter of the year.
In an attempt to get the economy moving, the Federal Reserve cut its short-term
interest rate target to 1%--the lowest it's been in more than forty years. In
that environment, the yield on the benchmark 10-year Treasury note got as low as
3.11% in June.
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PORTFOLIO AT A GLANCE
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AS OF AS OF
9/30/03 3/31/03
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Average Duration 2.9 yrs 2.3 yrs
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Average Life 3.5 yrs 2.5 yrs
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YIELDS AS OF SEPTEMBER 30, 2003
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30-DAY SEC YIELD
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Investor Class 1.92%
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Advisor Class 1.67%
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C Class 1.16%
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ANNUALIZED DISTRIBUTION RATE (ADR)
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Investor Class 4.93%
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Advisor Class 4.67%
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C Class 4.16%
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But that was followed by a July that was one of the worst months for bonds in
decades. The 10-year yield rose throughout the month, getting as high as 4.60%
by early September, before finishing the period at 3.94%. Chalk up those big
swings in rates to economic data showing much improved growth during the third
quarter, though inflation remained tame.
Big swings in bond yields sent mortgage rates on a wild ride. While refinancing
is a boon for homeowners and the economy, mortgage prepayments limit returns for
mortgage investors, who get their money back sooner than expected to reinvest at
a new, lower rate.
Of course, the spike in rates in July meant home loan refinancing activity
tumbled. In this environment, the lives of mortgage-backed securities extend
because the underlying home loans aren't being pre-paid as rapidly. Add it all
up, and these big rate changes meant mortgage-backed securities lagged other
segments of the bond market for the six months.
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
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3
Ginnie Mae - Portfolio Commentary
PORTFOLIO STRATEGY
As we've been writing for some time now, we try to use several different
strategies to limit share price volatility, including using forward commitments
and holding mortgages with coupons or from pools we believe are less likely to
be refinanced.
Another way we try to reduce the effect of rate changes is by holding a modest
slice of the portfolio (typically 10% of assets or less) in Treasury securities,
including Treasury inflation-indexed securities (TIIS).
We also held a modest amount of two-year Treasury securities as a way to add
value to the portfolio's cash position. Yields on two-year notes approached 2%
in August, up from a low of 1.08% in mid-June. As a result, we felt this was an
excellent opportunity to add yield and return potential over cash-equivalent
securities, whose yields are in the neighborhood of 1%.
Looking forward, we continue to manage the portfolio consistent with our
investment objective outlined in the prospectus, which is to seek high current
income while maintaining liquidity and safety of principal by investing
primarily in GNMA mortgages.
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TYPES OF INVESTMENTS IN THE PORTFOLIO
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% OF NET ASSETS
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AS OF AS OF
9/30/03 3/31/03
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GNMAs 98.2% 86.6%
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U.S. Government
Agency Securities 0.2% 1.1%
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U.S. Treasury Securities -- 12.8%
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Temporary Cash
Investments 18.3% 17.4%
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Other Assets (Liabilities) (16.7)% (17.9)%
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- -----
4
Ginnie Mae - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
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U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(1) -- 84.2%
$300,000,000 GNMA, 5.00%, settlement
date 11/19/03(2) $ 299,718,601
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100,000,001 GNMA, 5.50%, 4/15/33 to
6/15/33 102,622,903
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26,765,907 GNMA, 6.00%, 7/20/16 to
11/15/32 27,961,906
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75,000,000 GNMA, 6.00%, settlement
date 12/18/03(2) 77,460,901
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900,948,529 GNMA, 6.50%, 6/15/23 to
1/15/33(3) 946,980,276
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236,063,387 GNMA, 7.00%, 9/15/08 to
5/15/32 251,276,508
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1,535,715 GNMA, 7.25%, 9/15/22 to
12/20/25 1,644,910
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65,224,930 GNMA, 7.50%, 1/15/06 to
2/20/31 69,978,182
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277,155 GNMA, 7.65%, 6/15/16 to
4/15/17 301,215
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675,480 GNMA, 7.75%, 9/20/17 to
8/20/25 732,341
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1,103,744 GNMA, 7.77%, 4/15/20 to
1/15/21 1,201,998
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562,899 GNMA, 7.85%, 11/20/20 to
10/20/22 609,340
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122,200 GNMA, 7.89%, 9/20/22 132,291
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786,684 GNMA, 7.98%, 6/15/19 860,360
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14,591,545 GNMA, 8.00%, 6/15/06 to
7/20/30 15,867,042
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235,837 GNMA, 8.15%, 1/15/20 to
2/15/21 258,378
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3,349,966 GNMA, 8.25%, 4/15/06 to
5/15/27 3,660,558
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1,011,579 GNMA, 8.35%, 1/15/19 to
12/15/20 1,112,572
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14,684,769 GNMA, 8.50%, 12/15/04 to
5/15/31 16,064,452
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1,665,145 GNMA, 8.75%, 1/15/17 to
7/15/27 1,830,914
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8,944,060 GNMA, 9.00%, 11/15/04 to
1/15/25 9,848,871
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1,196,226 GNMA, 9.25%, 5/15/16 to
8/15/26 1,318,432
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3,293,732 GNMA, 9.50%, 6/15/09 to
7/20/25 3,638,985
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596,937 GNMA, 9.75%, 6/15/05 to
11/20/21 654,300
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914,730 GNMA, 10.00%, 11/15/09
to 1/20/22 1,033,865
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287,004 GNMA, 10.25%, 5/15/12
to 3/15/19 319,308
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278,890 GNMA, 10.50%, 3/15/14
to 3/15/21 317,861
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Principal Amount Value
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$ 80,286 GNMA, 10.75%, 12/15/09
to 7/15/19 $ 90,367
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502,622 GNMA, 11.00%, 12/15/09
to 6/15/20 569,966
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5,650 GNMA, 11.25%, 2/20/16 6,440
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102,825 GNMA, 11.50%, 7/15/10
to 8/20/19 117,656
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59,923 GNMA, 12.00%, 10/15/10
to 1/15/13 68,586
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18,628 GNMA, 12.25%, 2/15/14
to 5/15/15 21,538
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160,943 GNMA, 12.50%, 5/15/10
to 5/15/15 185,481
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361,852 GNMA, 13.00%, 1/15/11
to 8/15/15 423,980
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138,313 GNMA, 13.50%, 5/15/10
to 11/15/14 162,550
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9,836 GNMA, 13.75%, 8/15/14 11,621
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7,108 GNMA, 14.00%, 6/15/11
to 9/15/12 8,407
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80,485 GNMA, 14.50%, 10/15/12
to 12/15/12 96,134
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124,174 GNMA, 15.00%, 6/15/11
to 10/15/12 149,025
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38,547 GNMA, 16.00%, 10/15/11
to 3/15/12 46,757
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TOTAL MORTGAGE-BACKED SECURITIES
(Cost $1,798,526,433) 1,839,365,778
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U.S. GOVERNMENT AGENCY
SECURITIES -- 0.1%
2,901,700 TVA Inflation Indexed Notes,
3.38%, 1/15/07
(Cost $3,125,685) 3,155,744
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U.S. TREASURY SECURITIES(4)
812,476 U.S. Treasury Inflation
Indexed Notes, 3.38%, 1/15/07
(Cost $875,108) 893,978
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TEMPORARY CASH INVESTMENTS -- 15.7%
Repurchase Agreement, Goldman Sachs &
Co., (U.S. Treasury obligations), in a joint
trading account at 0.90%, dated 9/30/03,
due 10/1/03 (Delivery value $50,345,259) 50,344,000
- --------------------------------------------------------------------------------
Repurchase Agreement, Merrill Lynch & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 0.90%, dated 9/30/03,
due 10/1/03 (Delivery value $93,235,331)(3) 93,233,000
- --------------------------------------------------------------------------------
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations), in a joint trading
account at 0.90%, dated 9/30/03, due
10/1/03 (Delivery value $93,235,331) 93,233,000
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See Notes to Financial Statements. (continued)
-----
5
Ginnie Mae - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
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Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations), in a
joint trading account at 0.91%, dated
9/30/03, due 10/1/03 (Delivery value
$93,235,357) $ 93,233,000
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Repurchase Agreement, Credit Suisse First
Boston Corp. (U.S. Treasury obligations), in
a joint trading account at 0.92%, dated
9/30/03, due 10/1/03 (Delivery value
$13,415,343) 13,415,000
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TOTAL TEMPORARY CASH INVESTMENTS
(Cost $343,458,000) 343,458,000
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TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $2,145,985,226) $2,186,873,500
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
GNMA = Government National Mortgage Association
TVA = Tennessee Valley Authority
(1) Final maturity indicated, unless otherwise noted.
(2) Forward Commitment.
(3) Security, or a portion thereof, has been segregated for Forward
Commitments.
(4) Category is less than 0.05% of total investment securities.
See Notes to Financial Statements.
- -----
6
Government Bond - Performance
TOTAL RETURNS AS OF SEPTEMBER 30, 2003
--------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 2.66% 5.83% 6.18% 8.32% 5/16/80
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CITIGROUP
TREASURY/MORTGAGE
INDEX(1) 3.55% 6.38% 6.77% --(2) --
- --------------------------------------------------------------------------------
CITIGROUP U.S.
TREASURY 10+ YEAR
INDEX(1) 3.63% 6.53% 7.86% 10.88%(3) --
- --------------------------------------------------------------------------------
Advisor Class 2.40% 5.56% -- 6.65% 10/9/97
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(1) When Government Bond merged with the Treasury fund in September 2002, the
fund's benchmark was changed from the Salomon Long-Term Treasury Index to
the Salomon Treasury/Mortgage Index to better reflect the fund's broader
investment mandate. (For more information on the fund merger, see Note 8 on
page 34.) In June 2003, the Salomon Treasury/Mortgage Index became known as
the Citigroup Treasury/Mortgage Index.
(2) Index data not available prior to 1982.
(3) Since 5/31/80, the date nearest the Investor Class's inception for which
data are available.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made September 30, 1993
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended September 30
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1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
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Investor Class -1.96% 9.62% 4.82% 8.22% 12.58% -1.92% 6.41% 13.70% 8.95% 2.66%
- ----------------------------------------------------------------------------------------------------
Citigroup Treasury/
Mortgage Index -3.00% 13.53% 4.97% 9.44% 11.67% -0.07% 7.28% 12.80% 8.78% 3.55%
- ----------------------------------------------------------------------------------------------------
Citigroup U.S.
Treasury 10+
Year Index -10.73% 22.85% 2.45% 13.23% 22.10% -7.68% 9.81% 14.03% 14.51% 3.63%
- ----------------------------------------------------------------------------------------------------
The charts on the performance page give historical return data for the fund.
Returns for the indices are provided for comparison. The fund'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. Unless otherwise
indicated, the charts are based on Investor Class shares; performance for other
classes will vary due to differences in fee structures. Past performance does
not guarantee future results. None of the charts reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost.
-----
7
Government Bond - Portfolio Commentary
By Bob Gahagan, portfolio manager
RETURNS REMAINED POSITIVE DESPITE ECONOMIC UPTURN
Government Bond and its broad market index, the Citigroup Treasury/Mortgage
Index, posted positive returns for the six months ended September 30, 2003. The
fund and the index gained 0.88% and 1.47% respectively for the six months,
reflecting the performance of Treasury and mortgage-backed securities (MBS).*
Those sectors suffered some setbacks during a very volatile period (see Sector
Returns).
Meanwhile, the major U.S. stock indices rose, influenced by a rebounding U.S.
economy that grew at a 3.3% annual rate in the second quarter of 2003 and an
estimated 7.2% annual rate in the third quarter. The S&P 500 Index advanced
18.45% and the Nasdaq Composite was up 33.49%.
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PORTFOLIO AT A GLANCE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
Weighted Average
Maturity 4.1 yrs 3.4 yrs
- --------------------------------------------------------------------------------
Average Duration 3.9 yrs 3.3 yrs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YIELDS AS OF SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
30-DAY SEC YIELD
- --------------------------------------------------------------------------------
Investor Class 1.91%
- --------------------------------------------------------------------------------
Advisor Class 1.66%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE (ADR)
- --------------------------------------------------------------------------------
Investor Class 2.72%
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Advisor Class 2.47%
- --------------------------------------------------------------------------------
ROLLERCOASTER RIDE FOR BOND INVESTORS
During the six months ended September 30, 2003, the broad taxable
investment-grade U.S. bond market (as represented by the Lehman Brothers U.S.
Aggregate Index--the "LBA") went on a rollercoaster ride that was wilder than
the final 2.35% return for the index indicates.
From March 31 to mid-June, the LBA was up nearly 4% as lingering signs of
economic weakness--including high unemployment--boosted demand for bonds. But
the market suddenly reversed direction in mid-June and sold off sharply for
about 45 days, plunging the LBA into negative territory by the end of July. The
market recovered somewhat in September after national payroll employment
declined in August by what was originally reported as 93,000 jobs (later revised
to 41,000).
SECTOR RETURNS
Fixed-rate MBS and Treasurys were the LBA's (and the taxable investment-grade
U.S. bond market's) two largest components as of September 30, 2003. Both
underperformed the LBA for the six months, returning 1.18% and 1.78%
respectively.
MBS were affected by plunging mortgage interest rates and soaring refinancing
during the period. The average 30-year fixed mortgage rate dropped to just 5.21%
in June, according to Freddie Mac. Meanwhile, the Mortgage Bankers Association's
refinancing index reached 9162.7 for the week ended June 13. (Later, it dropped
back to just 2506.8 for the week ended September 26.)
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
- -----
8
Government Bond - Portfolio Commentary
Treasurys experienced tremendous volatility, including one of the worst months
(July) in the sector's history. The 10-year Treasury note yield started the six
months at 3.80%, plunged to just 3.11% in mid-June, soared to over 4.40% in the
next 45 days, and finished at 3.94%.
PORTFOLIO POSITIONING
Government Bond aims to provide high current income by investing primarily in
Treasurys and also investing in MBS and government agency securities. As of
September 30, 2003, the portfolio held approximately 44% Treasury notes and
bonds, 37% MBS (including collateralized mortgage obligations--CMOs), and 6%
agency notes and bonds. Its duration (price sensitivity to interest rate
changes) was 3.9 years. That reflected a decrease in Treasurys and an increase
in agencys and duration during the six months.
We reduced the Treasury position and invested the proceeds in MBS and other
asset-backed securities (ABS), focusing on protecting the portfolio against
rising interest rates and maximizing its yield. We emphasized commercial MBS and
ABS backed by home-equity loans, which we have observed to be less affected by
interest rate fluctuations.
However, we think the MBS position was a key reason the fund underperformed its
market index during the period and why the portfolio's duration extended,
despite our efforts to keep it short. MBS underperformed Treasurys and the broad
market for the six-month period. Also, as interest rates rose and refinancings
declined, MBS durations extended -- the blended duration of the fixed-rate MBS
component of the LBA jumped from 2.3 years on March 31, 2003, to 3.2 years on
September 30, 2003.
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TYPES OF INVESTMENTS IN THE PORTFOLIO
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
U.S. Treasury Securities 43.9% 52.8%
- --------------------------------------------------------------------------------
U.S. Government Agency
Mortgage-Backed
Securities 22.5% 16.3%
- --------------------------------------------------------------------------------
U.S. Government Agency
Collateralized Mortgage
Obligations 14.3% 18.2%
- --------------------------------------------------------------------------------
U.S. Government
Agency Securities 6.3% 2.4%
- --------------------------------------------------------------------------------
U.S. Government Agency
Asset-Backed Securities 3.5% --
- --------------------------------------------------------------------------------
Temporary Cash
Investments 9.5% 10.3%
- --------------------------------------------------------------------------------
-----
9
Government Bond - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 43.9%
$21,000,000 U.S. Treasury Bonds, 9.375%,
2/15/06 $ 24,778,362
- --------------------------------------------------------------------------------
11,000,000 U.S. Treasury Bonds, 10.375%,
11/15/07 14,353,284
- --------------------------------------------------------------------------------
20,200,000 U.S. Treasury Bonds, 11.25%,
2/15/15(1) 33,195,084
- --------------------------------------------------------------------------------
4,800,000 U.S. Treasury Bonds, 10.625%,
8/15/15 7,668,754
- --------------------------------------------------------------------------------
4,164,000 U.S. Treasury Bonds, 8.875%,
8/15/17 6,048,864
- --------------------------------------------------------------------------------
11,400,000 U.S. Treasury Bonds, 7.625%,
11/15/22 15,333,456
- --------------------------------------------------------------------------------
8,200,000 U.S. Treasury Bonds, 5.50%,
8/15/28 8,786,177
- --------------------------------------------------------------------------------
18,000,000 U.S. Treasury Notes, 7.50%,
2/15/05 19,556,028
- --------------------------------------------------------------------------------
5,500,000 U.S. Treasury Notes, 1.50%,
2/28/05 5,527,071
- --------------------------------------------------------------------------------
40,000,000 U.S. Treasury Notes, 6.75%,
5/15/05(1) 43,525,040
- --------------------------------------------------------------------------------
27,150,000 U.S. Treasury Notes, 6.50%,
8/15/05(1) 29,721,838
- --------------------------------------------------------------------------------
20,000,000 U.S. Treasury Notes, 2.00%,
5/15/06 20,144,540
- --------------------------------------------------------------------------------
17,000,000 U.S. Treasury Notes, 7.00%,
7/15/06 19,372,044
- --------------------------------------------------------------------------------
5,500,000 U.S. Treasury Notes, 3.50%,
11/15/06 5,748,578
- --------------------------------------------------------------------------------
6,500,000 U.S. Treasury Notes, 2.625%,
5/15/08 6,485,024
- --------------------------------------------------------------------------------
15,000,000 U.S. Treasury Notes, 3.25%,
8/15/08 15,317,580
- --------------------------------------------------------------------------------
17,000,000 U.S. Treasury Notes, 4.25%,
8/15/13 17,432,310
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $282,201,701) 292,994,034
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(2) -- 22.5%
55,000,000 FNMA, 5.00%, settlement
date 10/20/03(3) 56,357,839
- --------------------------------------------------------------------------------
16,000,000 FNMA, 5.50%, settlement
date 11/13/03(3) 16,270,000
- --------------------------------------------------------------------------------
10,000,000 FNMA, 6.25%, 2/1/11 11,409,920
- --------------------------------------------------------------------------------
4,314,857 FNMA, 6.00%, 2/1/32 4,454,490
- --------------------------------------------------------------------------------
3,700,678 FNMA, 6.50%, 3/1/32 3,858,722
- --------------------------------------------------------------------------------
4,165,002 FNMA, 7.00%, 6/1/32 4,407,305
- --------------------------------------------------------------------------------
5,381,427 FNMA, 6.50%, 8/1/32 5,611,499
- --------------------------------------------------------------------------------
6,516,447 FNMA, 6.00%, 1/1/33 6,727,326
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,472,777 FNMA, 6.00%, 7/1/33 $ 4,617,445
- --------------------------------------------------------------------------------
505,598 FNMA, 6.00%, 8/1/33 521,951
- --------------------------------------------------------------------------------
2,213,828 FNMA, 6.00%, 8/1/33 2,285,433
- --------------------------------------------------------------------------------
2,008,106 FNMA, 6.00%, 9/1/33 2,073,056
- --------------------------------------------------------------------------------
2,537,634 FNMA, 6.00%, 9/1/33 2,619,711
- --------------------------------------------------------------------------------
14,393,176 FNMA, 6.00%, 10/1/33 14,858,709
- --------------------------------------------------------------------------------
14,000,000 FNMA, 6.00%, 10/1/33 14,452,816
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $148,351,500) 150,526,222
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS(2) -- 14.3%
9,561,506 FHLMC, Series 2554,
Class HA, 4.50%, 4/15/32 9,744,130
- --------------------------------------------------------------------------------
8,061,442 FHLMC, Series 2574,
Class JM SEQ, 5.00%,
12/15/22 8,383,061
- --------------------------------------------------------------------------------
9,490,609 FHLMC, Series 2625,
Class FJ SEQ, VRN, 1.42%,
10/15/03, resets monthly off
the 1-month LIBOR plus
0.3% with no caps 9,500,545
- --------------------------------------------------------------------------------
9,788,598 FHLMC, Series 2630,
Class FJ, VRN, 1.47%,
10/15/03, resets monthly off
the 1-month LIBOR plus
0.35% with no caps 9,788,285
- --------------------------------------------------------------------------------
9,537,075 FNMA, Series 2002-87,
Class AM SEQ, 5.50%,
6/25/31 9,993,548
- --------------------------------------------------------------------------------
8,329,862 FNMA, Series 2002-91,
Class LK SEQ, 4.50%,
6/25/22 8,549,787
- --------------------------------------------------------------------------------
11,220,813 FNMA, Series 2002-97,
Class EL SEQ, 5.00%,
7/25/22 11,670,431
- --------------------------------------------------------------------------------
9,696,756 FNMA, Series 2003-42,
Class FK, VRN, 1.52%,
10/25/03, resets monthly off
the 1-month LIBOR plus
0.40% with no caps 9,722,928
- --------------------------------------------------------------------------------
14,063,502 FNMA, Series 2003-52,
Class KF SEQ, VRN, 1.52%,
10/25/03, resets monthly off
the 1-month LIBOR plus
0.40% with no caps 14,113,649
- --------------------------------------------------------------------------------
4,116,022 FNMA, Series 2003-9,
Class BC SEQ, 5.00%,
2/25/22 4,283,268
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $94,655,136) 95,749,632
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- -----
10
Government Bond - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 6.3%
$12,000,000 FHLB, 4.125%, 5/13/05 $ 12,503,448
- --------------------------------------------------------------------------------
18,000,000 FNMA, 5.75%, 6/15/05 19,315,440
- --------------------------------------------------------------------------------
5,000,000 FNMA, 2.875%, 10/15/05 5,125,975
- --------------------------------------------------------------------------------
5,000,000 FNMA, 2.50%, 7/16/07 4,993,225
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $41,057,663) 41,938,088
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
ASSET-BACKED SECURITIES(2) -- 3.5%
16,043,610 FHLMC, Series T-21, Class A,
VRN, 1.30%, 10/25/03 resets
monthly off the 1-month
LIBOR plus 0.18% with
no caps 16,069,969
- --------------------------------------------------------------------------------
7,503,638 FHLMC, Series T-35, Class A,
VRN, 1.26%, 10/25/03 resets
monthly off the 1-month
LIBOR plus 0.14% with
no caps 7,513,865
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
ASSET-BACKED SECURITIES
(Cost $23,569,152) 23,583,834
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 9.5%
Repurchase Agreement, Merrill Lynch & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 0.90%, dated 9/30/03,
due 10/1/03 (Delivery value $6,228,156) 6,228,000
- --------------------------------------------------------------------------------
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations),
in a joint trading account at 0.91%, dated
9/30/03, due 10/1/03 (Delivery value
$28,473,720)(1) 28,473,000
- --------------------------------------------------------------------------------
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations), in a joint trading
account at 0.90%, dated 9/30/03, due
10/1/03 (Delivery value $28,473,712) 28,473,000
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $63,174,000) 63,174,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $653,009,152) $667,965,810
================================================================================
Principal Amount Value
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR
SECURITIES LENDING(4)
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, BNP Paribas
Securities Corp., (U.S. Government Agency
obligations), 1.13%, dated 9/30/03, due
10/1/03 (Delivery value $93,173,092) $ 93,170,167
- --------------------------------------------------------------------------------
SHORT-TERM DEBT SECURITIES
- --------------------------------------------------------------------------------
$25,000,000 Bear Stearns Companies, Inc.,
VRN, 1.37%, 10/31/03 25,000,000
- --------------------------------------------------------------------------------
11,986,803 Surrey Funding Corporation,
1.07%, 10/24/03 11,986,803
- --------------------------------------------------------------------------------
25,000,000 Wells Fargo Bank, N.A.,
1.07%, 10/23/03 25,000,000
- --------------------------------------------------------------------------------
61,986,803
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED FOR
SECURITIES LENDING
(Cost $155,156,970) $155,156,970
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal 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.
SEQ = Sequential Payer
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective September 30, 2003.
(1) Security, or a portion thereof, has been segregated for a forward
comittment.
(2) Final maturity indicated, unless otherwise noted.
(3) Forward Comittment.
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
-----
11
Inflation-Adjusted Bond - Performance
TOTAL RETURNS AS OF SEPTEMBER 30, 2003
----------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 6.68% 8.33% 6.98% 2/10/97
- --------------------------------------------------------------------------------
CITIGROUP U.S.
INFLATION-LINKED
SECURITIES INDEX(1) 7.39% 9.13% 7.92%(2) --
- --------------------------------------------------------------------------------
Institutional Class -- -- 7.37%(3) 10/1/02
- --------------------------------------------------------------------------------
Advisor Class 6.41% 8.07% 8.03% 6/15/98
- --------------------------------------------------------------------------------
(1) In June 2003, the Salomon U.S. Inflation-Linked Index, the fund's benchmark
since inception, became known as the Citigroup U.S. Inflation-Linked
Securities Index.
(2) Since 2/28/97, the date nearest the Investor Class's inception for which
data are available.
(3) Returns for periods less than one year are not annualized.
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made February 10, 1997
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended September 30
- -------------------------------------------------------------------------------
1997* 1998 1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------
Investor Class 0.18% 4.70% 1.50% 8.29% 12.43% 13.18% 6.68%
- -------------------------------------------------------------------------------
Citigroup U.S.
Inflation-Linked
Securities Index 0.96% 5.71% 1.86% 9.11% 13.22% 14.54% 7.39%
- -------------------------------------------------------------------------------
* From 2/10/97, the Investor Class's inception date. Index data from 2/28/97,
the date nearest the Investor Class's inception for which data are available.
Not annualized.
The charts on the performance page give historical return data for the fund.
Returns for the index are provided for comparison. The fund'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. Unless otherwise
indicated, the charts are based on Investor Class shares; performance for other
classes will vary due to differences in fee structures. Past performance does
not guarantee future results. None of the charts reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost.
- -----
12
Inflation-Adjusted Bond - Portfolio Commentary
By Casey Colton, portfolio manager
PERFORMANCE SUMMARY
For the six months ended in September, Inflation-Adjusted Bond returned 3.60%
after expenses, compared with the 3.88% return of the Citigroup U.S.
Inflation-Linked Index, whose returns are not reduced by management fees or
transaction costs.* (See the previous page for detailed performance
information.)
Inflation-Adjusted Bond performed well for the six months, beating out all other
U.S. government bond sectors. What's more, inflation-indexed securities remained
the best-performing segment of the entire domestic bond market for the three-
and five-year periods ended in September.
ECONOMIC AND MARKET REVIEW
The six months were remarkable in that they featured both a huge bond rally and
sell-off. First, the rally--bonds got off to an excellent start as economic
growth and inflation ran slower than average and the unemployment rate touched
its highest level in more than nine years during the second quarter of the year.
In an attempt to get the economy moving, the Federal Reserve cut its short-term
interest rate target to 1%--the lowest it's been in more than forty years. In
that environment, the yield on the benchmark 10-year Treasury note got as low as
3.11% in June.
But that was followed by a July that was one of the worst months for bonds in
decades. The 10-year yield rose throughout the month, getting as high as 4.60%
by early September, before finishing the period at 3.94%. Chalk up those big
swings in rates to economic data showing much improved growth during the third
quarter.
On the inflation front, commodity prices rose. For the six months, the
Reuters/Commodity Resource Bureau index of commodity futures prices was up 5%.
By comparison, the government's consumer price index shows inflation running at
a 2.3% annual pace through September, while core consumer prices (CPI excluding
food and energy costs) are up just 1.2% year-over-year. That's the smallest
annual increase in almost 40 years.
- --------------------------------------------------------------------------------
PORTFOLIO AT A GLANCE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
Weighted Average
Maturity 11.9 yrs 12.4 yrs
- --------------------------------------------------------------------------------
Average Duration 9.1 yrs 9.3 yrs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YIELDS AS OF SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
30-DAY SEC YIELD
- --------------------------------------------------------------------------------
Investor Class 2.51%
- --------------------------------------------------------------------------------
Institutional Class 2.70%
- --------------------------------------------------------------------------------
Advisor Class 2.26%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE (ADR)
- --------------------------------------------------------------------------------
Investor Class 2.80%
- --------------------------------------------------------------------------------
Institutional Class 3.00%
- --------------------------------------------------------------------------------
Advisor Class 2.55%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
-----
13
Inflation-Adjusted Bond - Portfolio Commentary
But even though inflation is low now, as is often the case when the economy's in
the early stages of a recovery, we're seeing a long list of factors that
typically argue for higher inflation down the road. These include the weaker
dollar, soaring budget and trade deficits, higher commodity prices, better
economic growth, and the massive amounts of fiscal and monetary stimulus the
government has thrown at the economy.
The market appears worried about future inflation, because the difference in
yield between traditional and inflation-adjusted Treasurys--called the
"breakeven rate"--continues to increase. In the last six months, the breakeven
rate increased by 20 basis points (0.20%) to 200 basis points or more across the
yield curve. Also, when the breakeven rate increases, TIIS outperform
traditional Treasurys, as happened for the last six months even with the lack of
inflation. In fact, TIIS outperformed all segments of the domestic bond market
for the last three- and five-year periods.
PORTFOLIO STRATEGY
At times in the last six months we favored shorter-term TIIS, which had the most
attractive yields relative to like-maturity conventional Treasurys. For example,
at the end of June, the difference in yield between five-year conventional and
inflation-indexed Treasurys was only about 160 basis points, or 1.60%. Now
compare those breakeven rates with the latest readings on the CPI, which was up
2.30% for the last twelve months, and has averaged 2.75% or so over the last
dozen years.
We also added value by taking an overweight position in long-term TIIS after the
big sell-off in July. We took some profits out of this trade after bonds rallied
in September, reducing our position in TIIS maturing in 2028 by the end of the
month.
Looking ahead, we'll continue to manage Inflation-Adjusted Bond with our
investment objective outlined in the prospectus, which is to provide the total
return and inflation protection consistent with an investment in
inflation-protected securities. That said, the fund is not ideally suited to
serve as an income investment because its yield will fluctuate with changes in
inflation, and because shareholders must reinvest their dividends to realize the
inflation protection an investment in the fund is intended to provide.
PORTFOLIO COMPOSITION BY MATURITY
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
0 - 5-Year Notes(1) 23.8% 25.1%
- --------------------------------------------------------------------------------
5 - 10-Year Notes 45.4% 42.5%
- --------------------------------------------------------------------------------
10 - 30-Year Notes 30.8% 32.4%
- --------------------------------------------------------------------------------
(1) Includes temporary cash investments.
- -----
14
Inflation-Adjusted Bond - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 89.5%
$48,321,225 U.S. Treasury Inflation Indexed
Bonds, 3.625%, 4/15/28 $ 58,242,201
- --------------------------------------------------------------------------------
59,342,791 U.S. Treasury Inflation Indexed
Bonds, 3.875%, 4/15/29 74,762,660
- --------------------------------------------------------------------------------
97,497 U.S. Treasury Inflation Indexed
Notes, 3.375%, 1/15/07 107,277
- --------------------------------------------------------------------------------
51,449,804 U.S. Treasury Inflation Indexed
Notes, 3.625%, 1/15/08 57,744,379
- --------------------------------------------------------------------------------
38,998,814 U.S. Treasury Inflation Indexed
Notes, 3.875%, 1/15/09 44,562,268
- --------------------------------------------------------------------------------
33,686,568 U.S. Treasury Inflation Indexed
Notes, 4.25%, 1/15/10 39,550,153
- --------------------------------------------------------------------------------
30,429,504 U.S. Treasury Inflation Indexed
Notes, 3.50%, 1/15/11 34,442,425
- --------------------------------------------------------------------------------
1,035,640 U.S. Treasury Inflation Indexed
Notes, 3.375%, 1/15/12 1,165,743
- --------------------------------------------------------------------------------
52,468,101 U.S. Treasury Inflation Indexed
Notes, 3.00%, 7/15/12 57,485,416
- --------------------------------------------------------------------------------
20,525,625 U.S. Treasury Inflation Indexed
Notes, 1.875%, 7/15/13 20,423,055
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $360,772,745) 388,485,577
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 9.9%
$39,539,725 TVA Inflation Indexed Notes,
3.375%, 1/15/07
(Cost $40,798,451) $ 43,001,428
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.6%
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations),
in a joint trading account at 0.91%, dated
9/30/03, due 10/1/03 (Delivery value
$2,493,063)
(Cost $2,493,000) 2,493,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $404,064,196) $433,980,005
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
TVA = Tennessee Valley Authority
See Notes to Financial Statements.
-----
15
Short-Term Government - Performance
TOTAL RETURNS AS OF SEPTEMBER 30, 2003
------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 1.90% 4.67% 4.91% 6.62% 12/15/82
- --------------------------------------------------------------------------------
CITIGROUP U.S.
TREASURY/AGENCY
1- TO 3-YEAR INDEX(1) 2.85% 5.67% 5.79% 7.71%(2) --
- --------------------------------------------------------------------------------
Advisor Class 1.65% 4.41% -- 4.71% 7/8/98
- --------------------------------------------------------------------------------
(1) In June 2003, the Salomon 1- to 3-Year Treasury/Agency Index, the fund's
benchmark since inception, became known as the Citigroup U.S.
Treasury/Agency 1- to 3-Year Index.
(2) Since 12/31/82, the date nearest the Investor Class's inception for which
data are available.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made September 30, 1993
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended September 30
- ---------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ---------------------------------------------------------------------------------------------
Investor Class -0.13% 7.73% 4.87% 6.19% 7.29% 1.67% 5.78% 9.50% 4.70% 1.90%
- ---------------------------------------------------------------------------------------------
Citigroup U.S.
Treasury/Agency
1- to 3-Year Index 1.11% 8.11% 5.70% 6.88% 7.92% 3.28% 5.92% 10.59% 5.87% 2.85%
- ---------------------------------------------------------------------------------------------
The charts on the performance page give historical return data for the fund.
Returns for the index are provided for comparison. The fund'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. Unless otherwise
indicated, the charts are based on Investor Class shares; performance for other
classes will vary due to differences in fee structures. Past performance does
not guarantee future results. None of the charts reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost.
- -----
16
Short-Term Government - Portfolio Commentary
By Bob Gahagan, portfolio manager
PERFORMANCE SUMMARY
Short-Term Government managed a positive return despite big swings in interest
rates during the six months ended September 30. For the six months, Short-Term
Government returned 0.62%.* By comparison, the Citigroup U.S. Treasury/Agency
1- to 3-Year Index returned 1.21%.
ECONOMIC AND MARKET REVIEW
It was a tale of two markets, with interest rates tumbling through about
mid-June before shooting up in July. In the first three months of the period,
manufacturing output slowed and the economy continued to shed jobs, pushing the
unemployment rate up to a nine-year high of 6.4%. These lingering signs of
weakness, combined with concerns about the possibility of deflation, convinced
the Federal Reserve to cut short-term interest rates in late June to a 45-year
low of 1%. In this environment, bond yields fell and prices rose, with the yield
on the benchmark 10-year note getting down to 3.11%.
But the market reversed all those gains in July, which was one of the worst
months for bonds in decades. Overall, the yield on the benchmark 10-year
Treasury shot up to 4.60% before finishing September at 3.94%.
That big reversal came as analysts began to call for healthy growth in the
second half of 2003. Nevertheless, many economists are calling this a "jobless
recovery" where hiring lags. In general, this signals little upward pressure on
wages and inflation, so the Fed can afford to keep short-term interest rates at
more than 40-year lows for an extended period.
Performance for the broad sectors of the government bond market for the six
months shows Treasurys out in front of agency debt, which finished ahead of
mortgage-backed securities. Mortgage bonds are traditionally valued for their
combination of high credit quality and attractive yield, and tend to do best
when interest rates are stable or change only gradually.
But all the rate volatility in the last six months hindered their performance,
as lower rates caused a huge spike in home loan prepayment activity, limiting
returns for mortgage investors. And when rates shot up, prepayment activity
declined and the duration of mortgages extended, which is undesirable when rates
are rising.
- --------------------------------------------------------------------------------
PORTFOLIO AT A GLANCE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
Weighted Average
Maturity 1.9 yrs 2.1 yrs
- --------------------------------------------------------------------------------
Average Duration 2.0 yrs 1.9 yrs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YIELDS AS OF SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
30-DAY SEC YIELD
- --------------------------------------------------------------------------------
Investor Class 1.28%
- --------------------------------------------------------------------------------
Advisor Class 1.04%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE (ADR)
- --------------------------------------------------------------------------------
Investor Class 1.53%
- --------------------------------------------------------------------------------
Advisor Class 1.28%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Investor Class shares.
(continued)
-----
17
Short-Term Government - Portfolio Commentary
PORTFOLIO STRATEGY
In terms of the portfolio, we worked to position Short-Term Government for the
likelihood of stronger economic growth and higher rates in the second half of
the year. That meant maintaining a fairly short duration, or interest rate
sensitivity of the portfolio.
In terms of sector weightings, we added select government agency securities when
yields spiked temporarily on news that government sponsored entities Fannie Mae
and Freddie Mac could be subject to more government regulation going forward. We
thought this was an excellent opportunity to add yield to the portfolio, because
our view is that more effective oversight of these agencies would be good for
bondholders.
Within the mortgage slice, we tried to limit the effect of rate volatility by
holding 15-year mortgages, as well as commercial mortgage-backed securities and
bonds backed by home-equity loans.
We maintained about half of fund assets in Treasury securities over the course
of the six months, but shifted around our allocation within that slice. For
example, we took some money off the table and sold longer-maturity Treasurys
that had run up in price early in the period.
In addition, we moved out of Treasury inflation-indexed securities (TIIS). TIIS
actually performed quite well for the six months, but with inflation dropping to
such a low level, we took our profits from TIIS. We should emphasize though that
these are short-term tactical trades we're talking about--we like the long-term
outlook for TIIS given the prospects for growth and the dollar, among other
reasons.
Going forward, we'll continue to manage the portfolio according to our
investment objective outlined in the prospectus, which is to provide high
current income and safety of principal consistent with an investment in
short-term bonds.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN THE PORTFOLIO
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
U.S. Treasury Securities 56.6% 50.6%
- --------------------------------------------------------------------------------
Collateralized Mortgage
Obligations 14.4% 11.4%
- --------------------------------------------------------------------------------
Asset-Backed Securities 12.2% 10.7%
- --------------------------------------------------------------------------------
U.S. Government Agency
Mortgage-Backed
Securities 6.9% 18.7%
- --------------------------------------------------------------------------------
U.S. Government
Agency Securities 6.2% 5.4%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 3.7% 3.2%
- --------------------------------------------------------------------------------
- -----
18
Short-Term Government - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 56.6%
$ 18,000,000 U.S. Treasury Bonds, 13.875%,
5/15/06 $ 23,545,548
- --------------------------------------------------------------------------------
14,300,000 U.S. Treasury Bonds, 14.00%,
11/15/06 19,479,288
- --------------------------------------------------------------------------------
27,000,000 U.S. Treasury Bonds, 12.75%,
11/15/10 33,247,989
- --------------------------------------------------------------------------------
46,200,000 U.S. Treasury Notes, 3.00%,
2/29/04 46,593,439
- --------------------------------------------------------------------------------
35,000,000 U.S. Treasury Notes, 2.125%,
8/31/04 35,350,035
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Notes, 1.50%,
2/28/05 100,492,200
- --------------------------------------------------------------------------------
84,246,000 U.S. Treasury Notes, 1.625%,
4/30/05 84,765,966
- --------------------------------------------------------------------------------
40,000,000 U.S. Treasury Notes, 1.25%,
5/31/05 39,989,080
- --------------------------------------------------------------------------------
35,000,000 U.S. Treasury Notes, 1.50%,
7/31/05 35,091,630
- --------------------------------------------------------------------------------
110,000,000 U.S. Treasury Notes, 6.50%,
8/15/05 120,419,971
- --------------------------------------------------------------------------------
8,000,000 U.S. Treasury Notes, 7.00%,
7/15/06 9,116,256
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $546,717,497) 548,091,402
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS(1) -- 14.4%
1,692,819 Chase Mortgage Finance
Corp., Series 2002 A1,
Class 2A1, VRN, 6.20%,
10/1/03 1,704,811
- --------------------------------------------------------------------------------
104,328,321 Commercial Mortgage
Acceptance Corp. STRIPS --
INTEREST, Series 1998 C2,
Class X, VRN, 1.05%, 10/1/03 4,859,092
- --------------------------------------------------------------------------------
12,092,163 FHLMC, Series 2574,
Class JM SEQ, 5.00%,
12/15/22 12,574,592
- --------------------------------------------------------------------------------
16,857,142 FHLMC, Series 2624,
Class FE SEQ, VRN, 1.42%,
10/15/03, resets monthly off
the 1-month LIBOR plus
0.30% with no caps 16,852,169
- --------------------------------------------------------------------------------
16,134,034 FHLMC, Series 2625,
Class FJ SEQ, VRN, 1.42%,
10/15/03, resets monthly off
the 1-month LIBOR plus
0.30% with no caps 16,150,927
- --------------------------------------------------------------------------------
14,682,897 FHLMC, Series 2630,
Class FJ, VRN, 1.47%,
10/15/03, resets monthly off
the 1-month LIBOR plus
0.35% with no caps 14,682,427
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 9,985,115 First Union National Bank
Commercial Mortgage,
Series 2001 C3, Class A1 SEQ,
5.20%, 8/15/33 $ 10,500,426
- --------------------------------------------------------------------------------
19,976,465 FNMA STRIPS -- INTEREST,
Series 2002 T7, Class S1,
5.25%, 5/25/05 1,310,836
- --------------------------------------------------------------------------------
11,189,069 FNMA, Series 2001-68,
Class QH, 5.00%, 9/25/10 11,218,082
- --------------------------------------------------------------------------------
14,545,134 FNMA, Series 2003-42,
Class FK, VRN, 1.52%,
10/25/03, resets monthly off
the 1-month LIBOR plus
0.40% with no caps 14,584,391
- --------------------------------------------------------------------------------
23,439,170 FNMA, Series 2003-52,
Class KF SEQ, VRN, 1.52%,
10/25/03, resets monthly off
the 1-month LIBOR plus
0.40% with no caps 23,522,684
- --------------------------------------------------------------------------------
27,356,388 GMAC Commercial Mortgage
Securities Inc. STRIPS --
INTEREST, Series 2000 C3,
Class X, VRN, 1.09%, 10/1/03
(Acquired 2/22/02, Cost
$1,881,820)(2) 1,779,533
- --------------------------------------------------------------------------------
10,000,000 J.P. Morgan Chase
Commercial Mortgage
Securities Corp., Series
2002 FL1A, Class A2, VRN,
1.56%, 10/14/03, resets
monthly off the 1-month
LIBOR plus 0.44% with no
caps (Acquired 4/3/02,
Cost $10,000,000)(2) 10,003,140
- --------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $138,789,620) 139,743,110
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(1) -- 12.2%
82,097 AmeriCredit Automobile
Receivables Trust, Series
1999 D, Class A3 SEQ, 7.02%,
12/12/05 82,879
- --------------------------------------------------------------------------------
8,200,000 Ameriquest Mortgage
Securities Inc., Series 2003-5,
Class A3 SEQ, 3.03%,
7/25/33 8,239,081
- --------------------------------------------------------------------------------
12,548,871 Ameriquest Mortgage
Securities Inc., Series 2003-8,
Class AV2, VRN, 1.55%,
10/25/03, resets monthly off
the 1-month LIBOR plus
0.43% with no caps 12,553,527
- --------------------------------------------------------------------------------
44,278 AQ Finance Non-Improvement
Trust, Series 2001 3A,
Class CE, 8.84%, 2/25/32
(Acquired 12/5/01, Cost
$44,278)(2) 44,373
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
-----
19
Short-Term Government - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,500,000 Argent Securities Inc., Series
2003 W3, Class AF3 SEQ,
3.99%, 9/25/30 $ 3,575,742
- --------------------------------------------------------------------------------
1,133,232 Asset Backed Funding Corp.
Non-Improvement Trust,
Series 2003, Class N1, 6.90%,
7/26/33 1,133,232
- --------------------------------------------------------------------------------
10,000,000 Bayview Financial Acquisition
Trust, Series 2002 BA,
Class A1, VRN, 1.625%,
10/27/03, resets monthly off
the 1-month LIBOR plus
0.50% with no caps
(Acquired 3/26/02, Cost
$10,000,000)(2) 10,037,960
- --------------------------------------------------------------------------------
10,400,000 Contimortgage Home Equity
Loan Trust, Series 1998-2,
Class A7, 6.57%, 3/15/23 10,795,970
- --------------------------------------------------------------------------------
18,000,000 FHLMC Structured Pass
Through Securities, Series
T 49, Class AF2, 2.97%,
12/25/32 18,105,805
- --------------------------------------------------------------------------------
15,909,512 Ford Credit Auto Trust, Series
2001 E, Class A3 SEQ, VRN,
1.26%, 10/15/03, resets
monthly off the 1-month
LIBOR plus 0.14% with
no caps 15,920,967
- --------------------------------------------------------------------------------
4,831,103 Indymac NIM Trust SPMD,
Series 2002 B, VRN, 1.50%,
10/25/03, resets monthly off
the 1-month LIBOR plus
0.38% with no caps (AMBAC) (Radian)
(Acquired 10/4/02,
Cost $4,831,103)(2) 4,837,581
- --------------------------------------------------------------------------------
14,271,820 Long Beach Mortgage Loan
Trust, Series 2003-3, Class A,
VRN, 1.44%, 10/25/03,
resets monthly off the
1-month LIBOR plus 0.32%
with no caps 14,265,797
- --------------------------------------------------------------------------------
5,453,368 Morgan Stanley Capital I,
Series 2002 NC2, Class A2,
VRN, 1.46%, 10/25/03,
resets monthly off the
1-month LIBOR plus 0.34%
with no caps 5,452,419
- --------------------------------------------------------------------------------
1,508,964 Option One Mortgage
Securities Corp. Non-
Improvement Trust, Series
2002-3, Class CTFS, VRN,
1.42%, 10/26/03, resets
monthly off the 1-month
LIBOR plus 0.30% with no
caps (Acquired 4/19/02,
Cost $1,508,964)(2) 1,510,002
- --------------------------------------------------------------------------------
6,000,000 Residential Asset Mortgage
Products Inc., Series
2003 RZ4, Class A4 SEQ,
4.04%, 12/25/30 6,082,500
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,540,000 Saxon Asset Securities Trust,
Series 2003-3, Class AF3,
3.60%, 12/25/33 $ 5,701,774
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $117,585,539) 118,339,609
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 6.2%
25,000,000 FHLB, 1.875%, 6/15/06 24,903,225
- --------------------------------------------------------------------------------
14,000,000 FNMA, 5.75%, 6/15/05 15,023,120
- --------------------------------------------------------------------------------
20,000,000 FNMA, 1.60%, 7/8/05 20,001,860
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $59,896,331) 59,928,205
- --------------------------------------------------------------------------------
FIXED-RATE U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(1) -- 6.0%
987,020 FHLMC, 6.50%, 1/1/11 1,041,706
- --------------------------------------------------------------------------------
1,905,787 FHLMC, 6.50%, 5/1/11 2,010,992
- --------------------------------------------------------------------------------
1,494,821 FHLMC, 6.50%, 12/1/12 1,574,637
- --------------------------------------------------------------------------------
4,181,293 FHLMC, 6.00%, 2/1/13 4,365,090
- --------------------------------------------------------------------------------
153,131 FHLMC, 7.00%, 11/1/13 162,611
- --------------------------------------------------------------------------------
207,793 FHLMC, 7.00%, 12/1/14 220,694
- --------------------------------------------------------------------------------
6,402,788 FHLMC, 6.00%, 1/1/15 6,678,979
- --------------------------------------------------------------------------------
5,762,369 FHLMC, 5.50%, 11/1/17 5,965,856
- --------------------------------------------------------------------------------
108,111 FNMA, 8.00%, 5/1/12 116,037
- --------------------------------------------------------------------------------
5,955,782 FNMA, 6.50%, 1/1/13 6,300,377
- --------------------------------------------------------------------------------
65,439 FNMA, 6.50%, 3/1/13 69,225
- --------------------------------------------------------------------------------
617,462 FNMA, 6.00%, 6/1/13 646,215
- --------------------------------------------------------------------------------
51,626 FNMA, 6.50%, 6/1/13 54,605
- --------------------------------------------------------------------------------
148,471 FNMA, 6.00%, 1/1/14 155,363
- --------------------------------------------------------------------------------
1,443,372 FNMA, 6.00%, 7/1/14 1,509,714
- --------------------------------------------------------------------------------
2,779,384 FNMA, 5.50%, 4/1/16 2,878,616
- --------------------------------------------------------------------------------
2,895,487 FNMA, 7.50%, 5/1/16 3,082,950
- --------------------------------------------------------------------------------
1,386,496 FNMA, 7.00%, 5/1/32 1,467,156
- --------------------------------------------------------------------------------
1,869,267 FNMA, 7.00%, 5/1/32 1,978,013
- --------------------------------------------------------------------------------
8,912,258 FNMA, 7.00%, 6/1/32 9,430,738
- --------------------------------------------------------------------------------
1,827,025 FNMA, 7.00%, 6/1/32 1,934,257
- --------------------------------------------------------------------------------
5,757,435 FNMA, 7.00%, 8/1/32 6,092,380
- --------------------------------------------------------------------------------
59,702 GNMA, 5.50%, 1/20/09 62,514
- --------------------------------------------------------------------------------
33,975 GNMA, 9.00%, 12/20/16 37,498
- --------------------------------------------------------------------------------
151,528 GNMA, 9.00%, 8/20/17 167,394
- --------------------------------------------------------------------------------
80,650 GNMA, 9.50%, 11/20/19 89,255
- --------------------------------------------------------------------------------
TOTAL FIXED-RATE U.S. GOVERNMENT
AGENCY MORTGAGE-BACKED SECURITIES
(Cost $55,740,048) 58,092,872
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- -----
20
Short-Term Government - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(1) -0.9%
$ 29,185 FHLMC, 4.97%, 8/1/18 $ 30,162
- --------------------------------------------------------------------------------
134,301 FHLMC, 3.72%, 11/1/18 137,479
- --------------------------------------------------------------------------------
653,214 FHLMC, 3.35%, 9/1/20 668,854
- --------------------------------------------------------------------------------
200,314 FHLMC, 3.625%, 1/1/21 203,218
- --------------------------------------------------------------------------------
48,220 FHLMC, 4.61%, 6/1/21 49,262
- --------------------------------------------------------------------------------
79,081 FHLMC, 3.51%, 3/1/24 80,050
- --------------------------------------------------------------------------------
81,475 FNMA, 7.49%, 8/1/14 83,909
- --------------------------------------------------------------------------------
138,874 FNMA, 3.125%, 4/1/16 139,174
- --------------------------------------------------------------------------------
107,707 FNMA, 3.02%, 8/1/16 110,895
- --------------------------------------------------------------------------------
107,232 FNMA, 4.43%, 1/1/17 109,566
- --------------------------------------------------------------------------------
404,878 FNMA, 6.17%, 5/1/17 411,141
- --------------------------------------------------------------------------------
307,857 FNMA, 5.66%, 7/1/17 320,258
- --------------------------------------------------------------------------------
113,663 FNMA, 5.89%, 7/1/17 114,617
- --------------------------------------------------------------------------------
130,517 FNMA, 3.25%, 2/1/18 134,572
- --------------------------------------------------------------------------------
258,194 FNMA, 3.54%, 2/1/18 264,230
- --------------------------------------------------------------------------------
86,540 FNMA, 3.08%, 5/1/18 89,084
- --------------------------------------------------------------------------------
99,610 FNMA, 3.26%, 6/1/18 100,882
- --------------------------------------------------------------------------------
130,351 FNMA, 3.05%, 8/1/19 133,501
- --------------------------------------------------------------------------------
896,806 FNMA, 3.64%, 9/1/19 920,098
- --------------------------------------------------------------------------------
296,948 FNMA, 3.08%, 1/1/20 301,319
- --------------------------------------------------------------------------------
133,798 FNMA, 3.92%, 3/1/21 138,245
- --------------------------------------------------------------------------------
109,724 FNMA, 3.81%, 8/1/21 111,311
- --------------------------------------------------------------------------------
270,340 FNMA, 3.76%, 5/1/22 273,729
- --------------------------------------------------------------------------------
72,862 FNMA, 4.81%, 5/1/22 74,988
- --------------------------------------------------------------------------------
87,972 FNMA, 3.95%, 1/1/23 91,124
- --------------------------------------------------------------------------------
34,196 FNMA, 3.75%, 6/1/23 35,508
- --------------------------------------------------------------------------------
36,678 FNMA, 3.75%, 7/1/23 38,085
- --------------------------------------------------------------------------------
384,940 FNMA, 3.42%, 8/1/23 396,568
- --------------------------------------------------------------------------------
148,440 FNMA, 3.64%, 8/1/23 152,914
- --------------------------------------------------------------------------------
2,574,182 FNMA, 5.85%, 5/1/25 2,662,981
- --------------------------------------------------------------------------------
39,735 FNMA, 3.84%, 10/1/25 40,325
- --------------------------------------------------------------------------------
39,431 FNMA, 4.62%, 4/1/26 39,797
- --------------------------------------------------------------------------------
35,048 FNMA, 4.33%, 1/1/27 35,681
- --------------------------------------------------------------------------------
52,501 FNMA, 5.28%, 1/1/27 55,507
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 99,396 FNMA, 4.39%, 1/1/29 $ 102,283
- --------------------------------------------------------------------------------
54,211 GNMA, 4.375%, 5/20/17 55,518
- --------------------------------------------------------------------------------
155,309 GNMA, 4.875%, 2/20/21 159,750
- --------------------------------------------------------------------------------
61,601 GNMA, 6.125%, 11/20/21 63,097
- --------------------------------------------------------------------------------
2,473 GNMA, 4.375%, 1/20/22 2,527
- --------------------------------------------------------------------------------
108,679 GNMA, 6.25%, 8/20/26 110,983
- --------------------------------------------------------------------------------
TOTAL ADJUSTABLE-RATE U.S.
GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $9,073,475) 9,043,192
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 3.7%
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations),
in a joint trading account at 0.91%, dated
9/30/03, due 10/1/03 (Delivery value
$36,336,918)
(Cost $36,336,000) 36,336,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $964,138,510) $969,574,390
================================================================================
COLLATERAL RECEIVED FOR
SECURITIES LENDING(3)
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, BNP Paribas
Securities Corp., (U.S. Government Agency
obligations), 1.13%, dated 9/30/03, due
10/1/03 (Delivery value $177,241,094) $177,235,531
- --------------------------------------------------------------------------------
SHORT-TERM DEBT SECURITIES
- --------------------------------------------------------------------------------
$12,000,000 Bear Stearns Companies, Inc.,
VRN, 1.37%, 10/31/03 12,000,000
- --------------------------------------------------------------------------------
25,000,000 Wells Fargo Bank, N.A.,
1.07%, 10/23/03 25,000,000
- --------------------------------------------------------------------------------
37,000,000
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED FOR
SECURITIES LENDING
(Cost $214,235,531) $214,235,531
================================================================================
See Notes to Financial Statements. (continued)
-----
21
Short-Term Government - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GMAC = General Motors Acceptance Corporation
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.
SEQ = Sequential Payer
STRIPS = Separate Trading of Registered Interest and Principal of Securities
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective September 30, 2003.
(1) Final maturity indicated, unless otherwise noted.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 2003, was
$28,212,589, which represented 2.9% of net assets.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- -----
22
Statement of Assets and Liabilities
SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
GOVERNMENT
GINNIE MAE BOND
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of
$1,802,527,226 and $589,835,152,
respectively) -- including securities on
loan valued at $-- and $152,785,207,
respectively $1,843,415,500 $604,791,810
- -------------------------------------------
Repurchase agreements, at value
(cost of $343,458,000 and
$63,174,000, respectively) 343,458,000 63,174,000
- -------------------------------------------
Collateral received on securities loaned,
at value (cost of $-- and $155,156,970,
respectively) -- 155,156,970
- -------------------------------------------
Receivable for investments sold 51,833,984 812,813
- -------------------------------------------
Receivable for capital shares sold 431,243 133,830
- -------------------------------------------
Interest receivable 8,915,672 4,899,656
- --------------------------------------------------------------------------------
2,248,054,399 828,969,079
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess
of demand deposit cash 65,621 6,363,006
- -------------------------------------------
Payable for collateral received
on securities loaned -- 155,156,970
- -------------------------------------------
Payable for investments purchased 373,435,156 100,453,143
- -------------------------------------------
Payable for capital shares redeemed 60,041 --
- -------------------------------------------
Accrued management fees 877,673 225,401
- -------------------------------------------
Distribution fees payable 15,648 9,102
- -------------------------------------------
Service fees payable 14,746 9,102
- -------------------------------------------
Dividends payable 745,613 146,958
- --------------------------------------------------------------------------------
375,214,498 262,363,682
- --------------------------------------------------------------------------------
NET ASSETS $1,872,839,901 $566,605,397
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital paid in $1,868,541,528 $540,553,113
- -------------------------------------------
Accumulated undistributed net
realized gain (loss) on
investment transactions (36,589,901) 11,095,626
- -------------------------------------------
Net unrealized appreciation
on investments 40,888,274 14,956,658
- --------------------------------------------------------------------------------
$1,872,839,901 $566,605,397
================================================================================
INVESTOR CLASS
- --------------------------------------------------------------------------------
Net assets $1,800,423,318 $522,437,144
- -------------------------------------------
Shares outstanding 168,884,003 46,634,020
- -------------------------------------------
Net asset value per share $10.66 $11.20
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
Net assets $68,072,910 $44,168,253
- -------------------------------------------
Shares outstanding 6,385,403 3,942,567
- -------------------------------------------
Net asset value per share $10.66 $11.20
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
Net assets $4,343,673 N/A
- -------------------------------------------
Shares outstanding 407,448 N/A
- -------------------------------------------
Net asset value per share $10.66 N/A
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
-----
23
Statement of Assets and Liabilities
SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
GOVERNMENT
GINNIE MAE BOND
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of
$401,571,196 and $927,802,510,
respectively) -- including securities on
loan valued at $-- and $210,343,029,
respectively $431,487,005 $933,238,390
- -------------------------------------------
Repurchase agreements, at value
(cost of $2,493,000 and
$36,336,000, respectively) 2,493,000 36,336,000
- -------------------------------------------
Cash 71,598 511,443
- -------------------------------------------
Collateral received on securities loaned,
at value (cost of $-- and $214,235,531,
respectively) -- 214,235,531
- -------------------------------------------
Receivable for investments sold -- 7,148
- -------------------------------------------
Receivable for capital shares sold 347,174 22,523
- -------------------------------------------
Interest receivable 3,448,334 6,647,970
- --------------------------------------------------------------------------------
437,847,111 1,190,999,005
- -------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for collateral received
on securities loaned -- 214,235,531
- -------------------------------------------
Accrued management fees 158,343 454,868
- -------------------------------------------
Distribution fees payable 11,354 12,520
- -------------------------------------------
Service fees payable 11,354 12,520
- -------------------------------------------
Dividends payable 86,175 76,783
- --------------------------------------------------------------------------------
267,226 214,792,222
- --------------------------------------------------------------------------------
NET ASSETS $437,579,885 $976,206,783
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital paid in $405,254,848 $1,004,047,164
- -------------------------------------------
Accumulated undistributed net
realized gain (loss) on
investment transactions 2,409,228 (33,276,261)
- -------------------------------------------
Net unrealized appreciation
on investments 29,915,809 5,435,880
- --------------------------------------------------------------------------------
$437,579,885 $976,206,783
================================================================================
INVESTOR CLASS
- --------------------------------------------------------------------------------
Net assets $339,966,545 $917,634,691
- -------------------------------------------
Shares outstanding 30,821,964 95,029,649
- -------------------------------------------
Net asset value per share $11.03 $9.66
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
Net assets $39,935,805 N/A
- -------------------------------------------
Shares outstanding 3,620,641 N/A
- -------------------------------------------
Net asset value per share $11.03 N/A
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
Net assets $57,677,535 $58,572,092
- -------------------------------------------
Shares outstanding 5,229,145 6,065,684
- -------------------------------------------
Net asset value per share $11.03 $9.66
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- -----
24
Statement of Operations
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------
INCOME:
- -------------------------------------
Interest $55,981,056 $9,675,488 $9,893,703 $12,313,589
- -------------------------------------
Securities lending -- 18,636 3,936 19,721
- -----------------------------------------------------------------------------------------------------------
55,981,056 9,694,124 9,897,639 12,333,310
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------
Management fees 5,844,733 1,476,763 1,012,578 2,839,988
- -------------------------------------
Distribution fees:
- -------------------------------------
Advisor Class 90,229 56,287 61,780 81,940
- -------------------------------------
C Class 12,718 -- -- --
- -------------------------------------
Service fees:
- -------------------------------------
Advisor Class 90,229 56,287 61,780 81,940
- -------------------------------------
C Class 6,359 -- -- --
- -------------------------------------
Trustees' fees and expenses 35,026 10,425 7,491 16,945
- -------------------------------------
Other expenses 3,590 763 709 1,032
- ---------------------------------------------------------------------------------------------------------
6,082,884 1,600,525 1,144,338 3,021,845
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 49,898,172 8,093,599 8,753,301 9,311,465
- ---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investment transactions (23,475,938) 3,684,227 616,489 1,023,038
- -------------------------------------
Change in net unrealized
appreciation on investments (15,366,114) (6,700,814) 5,040,551 (5,093,505)
- ---------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS) (38,842,052) (3,016,587) 5,657,040 (4,070,467)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $11,056,120 $5,077,012 $14,410,341 $5,240,998
=========================================================================================================
See Notes to Financial Statements.
-----
25
Statement of Changes in Net Assets
SIX MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED) AND YEAR ENDED MARCH 31, 2003
- ---------------------------------------------------------------------------------------------------------
GINNIE MAE GOVERNMENT BOND
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS SEPT. 30, 2003 MARCH 31, 2003 SEPT. 30, 2003 MARCH 31, 2003
- ---------------------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------------------
Net investment income $49,898,172 $105,805,194 $8,093,599 $19,296,219
- -------------------------------------
Net realized gain (loss) (23,475,938) 6,248,584 3,684,227 22,391,383
- -------------------------------------
Change in net
unrealized appreciation (15,366,114) 39,247,294 (6,700,814) 24,417,942
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 11,056,120 151,301,072 5,077,012 66,105,544
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From net investment income:
- -------------------------------------
Investor Class (48,120,573) (102,787,971) (7,553,839) (17,852,193)
- -------------------------------------
Advisor Class (1,672,056) (2,897,031) (539,760) (1,444,026)
- -------------------------------------
C Class (105,543) (120,192) -- --
- -------------------------------------
From net realized gains:
- -------------------------------------
Investor Class -- -- -- (16,460,933)
- -------------------------------------
Advisor Class -- -- -- (1,407,634)
- ---------------------------------------------------------------------------------------------------------
Decrease in net assets
from distributions (49,898,172) (105,805,194) (8,093,599) (37,164,786)
- ---------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from capital
share transactions (269,752,592) 392,581,924 (65,266,921) 142,350,893
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (308,594,644) 438,077,802 (68,283,508) 171,291,651
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of period 2,181,434,545 1,743,356,743 634,888,905 463,597,254
- ---------------------------------------------------------------------------------------------------------
End of period $1,872,839,901 $2,181,434,545 $566,605,397 $634,888,905
=========================================================================================================
See Notes to Financial Statements. (continued)
- -----
26
Statement of Changes in Net Assets
SIX MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED) AND YEAR ENDED MARCH 31, 2003
- --------------------------------------------------------------------------------------------------------
INFLATION-ADJUSTED BOND SHORT-TERM GOVERNMENT
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS SEPT. 30, 2003 MARCH 31, 2003 SEPT. 30, 2003 MARCH 31, 2003
- --------------------------------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------------------------------
Net investment income $8,753,301 $14,235,928 $9,311,465 $28,208,819
- -------------------------------------
Net realized gain 616,489 7,123,901 1,023,038 11,569,300
- -------------------------------------
Change in net
unrealized appreciation 5,040,551 23,806,968 (5,093,505) 10,230,643
- --------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 14,410,341 45,166,797 5,240,998 50,008,762
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------
From net investment income:
- -------------------------------------
Investor Class (7,108,310) (12,796,972) (8,780,696) (26,921,124)
- -------------------------------------
Institutional Class (770,867) (530,895) -- --
- -------------------------------------
Advisor Class (874,124) (908,061) (530,769) (1,287,695)
- -------------------------------------
From net realized gains:
- -------------------------------------
Investor Class -- (4,428,497) -- --
- -------------------------------------
Institutional Class -- (369,659) -- --
- -------------------------------------
Advisor Class -- (402,625) -- --
- --------------------------------------------------------------------------------------------------------
Decrease in net assets
from distributions (8,753,301) (19,436,709) (9,311,465) (28,208,819)
- --------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from capital
share transactions 3,738,839 207,323,249 (45,237,023) 135,085,372
- --------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 9,395,879 233,053,337 (49,307,490) 156,885,315
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 428,184,006 195,130,669 1,025,514,273 868,628,958
- --------------------------------------------------------------------------------------------------------
End of period $437,579,885 $428,184,006 $976,206,783 $1,025,514,273
========================================================================================================
See Notes to Financial Statements.
-----
27
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Ginnie Mae Fund (Ginnie Mae), Government
Bond Fund (Government Bond), Inflation-Adjusted Bond Fund (Inflation-Adjusted),
and Short-Term Government Fund (Short-Term Government) (collectively, the funds)
are four funds in a series issued by the trust. The funds are diversified under
the 1940 Act.
Ginnie Mae seeks to provide a high level of current income consistent with
safety of principal and maintenance of liquidity by investing primarily in
mortgage-backed Government National Mortgage Association securities. Government
Bond seeks high current income and intends to pursue this objective by investing
in securities, including mortgage-backed securities, issued or guaranteed by the
U.S. government and its agencies and instrumentalities. Inflation-Adjusted seeks
to provide total return and inflation protection consistent with investment in
inflation-indexed securities issued by the U.S. Treasury and the U.S.
government and its agencies and instrumentalities. In addition,
Inflation-Adjusted also may invest in U.S. Treasury securities that are not
indexed to inflation for liquidity and total return, if the fund managers
believe there is an inadequate supply of appropriate inflation-indexed
securities in which to invest or when such investments are required as a
temporary defensive measure. Short-Term Government seeks to provide investors
with a high level of current income, consistent with stability of principal.
Short-Term Government intends to pursue its objective by investing in securities
of the U.S. government and its agencies and instrumentalities. Short-Term
Government may also invest up to 20% of its total assets in investment-grade
debt securities of U.S. companies. The following is a summary of the funds'
significant accounting policies.
MULTIPLE CLASS -- Government Bond and Short-Term Government are authorized to
issue the Investor Class and the Advisor Class. Inflation-Adjusted is authorized
to issue the Investor Class, the Institutional Class, and the Advisor Class.
Ginnie Mae is authorized to issue the Investor Class, the Advisor Class, and the
C Class. The C Class may be subject to a contingent deferred sales charge. The
share classes differ principally in their respective sales charges and
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. Income, non-class specific expenses, and realized and unrealized
capital gains and losses of the fund are allocated to each class of shares based
on their relative net assets.
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.
SECURITIES ON LOAN -- Government Bond, Inflation-Adjusted, and Short-Term
Government may lend portfolio securities through the lending agent to certain
approved borrowers in order to earn additional income. Government Bond,
Inflation-Adjusted, and Short-Term Government continue to recognize any gain or
loss in the market price of the securities loaned and record any interest earned
or dividends declared.
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.
Each fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient
to enable each 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 equal to or greater than amounts owed to each
fund under each repurchase agreement.
(continued)
- -----
28
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, each 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.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities
transactions on a when-issued or forward 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 funds will
segregate cash, cash equivalents or other appropriate liquid securities on their
records in amounts 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 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 for
the funds are declared daily and paid monthly. Distributions from net realized
gains for the funds, if any, are generally declared and paid annually.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require management to make certain estimates and assumptions at the date of
the financial statements. Actual results could differ from these estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- 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 commissions,
taxes, portfolio insurance, interest, fees and expenses of those trustees who
are not considered "interested persons" as defined in the 1940 Act (including
counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is
computed daily and paid monthly in arrears. 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 for Ginnie Mae
and Short-Term Government range from 0.2425% to 0.3600% and for Government Bond
and Inflation-Adjusted range from 0.1625% to 0.2800%. The rates for the Complex
Fee (Investor Class and C Class) for the funds range from 0.2900% to 0.3100%.
The Institutional Class and the Advisor Class Class is 0.2000% and 0.2500% less
at each point within the Complex Fee range, respectively.
The effective annual management fees for the six months ended September 30,
2003, were as follows:
- --------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- --------------------------------------------------------------------------------
Investor Class 0.58% 0.50% 0.50% 0.58%
- --------------------------------------------------------------------------------
Institutional Class -- -- 0.30% --
- --------------------------------------------------------------------------------
Advisor Class 0.33% 0.25% 0.25% 0.33%
- --------------------------------------------------------------------------------
C Class 0.58% -- -- --
- --------------------------------------------------------------------------------
(continued)
-----
29
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a Master
Distribution and Shareholder Services Plan for the Advisor Class (the Advisor
Class plan) and a separate Master Distribution and Individual Shareholder
Services Plan for the C Class (collectively with the Advisor Class plan, the
plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide the Advisor
Class and C Class will pay American Century Investment Services, Inc. (ACIS) the
following annual distribution and service fees:
- --------------------------------------------------------------------------------
ADVISOR C
- -------------------------------------------------------------------------------
Distribution Fee 0.25% 0.50%
- -------------------------------------------------------------------------------
Service Fee 0.25% 0.25%
- -------------------------------------------------------------------------------
The fees are computed daily and paid monthly in arrears based on each class's
average daily closing net assets during the previous month. The distribution fee
provides compensation for expenses incurred in connection with distributing
shares of the classes 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 ACIS, its affiliates or
independent third party providers for Advisor Class shares and for individual
shareholder services rendered by broker/dealers or other independent financial
intermediaries for C Class shares. Fees incurred under the plans during the six
months ended September 30, 2003, are detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and trustees of the trust are also officers
and/or directors, and, as a group, controlling stockholders of American Century
Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
The funds have a bank line of credit agreement with J.P. Morgan Chase & Co.
(JPM). JPM is an equity investor in ACC. The funds, except Ginnie Mae, have a
securities lending agreement with JPMorgan Chase Bank (Chase). Chase is a wholly
owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended September 30, 2003, were as follows:
- ---------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- ---------------------------------------------------------------------------------------------
PURCHASES
- ---------------------------------------------------------------------------------------------
U.S. Treasury & Government
Agency Obligations $3,800,099,697 $894,572,316 $99,274,549 $956,624,696
- ---------------------------------------------------------------------------------------------
Investment securities other
than U.S. Treasury &
Government Agency Obligations -- -- -- $41,632,018
- ---------------------------------------------------------------------------------------------
PROCEEDS FROM SALES
- ---------------------------------------------------------------------------------------------
U.S. Treasury & Government
Agency Obligations $4,112,885,343 $1,001,201,097 $99,638,829 $1,163,576,357
- ---------------------------------------------------------------------------------------------
Investment securities other
than U.S. Treasury &
Government Agency Obligations -- -- -- $40,916,310
- ---------------------------------------------------------------------------------------------
(continued)
- -----
30
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (unlimited number of shares
authorized):
- -------------------------------------------------------------------------------------------------
GINNIE MAE GOVERNMENT BOND
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
INVESTOR CLASS
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -------------------------------------
Sold 16,517,847 $177,081,466 4,835,958 $54,243,254
- -------------------------------------
Issued in reinvestment
of distributions 3,847,558 41,080,395 592,010 6,625,702
- -------------------------------------
Redeemed (45,058,788) (480,695,742) (11,288,032) (126,111,610)
- -------------------------------------------------------------------------------------------------
Net decrease (24,693,383) $(262,533,881) (5,860,064) $(65,242,654)
=================================================================================================
YEAR ENDED MARCH 31, 2003
- -------------------------------------
Sold 75,200,667 $814,587,033 18,466,438 $206,166,710
- -------------------------------------
Issued in connection
with acquisition -- -- 14,082,763 158,238,352
- -------------------------------------
Issued in reinvestment
of distributions 8,105,950 87,847,828 2,731,619 30,435,878
- -------------------------------------
Redeemed (50,468,754) (546,331,876) (22,519,477) (251,974,143)
- -------------------------------------------------------------------------------------------------
Net increase 32,837,863 $356,102,985 12,761,343 $142,866,797
=================================================================================================
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -------------------------------------
Sold 1,377,599 $14,765,763 1,996,970 $22,418,270
- -------------------------------------
Issued in reinvestment
of distributions 153,486 1,638,355 45,511 509,065
- -------------------------------------
Redeemed (2,150,023) (22,985,494) (2,052,422) (22,951,602)
- -------------------------------------------------------------------------------------------------
Net decrease (618,938) $(6,581,376) (9,941) $(24,267)
=================================================================================================
YEAR ENDED MARCH 31, 2003
- -------------------------------------
Sold 4,974,343 $53,919,266 7,346,048 $81,081,338
- -------------------------------------
Issued in connection
with acquisition -- -- 245,275 2,755,987
- -------------------------------------
Issued in reinvestment
of distributions 257,125 2,787,669 241,409 2,689,868
- -------------------------------------
Redeemed (2,262,447) (24,480,266) (7,868,072) (87,043,097)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) 2,969,021 $32,226,669 (35,340) $(515,904)
=================================================================================================
C CLASS
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -------------------------------------
Sold 216,142 $2,326,329 N/A N/A
- -------------------------------------
Issued in reinvestment
of distributions 8,521 91,002
- -------------------------------------
Redeemed (285,244) (3,054,666)
- -------------------------------------------------------------------------------------------------
Net decrease (60,581) $(637,335)
=================================================================================================
YEAR ENDED MARCH 31, 2003
- -------------------------------------
Sold 454,915 $4,938,757 N/A N/A
- -------------------------------------
Issued in reinvestment
of distributions 9,957 108,082
- -------------------------------------
Redeemed (73,074) (794,569)
- -------------------------------------------------------------------------------------------------
Net increase 391,798 $4,252,270
=================================================================================================
(continued)
-----
31
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- -------------------------------------------------------------------------------------------------
INFLATION-ADJUSTED BOND SHORT-TERM GOVERNMENT
- -------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
INVESTOR CLASS
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -------------------------------------
Sold 11,805,750 $128,651,363 7,000,372 $67,640,557
- -------------------------------------
Issued in reinvestment
of distributions 580,933 6,341,702 863,138 8,338,712
- -------------------------------------
Redeemed (13,996,493) (151,482,466) (11,595,128) (111,968,532)
- -------------------------------------------------------------------------------------------------
Net decrease (1,609,810) $(16,489,401) (3,731,618) $(35,989,263)
=================================================================================================
YEAR ENDED MARCH 31, 2003
- -------------------------------------
Sold 34,199,013 $361,542,532 30,199,035 $291,458,310
- -------------------------------------
Issued in reinvestment
of distributions 1,532,791 16,061,714 2,648,944 25,574,297
- -------------------------------------
Redeemed (22,048,697) (234,800,884) (22,060,232) (212,645,145)
- -------------------------------------------------------------------------------------------------
Net increase 13,683,107 $142,803,362 10,787,747 $104,387,462
=================================================================================================
INSTITUTIONAL CLASS
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -------------------------------------
Sold 840,855 $9,108,330 N/A N/A
- -------------------------------------
Issued in reinvestment
of distributions 70,395 768,333
- -------------------------------------
Redeemed (438,481) (4,786,398)
- -------------------------------------------------------------------------------------------------
Net increase 472,769 $5,090,265
=================================================================================================
PERIOD ENDED MARCH 31, 2003(1)
- -------------------------------------
Sold 3,617,397 $39,202,144 N/A N/A
- -------------------------------------
Issued in reinvestment
of distributions 85,246 900,554
- -------------------------------------
Redeemed (554,771) (5,940,867)
- -------------------------------------------------------------------------------------------------
Net increase 3,147,872 $34,161,831
=================================================================================================
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -------------------------------------
Sold 2,167,101 $23,505,180 3,008,557 $29,026,140
- -------------------------------------
Issued in reinvestment
of distributions 78,603 858,426 54,544 527,011
- -------------------------------------
Redeemed (852,664) (9,225,631) (4,022,403) (38,800,911)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) 1,393,040 $15,137,975 (959,302) $(9,247,760)
=================================================================================================
YEAR ENDED MARCH 31, 2003
- -------------------------------------
Sold 3,825,358 $40,660,830 7,059,969 $68,152,692
- -------------------------------------
Issued in reinvestment
of distributions 122,837 1,292,403 132,197 1,277,045
- -------------------------------------
Redeemed (1,083,598) (11,595,177) (4,018,226) (38,731,827)
- -------------------------------------------------------------------------------------------------
Net increase 2,864,597 $30,358,056 3,173,940 $30,697,910
=================================================================================================
(1) October 1, 2002 (commencement of sale) through March 31, 2003 for
Inflation-Adjusted Bond.
(continued)
- -----
32
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
5. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM, have a $620,000,000
unsecured bank line of credit agreement with JPM. The funds may borrow money for
temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The
funds did not borrow from the line during the six months ended September 30,
2003.
6. SECURITIES LENDING
As of September 30, 2003, securities in Government Bond and Short-Term
Government valued at $152,785,207 and $210,343,029, respectively, were on loan
through the lending agent, Chase, to certain approved borrowers. Chase receives
and maintains collateral in the form of cash, and/or acceptable securities as
approved by ACIM. Cash collateral is invested in authorized investments by the
lending agent in a pooled account. The value of cash collateral received at
period end is disclosed in the Statement of Assets and Liabilities and
investments made with the cash by the lending agent are listed in the Schedule
of Investments. The total value of all collateral received, at this date, was
$155,156,970 and $214,235,531, for Government Bond and Short-Term Government,
respectively. The funds' risks in securities lending are that the borrower may
not provide additional collateral when required or return the securities when
due. If the borrower defaults, receipt of the collateral by the funds may be
delayed or limited.
7. FEDERAL TAX INFORMATION
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 September 30, 2003, the components of investments for federal income tax
purposes were as follows:
- ------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- -------------------------------------------------------------------------------------------------
Federal tax cost of investments $2,146,595,399 $653,178,987 $405,410,592 $964,143,588
=================================================================================================
Gross tax appreciation of investments $40,548,416 $15,562,558 $28,569,413 $6,170,326
- ---------------------------------------
Gross tax depreciation of investments (270,315) (775,735) -- (739,524)
- -------------------------------------------------------------------------------------------------
Net tax appreciation of investments $40,278,101 $14,786,823 $28,569,413 $5,430,802
=================================================================================================
The difference between book-basis and tax-basis cost and unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales.
Following are the capital loss carryovers and capital loss deferral amounts as
of March 31, 2003:
- -------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- -------------------------------------------------------------------------------------------------
Accumulated capital losses $(9,326,881) -- -- $(34,294,221)
- -------------------------------------------------------------------------------------------------
Capital loss deferral $(3,176,909) $(4,423) -- --
- -------------------------------------------------------------------------------------------------
The accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. The capital loss carryovers expire in 2005 through 2011 for
Ginnie Mae and 2004 through 2009 for Short-Term Government.
The capital loss deferrals represent net capital losses incurred in the
five-month period ended March 31, 2003. The funds have elected to treat such
losses as having been incurred in the following fiscal year for federal income
tax purposes.
(continued)
-----
33
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
8. REORGANIZATION PLANS
2002 REORGANIZATION -- On September 3, 2002, Government Bond acquired all of the
net assets of Treasury Fund (Treasury), pursuant to a plan of reorganization
approved by shareholders of Treasury on August 2, 2002. Treasury is the
surviving fund for the purposes of maintaining the financial statements and
performance history in the post-reorganization. In order to maintain Treasury's
financial history, shares of Treasury were issued in exchange for shares of
Government Bond. However, at the completion of the reorganization all shares
outstanding represented ownership in Government Bond.
The acquisition was accomplished by a tax-free exchange of 14,793,482 shares of
Government Bond Investor Class for 14,082,763 shares of Treasury Investor Class
and 257,653 shares of Government Bond Advisor Class for 245,275 shares of
Treasury Advisor Class outstanding on September 3, 2002. The net assets of
Government Bond, immediately before the acquisition were $160,994,339,
consisting of $158,238,352 Investor Class net assets and $2,755,987 Advisor
Class net assets. Immediately before the acquisition, the net assets of Treasury
were $532,841,614, consisting of $478,217,637 Investor Class net assets and
$54,623,977 Advisor Class net assets. The combined net assets, immediately
following the acquisition were $693,835,953, consisting of $636,455,989 Investor
Class net assets and $57,379,964 Advisor Class net assets. Government Bond
unrealized appreciation of $4,186,433 was combined with that of Treasury.
Included in the financial history of Government Bond is capital loss carryovers
of $3,568,388 which were acquired and have since expired.
- -----
34
Ginne Mae - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- ------------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.85 $10.58 $10.63 $10.16 $10.62 $10.67
- ------------------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.26 0.56 0.62 0.68 0.67 0.64
- ---------------------------
Net Realized and
Unrealized Gain (Loss) (0.19) 0.27 (0.05) 0.47 (0.46) (0.05)
- ------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.07 0.83 0.57 1.15 0.21 0.59
- ------------------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.26) (0.56) (0.62) (0.68) (0.67) (0.64)
- ------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.66 $10.85 $10.58 $10.63 $10.16 $10.62
================================================================================================
TOTAL RETURN(2) 0.70% 8.03% 5.43% 11.70% 2.01% 5.66%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.58%(3) 0.59% 0.59% 0.59% 0.59% 0.59%
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.89%(3) 5.19% 5.75% 6.57% 6.42% 5.98%
- ---------------------------
Portfolio Turnover Rate 179% 356% 218% 143% 133% 119%
- ---------------------------
Net Assets, End of Period
(in thousands) $1,800,423 $2,100,358 $1,699,876 $1,358,978 $1,240,003 $1,415,607
- ------------------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(3) Annualized.
See Notes to Financial Statements.
-----
35
Ginne Mae - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- ------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.85 $10.58 $10.63 $10.16 $10.62 $10.67
- ------------------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.25 0.54 0.59 0.65 0.64 0.61
- ---------------------------
Net Realized and
Unrealized Gain (Loss) (0.19) 0.27 (0.05) 0.47 (0.46) (0.05)
- ------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.06 0.81 0.54 1.12 0.18 0.56
- ------------------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.25) (0.54) (0.59) (0.65) (0.64) (0.61)
- ------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.66 $10.85 $10.58 $10.63 $10.16 $10.62
================================================================================================
TOTAL RETURN(2) 0.57% 7.76% 5.17% 11.42% 1.76% 5.40%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.83%(3) 0.84% 0.84% 0.84% 0.84% 0.84%
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 4.64%(3) 4.94% 5.50% 6.32% 6.17% 5.73%
- ---------------------------
Portfolio Turnover Rate 179% 356% 218% 143% 133% 119%
- ---------------------------
Net Assets, End of Period
(in thousands) $68,073 $75,999 $42,675 $28,102 $13,080 $6,910
- ------------------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(3) Annualized.
See Notes to Financial Statements.
- -----
36
Ginne Mae - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
C CLASS
- --------------------------------------------------------------------------------
2003(1) 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.85 $10.57 $10.63
- --------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------
Net Investment Income 0.22 0.48 0.41
- -------------------------------------
Net Realized and Unrealized
Gain (Loss) (0.19) 0.28 (0.06)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.03 0.76 0.35
- --------------------------------------------------------------------------------
Distributions
- -------------------------------------
From Net Investment Income (0.22) (0.48) (0.41)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $10.66 $10.85 $10.57
================================================================================
TOTAL RETURN(3) 0.32% 7.23% 3.41%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.33%(4) 1.33% 1.34%(4)
- -------------------------------------
Ratio of Net Investment Income
to Average Net Assets 4.14%(4) 4.45% 4.84%(4)
- -------------------------------------
Portfolio Turnover Rate 179% 356% 218%(5)
- -------------------------------------
Net Assets, End of Period
(in thousands) $4,344 $5,078 $806
- --------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) June 15, 2001 (commencement of sale) through March 31, 2002.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any, and does not reflect applicable sales charges.
Total returns for periods less than one year are not annualized. The total
return of the classes may not precisely reflect the class expense
differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal
places, the total return differences would more closely reflect the class
expense differences. The calculation of net asset values to two places is
made in accordance with SEC guidelines and does not result in any gain or
loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended March 31, 2002.
See Notes to Financial Statements.
-----
37
Government Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- ---------------------------------------------------------------------------------------------
INVESTOR CLASS
- ---------------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.25 $10.60 $10.76 $10.03 $10.45 $10.56
- ---------------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.15 0.38 0.48 0.55 0.53 0.54
- ---------------------------
Net Realized and
Unrealized Gain (Loss) (0.05) 0.99 (0.16) 0.73 (0.37) 0.10
- ---------------------------------------------------------------------------------------------
Total From
Investment Operations 0.10 1.37 0.32 1.28 0.16 0.64
- ---------------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.15) (0.38) (0.48) (0.55) (0.53) (0.54)
- ---------------------------
From Net Realized Gains -- (0.34) -- -- (0.05) (0.21)
- ---------------------------------------------------------------------------------------------
Total Distributions (0.15) (0.72) (0.48) (0.55) (0.58) (0.75)
- ---------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $11.20 $11.25 $10.60 $10.76 $10.03 $10.45
=============================================================================================
TOTAL RETURN(2) 0.88% 13.17% 3.01% 13.17% 1.51% 6.09%
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.50%(3) 0.51% 0.51% 0.51% 0.51% 0.51%
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 2.66%(3) 3.34% 4.45% 5.37% 5.11% 5.01%
- ---------------------------
Portfolio Turnover Rate 150% 229% 164% 108% 171% 221%
- ---------------------------
Net Assets, End of Period
(in thousands) $522,437 $590,433 $421,312 $391,306 $329,995 $435,494
- ---------------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(3) Annualized.
See Notes to Financial Statements.
- -----
38
Government Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- ------------------------------------------------------------------------------------------
ADVISOR CLASS
- -----------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.25 $10.60 $10.76 $10.03 $10.45 $10.56
- -----------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.13 0.35 0.46 0.53 0.50 0.51
- ---------------------------
Net Realized and
Unrealized Gain (Loss) (0.05) 0.99 (0.16) 0.73 (0.37) 0.10
- -----------------------------------------------------------------------------------------
Total From
Investment Operations 0.08 1.34 0.30 1.26 0.13 0.61
- -----------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.13) (0.35) (0.46) (0.53) (0.50) (0.51)
- ---------------------------
From Net Realized Gains -- (0.34) -- -- (0.05) (0.21)
- -----------------------------------------------------------------------------------------
Total Distributions (0.13) (0.69) (0.46) (0.53) (0.55) (0.72)
- -----------------------------------------------------------------------------------------
Net Asset Value,
End of Period $11.20 $11.25 $10.60 $10.76 $10.03 $10.45
=========================================================================================
TOTAL RETURN(2) 0.76% 12.89% 2.75% 12.89% 1.25% 5.83%
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.75%(3) 0.76% 0.76% 0.76% 0.76% 0.76%
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 2.41%(3) 3.09% 4.20% 5.12% 4.86% 4.76%
- ---------------------------
Portfolio Turnover Rate 150% 229% 164% 108% 171% 221%
- ---------------------------
Net Assets, End of Period
(in thousands) $44,168 $44,456 $42,285 $9,898 $11,689 $6,117
- -----------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(3) Annualized.
See Notes to Financial Statements.
-----
39
Inflation-Adjusted Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- -----------------------------------------------------------------------------------------
INVESTOR CLASS
- -----------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.86 $9.89 $9.87 $9.41 $9.48 $9.63
- -----------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.22 0.48 0.38 0.67 0.58 0.47
- ---------------------------
Net Realized and
Unrealized Gain (Loss) 0.17 1.12 0.02 0.46 (0.07) (0.15)
- -----------------------------------------------------------------------------------------
Total From
Investment Operations 0.39 1.60 0.40 1.13 0.51 0.32
- -----------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.22) (0.48) (0.38) (0.67) (0.58) (0.47)
- ---------------------------
From Net Realized Gains -- (0.15) --(2) -- -- --
- -----------------------------------------------------------------------------------------
Total Distributions (0.22) (0.63) (0.38) (0.67) (0.58) (0.47)
- -----------------------------------------------------------------------------------------
Net Asset Value,
End of Period $11.03 $10.86 $9.89 $9.87 $9.41 $9.48
=========================================================================================
TOTAL RETURN(3) 3.60% 16.42% 4.16% 12.62% 5.52% 3.37%
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.50%(4) 0.51% 0.51% 0.51% 0.51% 0.49%
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 3.95%(4) 4.20% 3.12% 6.75% 6.06% 4.84%
- ---------------------------
Portfolio Turnover Rate 23% 136% 40% 39% 52% 127%
- ---------------------------
Net Assets, End of Period
(in thousands) $339,967 $352,315 $185,518 $57,577 $18,610 $8,980
- -----------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- -----
40
Inflation-Adjusted Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
2003(1) 2003(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.86 $10.84
- --------------------------------------------------------------------------------
Income From Investment Operations
- ------------------------------------------------------
Net Investment Income 0.23 0.20
- ------------------------------------------------------
Net Realized and Unrealized Gain 0.17 0.17
- --------------------------------------------------------------------------------
Total From Investment Operations 0.40 0.37
- --------------------------------------------------------------------------------
Distributions
- ------------------------------------------------------
From Net Investment Income (0.23) (0.20)
- ------------------------------------------------------
From Net Realized Gains -- (0.15)
- --------------------------------------------------------------------------------
Total Distributions (0.23) (0.35)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $11.03 $10.86
================================================================================
TOTAL RETURN(3) 3.71% 3.53%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.30%(4) 0.31%(4)
- ------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets 4.15%(4) 3.80%(4)
- ------------------------------------------------------
Portfolio Turnover Rate 23% 136%(5)
- ------------------------------------------------------
Net Assets, End of Period
(in thousands) $39,936 $34,196
- --------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) October 1, 2002 (commencement of sale) through March 31, 2003.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended March 31, 2003.
See Notes to Financial Statements.
-----
41
Inflation-Adjusted Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- ------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999(2)
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.86 $9.89 $9.87 $9.41 $9.48 $9.64
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.20 0.45 0.36 0.65 0.56 0.34
- ---------------------------
Net Realized and
Unrealized Gain (Loss) 0.17 1.12 0.02 0.46 (0.07) (0.16)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.37 1.57 0.38 1.11 0.49 0.18
- ------------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.20) (0.45) (0.36) (0.65) (0.56) (0.34)
- ---------------------------
From Net Realized Gains -- (0.15) --(3) -- -- --
- ------------------------------------------------------------------------------------------
Total Distributions (0.20) (0.60) (0.36) (0.65) (0.56) (0.34)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $11.03 $10.86 $9.89 $9.87 $9.41 $9.48
==========================================================================================
TOTAL RETURN(4) 3.47% 16.13% 3.88% 12.35% 5.26% 1.94%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.75%(5) 0.76% 0.76% 0.76% 0.76% 0.74%(5)
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 3.70%(5) 3.95% 2.87% 6.50% 5.81% 4.56%(5)
- ---------------------------
Portfolio Turnover Rate 23% 136% 40% 39% 52% 127%(6)
- ---------------------------
Net Assets, End of Period
(in thousands) $57,678 $41,673 $9,613 $1,079 $178 $10
- ------------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) June 15, 1998 (commencement of sale) through March 31, 1999.
(3) Per-share amount is less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended March 31, 1999.
See Notes to Financial Statements.
- -----
42
Short-Term Government - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- -----------------------------------------------------------------------------------------
INVESTOR CLASS
- -----------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $9.69 $9.46 $9.47 $9.19 $9.47 $9.46
- -----------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.09 0.29 0.45 0.54 0.52 0.49
- ---------------------------
Net Realized and
Unrealized Gain (Loss) (0.03) 0.23 (0.01) 0.28 (0.28) 0.01
- -----------------------------------------------------------------------------------------
Total From
Investment Operations 0.06 0.52 0.44 0.82 0.24 0.50
- -----------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.09) (0.29) (0.45) (0.54) (0.52) (0.49)
- -----------------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.66 $9.69 $9.46 $9.47 $9.19 $9.47
=========================================================================================
TOTAL RETURN(2) 0.62% 5.52% 4.68% 9.25% 2.51% 5.39%
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.58%(3) 0.59% 0.59% 0.59% 0.59% 0.59%
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 1.87%(3) 2.96% 4.67% 5.87% 5.48% 5.15%
- ---------------------------
Portfolio Turnover Rate 124% 185% 165% 92% 323% 196%
- ---------------------------
Net Assets, End of Period
(in thousands) $917,635 $957,413 $832,199 $797,718 $762,363 $832,344
- -----------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(3) Annualized.
See Notes to Financial Statements.
-----
43
Short-Term Government - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- -----------------------------------------------------------------------------------------
ADVISOR CLASS
- -----------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999(2)
- -----------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $9.69 $9.46 $9.47 $9.19 $9.47 $9.49
- -----------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------
Net Investment Income 0.08 0.26 0.42 0.52 0.49 0.33
- ---------------------------
Net Realized and
Unrealized Gain (Loss) (0.03) 0.23 (0.01) 0.28 (0.28) (0.02)
- -----------------------------------------------------------------------------------------
Total From
Investment Operations 0.05 0.49 0.41 0.80 0.21 0.31
- -----------------------------------------------------------------------------------------
Distributions
- ---------------------------
From Net
Investment Income (0.08) (0.26) (0.42) (0.52) (0.49) (0.33)
- -----------------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.66 $9.69 $9.46 $9.47 $9.19 $9.47
=========================================================================================
TOTAL RETURN(3) 0.49% 5.26% 4.42% 8.98% 2.26% 3.37%
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.83%(4) 0.84% 0.84% 0.84% 0.84% 0.84%(4)
- ---------------------------
Ratio of Net Investment
Income to Average
Net Assets 1.62%(4) 2.71% 4.42% 5.62% 5.23% 4.77%(4)
- ---------------------------
Portfolio Turnover Rate 124% 185% 165% 92% 323% 196%(5)
- ---------------------------
Net Assets, End of Period
(in thousands) $58,572 $68,102 $36,430 $4,334 $461 $94
- -----------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) July 8, 1998 (commencement of sale) through March 31, 1999.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended March 31, 1999.
See Notes to Financial Statements.
- -----
44
Proxy Voting Results
A special meeting of C Class shareholders was held on October 17, 2003, to vote
on the following proposal. The proposal received the required majority of votes
and was adopted.
A summary of voting results is listed below the proposal.
PROPOSAL
To vote on approval of the Amendment to the Master Distribution and Individual
Shareholder Services Plan.
- --------------------------------------------------------------------------------
GINNIE MAE
C CLASS
- --------------------------------------------------------------------------------
For: 187,372
- --------------------------------------------------------------------------------
Against: 23,588
- --------------------------------------------------------------------------------
Abstain: 20,057
- --------------------------------------------------------------------------------
-----
45
Share Class Information
Three classes of shares are authorized for sale by Ginnie Mae: Investor Class,
Advisor Class, and C Class. Two classes of shares are authorized for sale by
Government Bond and Short-Term Government: Investor Class and Advisor Class.
Three classes are authorized for sale by Inflation-Adjusted Bond: Investor
Class, Institutional Class, and Advisor Class. The total expense ratios of
Advisor and C Class shares are higher than those of Investor Class shares; the
total expense ratio of Institutional Class shares is lower.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through a
broker-dealer, which may require payment of a transaction fee to the broker.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the total expense ratio of
Institutional Class shares is 0.20% less than the total expense ratio of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
C CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. C Class shares redeemed within 12 months of purchase are
subject to a CDSC of 1.00%. There is no CDSC on shares acquired through
reinvestment of dividends or capital gains. C Class shares also are subject to a
Rule 12b-1 service and distribution fee of up to 1.00%.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
- -----
46
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b)
and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] are subject to federal income tax withholding, unless you elect
not to have withholding apply. Tax will be withheld on the total amount
withdrawn even though you may be receiving amounts that are not subject to
withholding, such as nondeductible contributions. In such case, excess amounts
of withholding could occur. You may adjust your withholding election so that a
greater or lesser amount will be withheld.
If you don't want us to withhold on this amount, you must notify us to not
withhold the federal income tax. 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 notice not to withhold federal
income tax prior to the withdrawal. You may notify us in writing or in certain
situations by telephone or through other electronic means. You have the right to
revoke your withholding election at any time and any election you make may
remain in effect until revoked by filing a new election.
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.
State tax will be withheld if, at the time of your distribution, your address is
within one of the mandatory withholding states and you have federal income tax
withheld. State taxes will be withheld from your distribution in accordance with
the respective state rules.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, is responsible
for exercising the voting rights associated with the securities purchased and/or
held by the fund. A description of the policies and procedures the manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-345-2021. It is also available on American Century's Web site at
www.americancentury.com and on the Securities and Exchange Commission's Web site
at www.sec.gov.
-----
47
Index Definitions
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The CITIGROUP 30-YEAR GNMA INDEX is comprised of Government National Mortgage
Association (GNMA) mortgage-backed securities with an aggregate amount
outstanding per coupon of at least $5 billion, an aggregate amount outstanding
per origination year of at least $500 million, and a remaining maturity of at
least one year.
The CITIGROUP TREASURY/MORTGAGE INDEX is comprised of U.S. Treasury securities
with an amount outstanding of at least $1 billion, and mortgage-backed
securities with an aggregate amount outstanding per coupon of at least $5
billion and an aggregate amount outstanding per origination year of at least
$500 million. Both the U.S. Treasury and the mortgage-backed securities included
in the index must have a remaining maturity of at least one year.
The CITIGROUP U.S. INFLATION-LINKED SECURITIES INDEX (ILSI)(sm) measures the
return of bonds with fixed-rate coupon payments that adjust for inflation as
measured by the Consumer Price Index (CPI).
The CITIGROUP U.S. TREASURY/AGENCY 1- TO 3-YEAR INDEX is a
market-capitalization-weighted index that includes fixed-rate U.S. Treasury and
government agency issues with maturities between one and three years.
The CITIGROUP U.S. TREASURY 10+ YEAR INDEX is a market-capitalization-weighted
index that includes fixed-rate U.S. Treasury issues with maturities of 10 years
or longer.
The LEHMAN BROTHERS U.S. AGGREGATE INDEX represents securities that are taxable,
registered with the Securities and Exchange Commission, and U.S.
dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond
market, with index components for government and corporate securities, mortgage
pass-through securities, and asset-backed securities.
The NASDAQ COMPOSITE INDEX is a market-value weighted index of all domestic and
international common stocks listed on the Nasdaq stock market.
The REUTERS-COMMODITY RESOURCE BUREAU FUTURES INDEX is designed as a broad
measure of overall commodity price trends. Its components and formula are
periodically adjusted to reflect changes in market structure and activity.
The S&P 500 INDEX is a market-value weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
- -----
48
[inside back cover - blank]
[back cover]
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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.
0311 American Century Investment Services, Inc.
SH-SAN-36285N (c)2003 American Century Services Corporation
[front cover]
September 30, 2003
American Century
Semiannual Report
Capital Preservation
Government Agency Money Market
[american century logo and text logo (reg.sm)]
[inside front cover]
Table of Contents
Our Message to You....................................................... 1
CAPITAL PRESERVATION
Performance.............................................................. 2
Portfolio Composition by Maturity..................................... 2
Yields................................................................ 2
Portfolio Commentary..................................................... 3
Schedule of Investments.................................................. 4
GOVERNMENT AGENCY MONEY MARKET
Performance.............................................................. 5
Portfolio Composition by Maturity..................................... 5
Yields................................................................ 5
Portfolio Commentary..................................................... 6
Schedule of Investments.................................................. 7
FINANCIAL STATEMENTS
Statement of Assets and Liabilities...................................... 9
Statement of Operations.................................................. 10
Statement of Changes in Net Assets....................................... 11
Notes to Financial Statements............................................ 12
Financial Highlights..................................................... 15
OTHER INFORMATION
Share Class Information.................................................. 18
Additional Information................................................... 19
Index Definition......................................................... 20
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
Our Message to You
[photo]
James E. Stowers III with James E. Stowers, Jr.
We are pleased to provide you with the semiannual report for the American
Century Capital Preservation and Government Agency Money Market funds for the
six months ended September 30, 2003.
The report includes comparative performance figures, portfolio and market
commentary, summary tables, a full list of portfolio holdings, and financial
statements and highlights. We hope you find this information helpful in
monitoring your investment.
Many of you have called or written to express your concern about allegations of
wrongdoing by other mutual fund investment management firms. We share your
concern--fund companies must put investors first and do everything possible to
maintain investor trust. Through the Investment Company Institute, the mutual
fund trade association, American Century has advocated industry-wide proposals
that strengthen protections for fund investors. We believe that decisive action
is needed to show that we are committed, as an industry, to the interests of the
95 million investors we serve.
As information about alleged trading abuses in the mutual fund industry has come
to light, we have posted messages and commentary about these issues on
www.americancentury.com. Beyond what's currently in the headlines, American
Century has been a champion of many important investor and industry issues,
which are outlined in a document titled Putting Investors First. We invite you
to visit our Web site and read about how our values have influenced these
positions.
As always, we deeply appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
Founder and Chairman
/s/James E. Stowers III
James E. Stowers III
Co-Chairman of the Board
-----
1
Capital Preservation - Performance
TOTAL RETURNS AS OF SEPTEMBER 30, 2003
----------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
INCEPTION
1 YEAR 5 YEARS 10 YEARS DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 0.83% 3.37% 4.00% 10/13/72
- --------------------------------------------------------------------------------
90-DAY U.S. TREASURY
BILL INDEX 1.12% 3.51% 4.23% --
- --------------------------------------------------------------------------------
LIPPER U.S. TREASURY
MONEY MARKET FUNDS
AVERAGE RETURN 0.55% 3.10% 3.84% --
- --------------------------------------------------------------------------------
Fund's Lipper Ranking(1) 11 of 93 10 of 74 12 of 67 --
- --------------------------------------------------------------------------------
(1) Lipper rankings are based on average annual total returns for the fund in a
given category for the periods indicated.
PORTFOLIO COMPOSITION BY MATURITY
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
1-30 days 14% 20%
- --------------------------------------------------------------------------------
31-90 days 19% 30%
- --------------------------------------------------------------------------------
91-180 days 45% 50%
- --------------------------------------------------------------------------------
More than 180 days 22% --
- --------------------------------------------------------------------------------
YIELDS AS OF SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
7-DAY CURRENT YIELD
- --------------------------------------------------------------------------------
0.54%
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE YIELD
- --------------------------------------------------------------------------------
0.55%
- --------------------------------------------------------------------------------
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 current yield more closely reflects the current earnings of the
fund than the total return.
- -----
2
Capital Preservation - Portfolio Commentary
By Lynn Paschen, portfolio manager
PERFORMANCE SUMMARY
For the six months ended September 30, 2003, Capital Preservation's 0.32% total
return ranked in the top 15% of Lipper Inc.'s U.S. Treasury money market funds
category (#11 out of 93 funds). Over longer time horizons, the fund has produced
consistently similar results--Capital Preservation's three-year return ranked in
the top 10% of its Lipper category (#8 out of 87 funds), while its five- and
10-year returns ranked in the top 20% of the Lipper group. (See the previous
page for additional performance information.)
ECONOMIC & MARKET REVIEW
Despite improving economic conditions, Treasury money market yields continued to
fall during the six-month period. The economy remained sluggish early in the
period as manufacturing activity slowed and job losses mounted. In response, the
Federal Reserve (the Fed) cut short-term interest rates in late June, lowering
the federal funds rate target from 1.25% to 1%--its lowest level since 1958. In
cutting rates for the 13th time since the beginning of 2001, the Fed expressed
concern about the possibility of deflation, or falling prices.
Treasury money market yields declined in anticipation of the Fed's rate cut and
then held fairly steady for the remainder of the period. Although the U.S.
economy picked up steam in the third quarter, growing at an estimated 7.2% rate,
optimism about a firm economic recovery was tempered by a continued lack of job
growth. In addition, the Fed indicated in July that it could keep interest rates
at their current level for an extended period, even in the face of a stronger
economy.
PORTFOLIO STRATEGY
Capital Preservation's seven-day current yield declined from 0.79% to 0.54%
during the period, tracking the Fed's rate cut. With the Fed expected to be on
hold for the foreseeable future, we maintained a relatively long average
maturity of 70-80 days for much of the six-month period. We focused our
purchases on Treasury securities maturing in six months to one year, which
typically offer higher yields than shorter-term Treasury money market
securities.
We offset the longer-term securities in the portfolio with overnight Treasury
securities (known as "dollar rolls"), which increased from 14% to around 30% of
the portfolio during the period. In a dollar roll transaction, we buy Treasury
bills and then agree to sell them back the following day at a specific price.
Dollar rolls offered the most attractive yields among Treasury securities
maturing in three months or less.
A NOTE ABOUT THE FUND'S YIELD
The sharp decline in interest rates over the past several years has brought
money market yields down to very low levels. Nonetheless, we expect Capital
Preservation to maintain a positive yield unless the Fed cuts interest rates
significantly in the future. Should that happen, American Century will examine
all possible ways to maintain yields that are competitive and positive,
including the waiver of management fees.
-----
3
Capital Preservation - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS(1) -- 79.5%
$ 150,000,000 U.S. Treasury Bills, 1.08%,
10/2/03(2) $ 149,994,210
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 1.13%,
10/9/03 49,987,444
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 1.02%,
10/23/03 99,937,513
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 1.10%,
11/6/03 49,945,000
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 1.05%,
11/13/03 49,933,709
- --------------------------------------------------------------------------------
210,000,000 U.S. Treasury Bills, 1.00%,
11/20/03 209,709,723
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 0.98%,
11/28/03 49,913,805
- --------------------------------------------------------------------------------
200,000,000 U.S. Treasury Bills, 0.94%,
1/2/04 199,514,972
- --------------------------------------------------------------------------------
200,000,000 U.S. Treasury Bills, 0.94%,
1/8/04 199,483,000
- --------------------------------------------------------------------------------
150,000,000 U.S. Treasury Bills, 0.97%,
1/22/04 149,555,624
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 0.96%,
1/29/04 99,679,167
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 1.00%,
2/5/04 49,823,611
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 0.98%,
2/12/04 49,817,611
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 1.03%,
2/19/04 49,798,292
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 1.04%,
2/26/04 49,787,250
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 0.99%,
3/11/04 49,777,250
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 0.99%,
3/18/04 49,767,625
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 0.99%,
4/1/04(3) 99,498,236
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY BILLS 1,705,924,042
- --------------------------------------------------------------------------------
U.S. TREASURY BONDS AND NOTES(1) -- 17.3%
74,538,000 U.S. Treasury Bonds,
12.375%, 5/15/04 79,779,168
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Notes,
3.00%, 11/30/03 50,164,063
- --------------------------------------------------------------------------------
25,000,000 U.S. Treasury Notes,
5.875%, 2/15/04 25,441,869
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 140,000,000 U.S. Treasury Notes,
3.375%, 4/30/04 $ 141,753,985
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Notes,
2.125%, 8/31/04 50,404,675
- --------------------------------------------------------------------------------
25,000,000 U.S. Treasury Notes,
1.875%, 9/30/04 25,132,676
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY BONDS
AND NOTES 372,676,436
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY
SECURITIES(4) -- 3.2%
500,000 CATS, 1.30%, 8/15/04 494,382
- --------------------------------------------------------------------------------
25,000 CATS, 1.30%, 8/15/04 24,719
- --------------------------------------------------------------------------------
10,000,000 STRIPS -- COUPON, 1.29%,
8/15/04 9,888,501
- --------------------------------------------------------------------------------
25,000,000 STRIPS -- PRINCIPAL,
1.14%, 8/15/04 24,754,020
- --------------------------------------------------------------------------------
1,000,000 TIGR, 1.30%, 8/15/04 988,764
- --------------------------------------------------------------------------------
325,000 TIGR, 1.30%, 8/15/04 321,348
- --------------------------------------------------------------------------------
5,443,431 TR, 1.15%, 5/15/04 5,404,736
- --------------------------------------------------------------------------------
4,513,125 TR, 1.30%, 5/15/04 4,476,873
- --------------------------------------------------------------------------------
2,650,000 TR, 1.30%, 5/15/04 2,628,714
- --------------------------------------------------------------------------------
1,504,000 TR, 1.30%, 8/15/04 1,487,101
- --------------------------------------------------------------------------------
18,412,220 TR, 1.37%, 8/15/04 18,194,200
- --------------------------------------------------------------------------------
TOTAL ZERO-COUPON U.S. TREASURY
SECURITIES 68,663,358
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 100.0% $2,147,263,836
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
CATS = Certificates of Accrual of Treasury Securities
STRIPS = Separate Trading of Registered Interest and Principal of Securities
TIGR = Treasury Investment Growth Receipts
TR = Treasury Receipts
(1) The rates for U.S. Treasury Bills are the yield to maturity at
purchase. The rates for U.S. Treasury Bonds and Notes are the stated coupon
rates.
(2) Security, or a portion thereof, has been segregated for a when-issued
security.
(3) When-issued security.
(4) The yield to maturity at purchase is indicated.
See Notes to Financial Statements.
- -----
4
Government Agency Money Market - Performance
TOTAL RETURNS AS OF SEPTEMBER 30, 2003
----------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
INCEPTION
1 YEAR 5 YEARS 10 YEARS DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 0.87% 3.55% 4.15% 12/5/89
- --------------------------------------------------------------------------------
90-DAY U.S. TREASURY
BILL INDEX 1.12% 3.51% 4.23% --
- --------------------------------------------------------------------------------
LIPPER U.S. GOVERNMENT
MONEY MARKET FUNDS
AVERAGE RETURN 0.60% 3.24% 3.98% --
- --------------------------------------------------------------------------------
Fund's Lipper Ranking(1) 18 of 124 11 of 100 9 of 52 --
- --------------------------------------------------------------------------------
Advisor Class 0.62% -- -- 4/12/99
- --------------------------------------------------------------------------------
(1) Lipper rankings are based on average annual total returns for the fund
(Investor Class only) in a given category for the periods indicated.
PORTFOLIO COMPOSITION BY MATURITY
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
9/30/03 3/31/03
- --------------------------------------------------------------------------------
1-30 days 54% 49%
- --------------------------------------------------------------------------------
31-90 days 15% 15%
- --------------------------------------------------------------------------------
91-180 days 17% 22%
- --------------------------------------------------------------------------------
More than 180 days 14% 14%
- --------------------------------------------------------------------------------
YIELDS AS OF SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
7-DAY CURRENT YIELD
- --------------------------------------------------------------------------------
Investor Class 0.61%
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE YIELD
- --------------------------------------------------------------------------------
Investor Class 0.61%
- --------------------------------------------------------------------------------
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 current yield more closely reflects the current earnings of the
fund than the total return.
-----
5
Government Agency Money Market - Portfolio Commentary
By Denise Tabacco, portfolio manager
PERFORMANCE SUMMARY
Government Agency Money Market's 0.35%* total return for the six months ended
September 30, 2003, ranked in the top 15% of Lipper Inc.'s U.S. government money
market funds category (#17 out of 125 funds). The fund's results over the long
term have mirrored its recent performance--Government Agency Money Market's
three-year return ranked in the top 10% of its Lipper category (#10 out of 114
funds), while its five- and 10-year returns ranked in the top 20% of the Lipper
group. (See the previous page for additional performance information.)
ECONOMIC & MARKET REVIEW
Money market rates continued to decline during the past six months. A lackluster
economic environment, characterized by rising unemployment and a weak
manufacturing sector, led the Federal Reserve (the Fed) to cut short-term
interest rates in June. The Fed's 13th rate cut since the beginning of 2001
brought the federal funds rate target down to a 45-year low of 1%. Investors
anticipated the Fed's action, pushing money market yields lower in the weeks
leading up to the rate cut.
In addition to the sluggish economy, the Fed cited the threat of deflation, or
falling prices, as a reason for its latest rate cut. Fed Chairman Alan Greenspan
reinforced this view during a July appearance before Congress, noting that the
Fed could maintain this accommodative interest rate policy for a considerable
period of time, even if economic growth accelerates.
The economy showed signs of life in the third quarter, growing at an estimated
7.2% rate. However, persistent weakness in the labor market cast doubts on the
underlying strength of the economy's recovery. As a result, money market rates
were relatively steady over the last half of the period.
PORTFOLIO STRATEGY
The Fed rate cut caused Government Agency Money Market's seven-day current yield
to fall from 0.83% to 0.61% during the period. The portfolio's average maturity
was a relatively long 70-80 days for most of the period, reflecting our
expectation that rates would be stable or declining. We emphasized government
agency securities maturing in six months to one year, which generally have
higher yields than shorter-term securities. We offset these longer-term money
market securities with short-term floating-rate notes, which increased from 26%
to 40% of the portfolio.
A NOTE ABOUT THE FUND'S YIELD
The sharp decline in interest rates over the past several years has brought
money market yields down to very low levels. Nonetheless, we expect Government
Agency Money Market to maintain a positive yield unless the Fed cuts interest
rates significantly in the future. Should that happen, American Century will
examine all possible ways to maintain yields that are competitive and positive,
including the waiver of management fees.
*All fund returns referenced in this commentary are for Investor Class shares.
- -----
6
Government Agency Money Market - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 65.7%
$ 500,000 FFCB, 3.125%, 10/1/03 $ 500,000
- --------------------------------------------------------------------------------
500,000 FFCB, 4.45%, 12/29/03 503,864
- --------------------------------------------------------------------------------
2,000,000 FFCB, 5.10%, 4/26/04 2,045,591
- --------------------------------------------------------------------------------
10,000,000 FFCB, 1.25%, 9/15/04 9,993,455
- --------------------------------------------------------------------------------
200,000 FFCB MTN, 5.09%, 12/8/03 201,509
- --------------------------------------------------------------------------------
5,000,000 FFCB MTN, 5.07%, 12/15/03 5,038,371
- --------------------------------------------------------------------------------
450,000 FFCB MTN, 5.05%, 12/29/03 454,325
- --------------------------------------------------------------------------------
20,000,000 FFCB, VRN, 1.03%, 10/7/03,
resets weekly off the 3-month
T-Bill rate plus 0.08% with
no caps 19,999,109
- --------------------------------------------------------------------------------
8,000,000 FFCB, VRN, 0.99%, 10/16/03,
resets monthly off the
1-month LIBOR minus 0.13%
with no caps 7,997,773
- --------------------------------------------------------------------------------
30,000,000 FFCB, VRN, 1.09%, 2/25/04,
resets semiannually off the
6-month LIBOR minus 0.11%
with no caps 29,999,999
- --------------------------------------------------------------------------------
5,000,000 FFCB, VRN, 1.07%, 2/26/04,
resets semiannually off the
6-month LIBOR minus 0.12%
with no caps 4,999,392
- --------------------------------------------------------------------------------
780,000 FHLB, 5.19%, 10/20/03 781,504
- --------------------------------------------------------------------------------
7,000,000 FHLB, 3.06%, 10/24/03 7,009,293
- --------------------------------------------------------------------------------
7,000,000 FHLB, 5.08%, 11/6/03 7,026,743
- --------------------------------------------------------------------------------
2,000,000 FHLB, 2.50%, 11/14/03 2,003,450
- --------------------------------------------------------------------------------
4,005,000 FHLB, 3.125%, 11/14/03 4,014,258
- --------------------------------------------------------------------------------
15,710,000 FHLB, 6.375%, 11/14/03 15,805,214
- --------------------------------------------------------------------------------
3,000,000 FHLB, 5.41%, 11/24/03 3,019,064
- --------------------------------------------------------------------------------
1,000,000 FHLB, 3.00%, 12/26/03 1,004,734
- --------------------------------------------------------------------------------
5,490,000 FHLB, 5.375%, 1/5/04 5,551,639
- --------------------------------------------------------------------------------
750,000 FHLB, 6.00%, 1/7/04 759,915
- --------------------------------------------------------------------------------
250,000 FHLB, 5.10%, 2/5/04 253,313
- --------------------------------------------------------------------------------
3,600,000 FHLB, 3.75%, 2/13/04 3,635,552
- --------------------------------------------------------------------------------
24,105,000 FHLB, 5.25%, 2/13/04 24,469,259
- --------------------------------------------------------------------------------
8,400,000 FHLB, 3.75%, 4/15/04 8,517,511
- --------------------------------------------------------------------------------
17,770,000 FHLB, 4.875%, 4/16/04 18,122,847
- --------------------------------------------------------------------------------
5,000,000 FHLB, 1.25%, 4/28/04 4,998,365
- --------------------------------------------------------------------------------
5,000,000 FHLB, 1.375%, 5/11/04,
callable 10/16/03 5,000,000
- --------------------------------------------------------------------------------
2,000,000 FHLB, 4.875%, 5/14/04 2,045,362
- --------------------------------------------------------------------------------
6,000,000 FHLB, 1.08%, 7/16/04,
callable 12/23/03 6,000,000
- --------------------------------------------------------------------------------
10,300,000 FHLB, VRN, 0.97%, 10/2/03,
resets monthly off the
1-month LIBOR minus 0.15%
with no caps 10,299,157
- --------------------------------------------------------------------------------
75,000,000 FHLB, VRN, 1.00%, 10/6/03,
resets monthly off the
1-month LIBOR minus 0.12%
with no caps 74,993,991
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$20,000,000 FHLB, VRN, 1.07%, 10/6/03,
resets weekly off the 3-month
T-Bill rate plus 0.12% with
no caps $ 19,999,999
- --------------------------------------------------------------------------------
5,000,000 FHLB, VRN, 1.15%, 10/7/03,
resets weekly off the 3-month
T-Bill rate plus 0.20% with
no caps 5,002,134
- --------------------------------------------------------------------------------
5,000,000 FHLB, VRN, 1.00%, 11/25/03,
resets quarterly off the
3-month LIBOR minus 0.14%
with no caps 4,996,083
- --------------------------------------------------------------------------------
13,000,000 FHLB, VRN, 1.07%, 12/22/03,
resets quarterly off the
3-month LIBOR minus 0.07%
with no caps 12,996,124
- --------------------------------------------------------------------------------
2,610,000 SLMA, 4.75%, 4/23/04 2,664,303
- --------------------------------------------------------------------------------
10,000,000 SLMA, VRN, 1.03%, 10/7/03,
resets weekly off the 3-month
T-Bill rate plus 0.08% with
no caps 9,999,773
- --------------------------------------------------------------------------------
10,000,000 SLMA, VRN, 1.03%, 10/7/03,
resets weekly off the 3-month
T-Bill rate plus 0.08% with
no caps 10,000,000
- --------------------------------------------------------------------------------
10,000,000 SLMA, VRN, 1.04%, 10/7/03,
resets weekly off the 3-month
T-Bill rate plus 0.09% with
no caps 10,000,000
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 362,702,975
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
DISCOUNT NOTES(1) -- 31.8%
7,000,000 FFCB Discount Notes, 1.42%,
11/17/03 6,987,022
- --------------------------------------------------------------------------------
1,732,000 FFCB Discount Notes, 1.19%,
1/16/04 1,725,874
- --------------------------------------------------------------------------------
15,000,000 FFCB Discount Notes, 1.20%,
1/29/04 14,940,000
- --------------------------------------------------------------------------------
46,300,000 FHLB Discount Notes, 1.01%,
10/3/03 46,297,415
- --------------------------------------------------------------------------------
11,859,000 FHLB Discount Notes, 1.03%,
10/6/03 11,857,131
- --------------------------------------------------------------------------------
35,000,000 FHLB Discount Notes, 1.01%,
10/10/03 34,991,163
- --------------------------------------------------------------------------------
20,000,000 FHLB Discount Notes, 1.00%,
10/15/03 19,992,223
- --------------------------------------------------------------------------------
10,000,000 FHLB Discount Notes, 1.00%,
10/24/03 9,993,611
- --------------------------------------------------------------------------------
18,000,000 FHLB Discount Notes, 0.97%,
10/31/03 17,985,450
- --------------------------------------------------------------------------------
11,000,000 FHLB Discount Notes, 0.96%,
5/28/04 10,929,600
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
DISCOUNT NOTES 175,699,489
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
-----
7
Government Agency Money Market - Schedule of Investments
SEPTEMBER 30, 2003 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY
AND AGENCY SECURITIES(1) -- 2.5%
$ 5,848,000 CATS, 1.22%, 5/15/04 $ 5,803,853
- --------------------------------------------------------------------------------
301,000 CUBES, 1.33%, 5/15/04 298,528
- --------------------------------------------------------------------------------
1,498,000 ETR, 1.50%, 11/15/03 1,495,278
- --------------------------------------------------------------------------------
1,683,000 FICO STRIPS -- COUPON,
1.18%, 3/7/04 1,674,429
- --------------------------------------------------------------------------------
180,000 TIGR, 1.59%, 11/15/03 179,653
- --------------------------------------------------------------------------------
207,000 TIGR, 1.33%, 5/15/04 205,300
- --------------------------------------------------------------------------------
4,000,000 TVA STRIPS - COUPON,
1.20%, 10/15/03 3,998,173
- --------------------------------------------------------------------------------
TOTAL ZERO-COUPON U.S. TREASURY
AND AGENCY SECURITIES 13,655,214
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 100.0% $552,057,678
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
CATS = Certificates of Accrual of Treasury Securities
CUBES = Coupons Under Book Entry Safekeeping
ETR = Easy Growth Treasury Receipts
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
FICO = Financing Corporation
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
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.
SLMA = Student Loan Marketing Association
STRIPS = Separate Trading of Registered Interest and Principal of Securities
TIGR = Treasury Investment Growth Receipts
TVA = Tennessee Valley Authority
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective September 30, 2003.
(1) The rates indicated are the yield to maturity at purchase.
See Notes to Financial Statements.
- -----
8
Statement of Assets and Liabilities
SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
GOVERNMENT
CAPITAL AGENCY
PRESERVATION MONEY MARKET
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) $2,147,263,836 $552,057,678
- ------------------------------------------
Cash 9,385,621 8,293,937
- ------------------------------------------
Receivable for investments sold 1,129,102,446 --
- ------------------------------------------
Receivable for capital shares sold 22,674 --
- ------------------------------------------
Interest receivable 13,840,702 2,081,016
- --------------------------------------------------------------------------------
3,299,615,279 562,432,631
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 149,380,042 20,000,000
- ------------------------------------------
Accrued management fees 1,233,787 212,861
- ------------------------------------------
Distribution fees payable -- 50
- ------------------------------------------
Service fees payable -- 50
- ------------------------------------------
Dividends payable 42,775 5,712
- --------------------------------------------------------------------------------
150,656,604 20,218,673
- --------------------------------------------------------------------------------
NET ASSETS $3,148,958,675 $542,213,958
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital paid in $3,149,051,915 $542,214,682
- ------------------------------------------
Accumulated net realized loss
on investment transactions (93,240) (724)
- --------------------------------------------------------------------------------
$3,148,958,675 $542,213,958
================================================================================
INVESTOR CLASS
- --------------------------------------------------------------------------------
Net assets $3,148,958,675 $541,971,639
- ------------------------------------------
Shares outstanding 3,149,051,915 541,971,050
- ------------------------------------------
Net asset value per share $1.00 $1.00
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
Net assets N/A $242,319
- ------------------------------------------
Shares outstanding N/A 242,319
- ------------------------------------------
Net asset value per share N/A $1.00
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
-----
9
Statement of Operations
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
GOVERNMENT
CAPITAL AGENCY
PRESERVATION MONEY MARKET
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------
Interest $18,026,216 $3,343,499
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------
Management fees 7,598,489 1,341,133
- ------------------------------------------
Distribution fees -- Advisor Class -- 303
- ------------------------------------------
Service fees -- Advisor Class -- 303
- ------------------------------------------
Trustees' fees and expenses 53,771 9,580
- ------------------------------------------
Other expenses -- 989
- --------------------------------------------------------------------------------
7,652,260 1,352,308
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 10,373,956 1,991,191
- --------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
ON INVESTMENT TRANSACTIONS (74,158) 3,407
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $10,299,798 $1,994,598
================================================================================
See Notes to Financial Statements.
- -----
10
Statement of Changes in Net Assets
SIX MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED) AND YEAR ENDED MARCH 31, 2003
- ----------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY
CAPITAL PRESERVATION MONEY MARKET
- ----------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS SEPT. 30, 2003 MARCH 31, 2003 SEPT. 30, 2003 MARCH 31, 2003
- ----------------------------------------------------------------------------------------------------------
OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment income $10,373,956 $39,055,243 $1,991,191 $7,500,486
- ---------------------------------
Net realized gain (loss) (74,158) (34,101) 3,407 110
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 10,299,798 39,021,142 1,994,598 7,500,596
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
From net investment income:
- ---------------------------------
Investor Class (10,373,956) (39,055,243) (1,990,645) (7,498,252)
- ---------------------------------
Advisor Class -- -- (546) (2,234)
- ---------------------------------
From net realized gains:
- ---------------------------------
Investor Class -- (24,838) -- --
- ----------------------------------------------------------------------------------------------------------
Decrease in net assets
from distributions (10,373,956) (39,080,081) (1,991,191) (7,500,486)
- ----------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------
Net decrease in net
assets from capital
share transactions (121,818,733) (62,608,992) (49,727,547) (22,503,936)
- ----------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (121,892,891) (62,667,931) (49,724,140) (22,503,826)
NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Beginning of period 3,270,851,566 3,333,519,497 591,938,098 614,441,924
- ----------------------------------------------------------------------------------------------------------
End of period $3,148,958,675 $3,270,851,566 $542,213,958 $591,938,098
==========================================================================================================
See Notes to Financial Statements.
-----
11
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Capital Preservation Fund (Capital
Preservation) and Government Agency Money Market Fund (Government Agency)
(collectively, the funds) are two funds in a series issued by the trust. Capital
Preservation seeks maximum safety and liquidity and intends to pursue its
investment objective 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 is a summary of
the funds' significant accounting policies.
MULTIPLE CLASS -- Capital Preservation is authorized to issue the Investor
Class. Government Agency is authorized to issue the Investor Class and the
Advisor Class. The share classes 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 net 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. Income, non-class specific expenses, and realized and unrealized
capital gains and losses of the funds are allocated to each class of shares
based on their relative net assets.
SECURITY VALUATIONS -- Securities are valued at amortized cost, which
approximates current market value. When such valuations do not reflect current
market value, securities may be 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.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities
transactions on a when-issued or forward commitment basis. In these
transactions, the securities' prices and yields are fixed on the date of the
commitment. In a when-issued transaction the payment and delivery are scheduled
for a future date and during this period, securities are subject to market
fluctuations. In a forward commitment transaction, the funds may 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 "roll" transactions. Capital Preservation had receivables on
forward commitment transactions of $1,079,228,349. The funds take possession of
any security they purchase in these transactions. The funds will segregate cash,
cash equivalents or other appropriate liquid securities on their records in
amounts 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 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 and
short-term capital gains, if any, are declared daily and paid monthly. The funds
do not expect to realize any long-term capital gains, and accordingly, do not
expect to pay any capital gains distributions.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require management to make certain estimates and assumptions at the date of
the financial statements. Actual results could differ from these estimates.
(continued)
- -----
12
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The trust has entered into a Management Agreement with
American Century Investment Management, Inc. (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 commissions, taxes, portfolio insurance,
interest, fees and expenses of those trustees who are not considered "interested
persons" as defined in the 1940 Act (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly in
arrears. It consists of an Investment Category Fee based on the average net
assets of the funds in a specific fund's investment category and a Complex Fee
based on the average net assets of all the funds managed by ACIM. The rates for
the Investment Category Fee range from 0.1370% to 0.2500% and the rates for the
Complex Fee (Investor Class) range from 0.2900% to 0.3100%. The Advisor Class is
0.2500% less at each point within the Complex Fee range. For the six months
ended September 30, 2003, the effective annual Investor Class management fee for
the funds was 0.48%, and the effective annual Advisor Class management fee for
Government Agency was 0.23%.
DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a Master
Distribution and Shareholder Services Plan (the plan) for the Advisor Class,
pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the Advisor Class
will pay American Century Investment Services, Inc. (ACIS) an annual
distribution fee equal to 0.25% and an annual service fee equal to 0.25%. The
fees are computed daily and paid monthly in arrears based on the Advisor Class's
average daily closing net assets during the previous month. The distribution fee
provides compensation for 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 ACIS, its affiliates or independent third party providers. Fees incurred
under the plan during the six months ended September 30, 2003, are detailed in
the Statement of Operations.
RELATED PARTIES -- Certain officers and trustees of the trust are also officers
and/or directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the trust's investment manager, ACIM, the
distributor of the trust, 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):
- --------------------------------------------------------------------------------------------------------------
CAPITAL PRESERVATION GOVERNMENT AGENCY
- --------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -----------------------------------
Sold 632,728,800 $632,728,800 142,204,150 $142,204,150
- -----------------------------------
Issued in reinvestment
of distributions 9,996,915 9,996,915 1,930,704 1,930,704
- -----------------------------------
Redeemed (764,544,448) (764,544,448) (193,868,240) (193,868,240)
- --------------------------------------------------------------------------------------------------------------
Net decrease (121,818,733) $(121,818,733) (49,733,386) $(49,733,386)
==============================================================================================================
YEAR ENDED MARCH 31, 2003
- -----------------------------------
Sold 1,618,732,872 $1,618,732,872 379,251,230 $379,251,230
- -----------------------------------
Issued in reinvestment
of distributions 37,566,821 37,566,821 7,262,281 7,262,281
- -----------------------------------
Redeemed (1,718,908,685) (1,718,908,685) (409,035,275) (409,035,275)
- --------------------------------------------------------------------------------------------------------------
Net decrease (62,608,992) $(62,608,992) (22,521,764) $(22,521,764)
==============================================================================================================
(continued)
-----
13
Notes to Financial Statements
SEPTEMBER 30, 2003 (UNAUDITED)
3. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED SEPTEMBER 30, 2003
- -------------------------------------------------
Sold 11,347 $11,347
- -------------------------------------------------
Issued in reinvestment
of distributions 546 546
- -------------------------------------------------
Redeemed (6,054) (6,054)
- --------------------------------------------------------------------------------
Net increase 5,839 $5,839
================================================================================
YEAR ENDED MARCH 31, 2003
- -------------------------------------------------
Sold 19,811 $19,811
- -------------------------------------------------
Issued in reinvestment
of distributions 2,232 2,232
- -------------------------------------------------
Redeemed (4,215) (4,215)
- --------------------------------------------------------------------------------
Net increase 17,828 $17,828
================================================================================
4. FEDERAL TAX INFORMATION
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.
Following are the capital loss carryovers and capital loss deferral amounts as
of March 31, 2003:
- --------------------------------------------------------------------------------
CAPITAL GOVERNMENT
PRESERVATION AGENCY
- --------------------------------------------------------------------------------
Accumulated capital losses -- $(409)
- --------------------------------------------------------------------------------
Capital loss deferral $(3,758) --
- --------------------------------------------------------------------------------
The accumulated capital losses listed above represent net capital loss
carryovers that may be used to offset future realized capital gains for federal
income tax purposes. Government Agency's capital loss carryovers expire in 2006.
The capital loss deferrals represent net capital losses incurred in the
five-month period ended March 31, 2003. Capital Preservation has elected to
treat such losses as having been incurred in the following fiscal year for
federal income tax purposes.
- -----
14
Capital Preservation - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------------
Net Investment Income --(2) 0.01 0.03 0.06 0.05 0.05
- -------------------------------------------------------------------------------------------------------------------
Distributions
- --------------------------------
From Net Investment Income --(2) (0.01) (0.03) (0.06) (0.05) (0.05)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================
TOTAL RETURN(3) 0.32% 1.19% 2.84% 5.75% 4.63% 4.72%
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.48%(4) 0.48% 0.47% 0.47% 0.48% 0.48%
- --------------------------------
Ratio of Net Investment Income
to Average Net Assets 0.65%(4) 1.18% 2.76% 5.56% 4.51% 4.53%
- --------------------------------
Net Assets, End of Period
(in thousands) $3,148,959 $3,270,852 $3,333,519 $3,461,464 $3,350,237 $3,324,805
- -------------------------------------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized.
(4) Annualized.
See Notes to Financial Statements.
-----
15
Government Agency Money Market - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------------
Net Investment Income --(2) 0.01 0.03 0.06 0.05 0.05
- -------------------------------------------------------------------------------------------------------------------
Distributions
- --------------------------------
From Net Investment Income --(2) (0.01) (0.03) (0.06) (0.05) (0.05)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================
TOTAL RETURN(3) 0.35% 1.25% 2.96% 5.98% 4.98% 4.91%
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.48%(4) 0.48% 0.47% 0.47% 0.48% 0.48%
- --------------------------------
Ratio of Net Investment Income
to Average Net Assets 0.70%(4) 1.24% 2.91% 5.82% 4.88% 4.79%
- --------------------------------
Net Assets, End of Period
(in thousands) $541,972 $591,702 $614,223 $600,373 $555,374 $527,842
- -------------------------------------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized.
(4) Annualized.
See Notes to Financial Statements.
- -----
16
Government Agency Money Market - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------------------
2003(1) 2003 2002 2001 2000(2)
- -------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------
Net Investment Income --(3) 0.01 0.03 0.06 0.04
- -------------------------------------------------------------------------------------------------------------------
Distributions
- ---------------------------------------------
From Net Investment Income --(3) (0.01) (0.03) (0.06) (0.04)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================
TOTAL RETURN(4) 0.23% 0.99% 2.71% 5.71% 4.58%
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.73%(5) 0.73% 0.72% 0.72% 0.73%(5)
- ---------------------------------------------
Ratio of Net Investment Income
to Average Net Assets 0.45%(5) 0.99% 2.66% 5.57% 4.66%(5)
- ---------------------------------------------
Net Assets, End of Period
(in thousands) $242 $236 $219 $2,700 $2,584
- -------------------------------------------------------------------------------------------------------------------
(1) Six months ended September 30, 2003 (unaudited).
(2) April 12, 1999 (commencement of sale) through March 31, 2000.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized.
(5) Annualized.
See Notes to Financial Statements.
-----
17
Share Class Information
One class of shares is authorized for sale by Capital Preservation: Investor
Class. Two classes of shares are authorized for sale by Government Agency:
Investor Class and Advisor Class. The expense ratio of Advisor Class shares is
higher than that of Investor Class.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through a
broker-dealer, which may require payment of a transaction fee to the broker.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 service and
distribution fee. The total expense ratio of Advisor Class shares is 0.25%
higher than the total expense ratio of Investor Class shares.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
- -----
18
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b)
and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] are subject to federal income tax withholding, unless you elect
not to have withholding apply. Tax will be withheld on the total amount
withdrawn even though you may be receiving amounts that are not subject to
withholding, such as nondeductible contributions. In such case, excess amounts
of withholding could occur. You may adjust your withholding election so that a
greater or lesser amount will be withheld.
If you don't want us to withhold on this amount, you must notify us to not
withhold the federal income tax. 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 notice not to withhold federal
income tax prior to the withdrawal. You may notify us in writing or in certain
situations by telephone or through other electronic means. You have the right to
revoke your withholding election at any time and any election you make may
remain in effect until revoked by filing a new election.
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.
State tax will be withheld if, at the time of your distribution, your address is
within one of the mandatory withholding states and you have federal income tax
withheld. State taxes will be withheld from your distribution in accordance with
the respective state rules.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, is responsible
for exercising the voting rights associated with the securities purchased and/or
held by the fund. A description of the policies and procedures the manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-345-2021. It is also available on American Century's Web site at
www.americancentury.com and on the Securities and Exchange Commission's Web site
at www.sec.gov.
-----
19
Index Definition
The following index is used to illustrate investment market, sector, or style
performance or to serve as a fund performance comparison. It is not an
investment product available for purchase.
The 90-DAY U.S. TREASURY BILL INDEX is derived from secondary market interest
rates as published by the Federal Reserve Bank and includes three-month,
six-month, and one-year instruments.
- -----
20
[inside back cover - blank]
[back cover]
CONTACT US
WWW.AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR RELATIONS:
1-800-345-2021 or 816-531-5575
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
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY GOVERNMENT INCOME TRUST
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
COMPANIES
0311 American Century Investment Services, Inc.
SH-SAN-36284S (c)2003 American Century Services Corporation
ITEM 2. CODE OF ETHICS.
Not applicable for semiannual report filings.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semiannual report filings.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable prior to annual filings for fiscal years ending after
December 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the registrant's last fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) Not applicable for semiannual report filings.
(b) Separate certifications by the registrant's principal executive officer and
principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are
filed and attached hereto as Exhibit 99.302CERT.
(c) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: American Century Government Income Trust
By: /s/ William M. Lyons
--------------------------------------------
Name: William M. Lyons
Title: President
Date: November 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ William M. Lyons
--------------------------------------------
Name: William M. Lyons
Title: President
(principal executive officer)
Date: November 24, 2003
By: /s/ Maryanne L. Roepke
--------------------------------------------
Name: Maryanne L. Roepke
Title: Sr. Vice President, Treasurer, and
Chief Accounting Officer
(principal financial officer)
Date: November 24, 2003
