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 64111
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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: 3-31
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Date of reporting period: 3-31-2006
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
American Century Investments
ANNUAL REPORT
[photo of man and woman]
MARCH 31, 2006
Ginnie Mae Fund
Government Bond Fund
Inflation-Adjusted Bond Fund
Short-Term Government Fund
[american century investments logo and text logo]
Table of Contents
Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Market Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
GINNIE MAE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
GOVERNMENT BOND
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INFLATION-ADJUSTED BOND
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SHORT-TERM GOVERNMENT
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . . . . . .30
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 33
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .36
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 38
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . 56
OTHER INFORMATION
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
The opinions expressed in the Market Perspective and each of the Portfolio
Commentaries 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 of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the American Century
Ginnie Mae, Government Bond, Inflation-Adjusted Bond and Short-Term Government
funds for the 12 months ended March 31, 2006. We hope you find this information
helpful in monitoring your investment. Another useful resource we offer is our
Web site, americancentury.com, where we post quarterly portfolio commentaries,
the views of our senior investment officers, and other communications about
investments, portfolio strategy, and the markets.
Our Web site currently highlights American Century's recently-announced
strategic collaboration with Lance Armstrong and the Lance Armstrong Foundation
(LAF). Our new campaign, featuring Lance, is designed to encourage investors to
take a more active role in planning their financial futures and make every
investment decision count.
American Century's collaboration with Lance Armstrong and the LAF is a perfect
fit. Like members of our family, Lance is a cancer survivor, and shares our
values of optimism, focus, and determination. In addition, Lance and our family
have dedicated our success to improving lives, through the LAF and the Stowers
Institute for Medical Research, respectively. To learn more about American
Century's collaboration with Lance Armstrong and the LAF, please visit
www.lanceface.com on the Web and click on the links to related sites.
Besides the exciting new collaboration, we've enjoyed other good news--in
January, American Century was named, for the seventh consecutive year, one of
FORTUNE magazine's 100 Best Companies to Work For in America. Fostering a
positive work environment can benefit fund investors as well as our company--it
helps us continue to attract and retain talented people.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER
AMERICAN CENTURY COMPANIES, INC.
/s/James E. Stowers III
James E. Stowers III
CHAIRMAN OF THE BOARD
AMERICAN CENTURY COMPANIES, INC.
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1
Market Perspective
[photo of David MacEwen]
BY DAVID MACEWEN, CHIEF INVESTMENT OFFICER, FIXED INCOME
RATE HIKES, ENERGY PRICES, & HURRICANE DAMAGE TEMPERED ECONOMIC GROWTH
The resilient U.S. economy grew at a moderate rate during the 12 months ended
March 31, 2006, but showed signs of slowing in the months ahead. Real annualized
GDP growth averaged approximately 3.5% for the 12 months, despite faltering to a
1.7% rate in the fourth quarter of 2005 after one of the worst hurricane seasons
in history.
Besides severe damage to the Gulf Coast from Hurricanes Katrina and Rita, the
economy withstood eight additional interest rate hikes by the Federal Reserve
(on top of seven hikes in the prior 10 months), a flattened Treasury yield
curve, and soaring energy prices.
Relatively stable "core" inflation (without energy and food prices), an
improving labor market, and the fact that long-term interest rates stayed
relatively low for much of the period aided economic growth. But record-high
energy prices, a belated upturn in long-term interest rates, and indications
that the housing boom might finally be over raised concerns about consumer
spending and economic growth in the second half of 2006.
GOOD TIMES FOR HIGH-YIELD & MONEY MARKET SECURITIES
High-yield and money market securities were fixed-income market leaders during
this period of moderate economic growth and rising interest rates. The Lehman
Brothers Corporate High-Yield Index significantly outperformed the other bond
market indices in the table below. The table also shows that a key money market
benchmark, the three-month Treasury bill, outpaced most other market indices as
the Federal Reserve raised rates.
In general, shorter-maturity securities suffered less price depreciation than
their more rate change-sensitive, longer-maturity counterparts. Relatively
higher-yielding securities--including mortgage-backed and agency
securities--outperformed because their yields cushioned against price declines.
The investment-grade corporate sector was a notable exception. Poor auto
industry performance in 2005, before General Motors and Ford were downgraded to
high-yield, hurt returns in this sector.
U.S. FIXED-INCOME TOTAL RETURNS
For the 12 months ended March 31, 2006
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TREASURY SECURITIES
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3-month bill 3.55%
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2-year note 2.07%
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5-year note 0.45%
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10-year note 0.40%
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30-year bond 0.37%
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LEHMAN BROTHERS U.S. BOND MARKET INDICES
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Corporate High-Yield 7.43%
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Fixed-Rate Mortgage-Backed 2.67%
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Agency 2.58%
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Aggregate (multi-sector) 2.26%
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Treasury 1.95%
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Corporate Investment-Grade 1.63%
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Source: Lehman Brothers Inc.
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2
Ginnie Mae - Performance
TOTAL RETURNS AS OF MARCH 31, 2006
--------------------------------
AVERAGE ANNUAL RETURNS
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SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
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INVESTOR CLASS 2.47% 4.07% 5.54% 7.29% 9/23/85
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CITIGROUP 30-YEAR
GNMA INDEX 3.14% 4.95% 6.25% 8.17%(1) --
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Advisor Class 2.22% 3.81% -- 4.80% 10/9/97
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C Class 1.45% -- -- 3.06% 6/15/01
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(1) 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 March 31, 1996
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. 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.
(continued)
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3
Ginnie Mae - Performance
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended March 31
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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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Investor Class 5.87% 10.21% 5.66% 2.01% 11.70% 5.43% 8.03% 2.43% 2.11% 2.47%
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Citigroup 30-Year
GNMA Index 6.01% 10.92% 6.26% 2.96% 11.93% 6.58% 8.41% 3.77% 2.98% 3.14%
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[four stars]
4-Star Overall Morningstar Rating(tm)
as of March 31, 2006
(RATED AGAINST 356 INTERMEDIATE GOVERNMENT FUNDS)
Overall Morningstar Ratings(tm) are based on risk adjusted returns and reflects
the weighted average of the fund's 3-year, 5-year, and 10-year rankings, as
applicable.
For each fund with at least a three-year history, Morningstar calculates a
Morningstar Rating(tm) based on a Morningstar Risk-Adjusted Return measure that
accounts for variation in a fund's monthly performance (including the effects of
sales charges, loads, and redemption fees), placing more emphasis on downward
variations and rewarding consistent performance. The top 10% of funds in each
category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3
stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each
share class is counted as a fraction of one fund within this scale and rated
separately, which may cause slight variations in the distribution percentages.)
The Overall Morningstar Rating(tm) for a fund is derived from a weighted average
of the performance figures associated with its three-, five- and ten-year (if
applicable) Morningstar Rating(tm) metrics. Ginnie Mae was rated against the
following numbers of U.S.-domiciled Taxable Bonds funds over the following time
periods: 356 funds in the last three years, 308 funds in the last five years,
and 198 funds in the last ten years. With respect to these Taxable Bonds funds,
Ginnie Mae received a Morningstar Rating(tm) of 4 stars, 3 stars and 4 stars for
the three-, five- and ten-year periods, respectively. Past performance is no
guarantee of future results. Investment return and principal value will
fluctuate and redemption sales may be more or less than original cost.
The Morningstar Ratings are for Investor Class shares only; other classes may
have different performance characteristics.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. 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.
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4
Ginnie Mae - Portfolio Commentary
PORTFOLIO MANAGER: HANDO AGUILAR
PERFORMANCE SUMMARY
Ginnie Mae returned 2.47%* for the 12 months ended March 31, 2006. The
portfolio's benchmark--the Citigroup 30-Year GNMA Index--returned 3.14%. The
Citigroup Index's returns are not reduced by operating expenses.
Ginnie Mae continues to be a reliable core bond investment for your portfolio.
It holds a 4-Star Overall Morningstar Rating, and has returned an average of
7.29% on an annual basis since its inception on September 23, 1985 (see previous
page for historical Morningstar rating).
BOND & MORTGAGE-MARKET REVIEW
U.S. Treasury bonds offered modest returns during the 12 months. While their
prices dropped as the Federal Reserve pushed interest rates higher, their yields
kept returns in positive territory. Though high-yield and money-market
securities led fixed-income returns for the year, mortgage-backed securities
(MBS) were still one of the better-performing sectors of the bond market,
beating Treasurys (+1.95%), agencies (+2.58%), and corporate bonds (+1.63%)
overall. The Lehman Brothers U.S. Aggregate Index--a proxy for the broad U.S.
bond market--returned 2.26%, while the mortgage-backed bond sector of the Lehman
Aggregate returned 2.67%.
MBS benefited from the fact that slowly rising interest rates kept the level of
mortgage refinancing activity low during the year by historical standards.
Between March 31, 2005 and March 31, 2006, interest rates on fixed-rate 30-year
mortgages gradually rose from 5.91% to 6.49%. Meanwhile, the Mortgage Bankers
Association Refinancing Index fell from 1799 to 1641 by the end of March 2006.
Back in 2003, when U.S. interest rates were at record lows, the refinancing
index jumped to nearly 10,000 as homeowners flocked to refinance their home
mortgages at lower rates.
PORTFOLIO POSITIONING & OUTLOOK
Continuing Fed interest rate hikes throughout the period dictated a somewhat
defensive positioning for the portfolio. Ginnie Mae's management team kept the
portfolio's duration (its sensitivity to changes in interest rates) shorter than
that of the benchmark during the year. On March 31, 2005, Ginnie Mae's effective
duration was 3.1 years, versus 3.6 years for the benchmark. By March 31, 2006,
with the Fed's moves likely nearing an end, the team had moved Ginnie Mae's
duration
PORTFOLIO AT A GLANCE
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AS OF AS OF
3/31/06 3/31/05
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Average Duration
(effective) 4.1 years 3.1 years
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Average Life 6.5 years 6.0 years
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YIELDS AS OF MARCH 31, 2006
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30-DAY SEC YIELD
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Investor Class 4.57%
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Advisor Class 4.32%
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C Class 3.56%
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*All fund returns and yields referenced in this commentary are for Investor
Class shares.
(continued)
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5
Ginnie Mae - Portfolio Commentary
much closer to the benchmark's--4.08 years compared with 4.11 years for the
Citigroup index. But the team kept a short relative duration in the 2-year
maturity area, which was the most vulnerable to the Fed interest rate increases
that we saw throughout the 12 months.
Ginnie Mae benefited from a bias toward higher-yielding premium securities,
which outperformed discount GNMAs for most of the period. Another positive
factor was the management team's tactical trades between the GNMA I and GNMA II
markets. The GNMA I market offers pools of GNMAs with a single issuer, while the
GNMA II market offers pools with multiple issuers. Depending on market and
economic conditions, the prepayment and convexity characteristics of either of
these two markets may be more attractive than the other. Ginnie Mae's investment
team adds value to the portfolio's performance by taking advantage of these
shifting opportunities.
At the end of the period, Ginnie Mae was overweight versus the benchmark in GNMA
Is, and underweight in GNMA IIs, though that may well change in the coming
months as opportunities in the GNMA II market become available. The team will
continue to add incremental return by efficiently utilizing its cash investments
in floating discount agency notes and GNMA collateralized mortgage obligation
floaters.
HOW GINNIE MAE FITS IN A DIVERSIFIED INVESTMENT STRATEGY
Ginnie Mae is designed to be a core bond holding for your portfolio, providing
steady monthly income by investing primarily in government-backed GNMA
certificates. Ginnie Mae combines the relative safety of U.S. government-backed
securities along with higher yields than those offered by comparable
shorter-duration, high-quality bond investments.
TYPES OF INVESTMENTS IN PORTFOLIO
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% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
3/31/06 9/30/05
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U.S. Government Agency
Mortgage-Backed
Securities (all GNMAs) 74.2% 76.1%
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U.S. Government
Agency Securities 10.3% 8.7%
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U.S. Government Agency
Collateralized Mortgage
Obligations (all GNMAs) 9.8% 8.7%
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Temporary Cash
Investments 5.7% 6.5%
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6
Ginnie Mae - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
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U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(1) -- 98.3%
$147,000,000 GNMA, 5.00%, settlement
date 4/20/06(2) $ 142,406,249
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113,000,000 GNMA, 5.50%, settlement
date 4/20/06(2) 111,905,255
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225,000,000 GNMA, 6.00%, settlement
date 4/20/06(2) 227,601,449
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188,616,012 GNMA, 5.00%, 6/15/33
to 11/20/35 182,917,327
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465,571,115 GNMA, 5.50%, 4/15/33
to 12/20/34(3) 460,837,453
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147,298,490 GNMA, 6.00%, 7/20/16
to 1/20/36 148,673,488
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108,168,297 GNMA, 6.50%, 6/15/23
to 2/20/35 111,726,881
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21,948,320 GNMA, 7.00%, 9/15/08
to 12/20/29 22,858,215
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210,336 GNMA, 7.25%, 9/15/22
to 6/15/23 219,384
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17,606,730 GNMA, 7.50%, 5/20/08
to 11/15/31 18,498,627
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164,716 GNMA, 7.65%, 6/15/16
to 12/15/16 173,000
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231,640 GNMA, 7.75%, 9/20/17
to 8/20/25 245,077
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359,482 GNMA, 7.77%, 4/15/20
to 6/15/20 381,049
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196,374 GNMA, 7.85%, 4/20/21
to 10/20/22 207,944
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16,888 GNMA, 7.89%, 9/20/22 17,914
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321,540 GNMA, 7.98%, 6/15/19
to 6/15/19 342,281
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4,685,248 GNMA, 8.00%, 6/15/06
to 7/20/30 5,012,085
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217,495 GNMA, 8.15%, 1/15/20
to 2/15/21 232,884
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1,138,667 GNMA, 8.25%, 6/15/06
to 5/15/27 1,213,757
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130,768 GNMA, 8.35%, 2/15/20
to 11/15/20 140,712
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4,277,355 GNMA, 8.50%, 7/15/08
to 12/15/30 4,615,734
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441,891 GNMA, 8.75%, 1/15/17
to 7/15/27 475,202
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3,529,057 GNMA, 9.00%, 8/15/08
to 1/15/25 3,763,873
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466,058 GNMA, 9.25%, 8/15/16
to 8/15/26 507,562
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1,187,504 GNMA, 9.50%, 6/15/09
to 7/20/25 1,296,916
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158,733 GNMA, 9.75%, 8/15/16
to 11/20/21 172,892
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281,460 GNMA, 10.00%, 11/15/09
to 1/20/22 310,059
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Principal Amount Value
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$ 129,324 GNMA, 10.25%, 5/15/12
to 3/15/19 $ 141,763
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120,433 GNMA, 10.50%, 3/15/14
to 7/15/19 133,400
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13,175 GNMA, 10.75%, 12/15/09
to 3/15/10 14,086
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292,086 GNMA, 11.00%, 12/15/09
to 6/15/20 318,284
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2,817 GNMA, 11.25%, 2/20/16 3,118
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52,516 GNMA, 11.50%, 2/15/13
to 8/20/19 58,163
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29,810 GNMA, 12.00%, 10/15/10
to 12/15/12 32,664
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15,821 GNMA, 12.25%, 2/15/14
to 5/15/15 17,376
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92,091 GNMA, 12.50%, 5/15/10
to 5/15/15 101,291
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145,909 GNMA, 13.00%, 1/15/11
to 8/15/15 162,531
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65,655 GNMA, 13.50%, 5/15/10
to 11/15/14 73,650
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8,688 GNMA, 13.75%, 8/15/14 9,732
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4,218 GNMA, 14.00%, 6/15/11
to 7/15/11 4,752
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53,435 GNMA, 14.50%, 10/15/12
to 12/15/12 60,657
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53,522 GNMA, 15.00%, 7/15/11
to 10/15/12 61,107
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6,827 GNMA, 16.00%, 10/15/11
to 12/15/11 7,880
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TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $1,470,032,300) 1,447,953,723
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U.S. GOVERNMENT AGENCY
SECURITIES -- 13.7%
6,500,000 FFCB, VRN, 4.52%, 4/1/06,
resets monthly off the
1-month LIBOR minus
0.11% with no caps 6,500,962
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12,000,000 FFCB, VRN, 4.53%, 4/1/06,
resets monthly off the
1-month LIBOR minus
0.105% with no caps(3) 12,004,056
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20,000,000 FFCB, VRN, 4.53%, 4/3/06,
resets monthly off the
1-month LIBOR minus
0.11% with no caps(3) 20,012,880
- --------------------------------------------------------------------------------
8,000,000 FFCB, VRN, 4.61%, 4/7/06,
resets monthly off the
1-month LIBOR minus
0.06% with no caps(3) 8,006,184
- --------------------------------------------------------------------------------
15,000,000 FFCB, VRN, 4.62%, 4/15/06,
resets monthly off the
1-month LIBOR minus
0.13% with no caps(3) 15,003,960
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
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7
Ginnie Mae - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
$ 15,000,000 FFCB, VRN, 4.66%, 4/20/06,
resets monthly off the
1-month LIBOR minus
0.11% with no caps(3) $ 15,004,770
- --------------------------------------------------------------------------------
12,700,000 FFCB, VRN, 4.68%, 4/15/06,
resets monthly off the
1-month LIBOR minus
0.07% with no caps(3) 12,704,039
- --------------------------------------------------------------------------------
20,000,000 FFCB, VRN, 4.68%, 4/20/06,
resets monthly off the
1-month LIBOR minus
0.10% with no caps(3) 20,009,760
- --------------------------------------------------------------------------------
7,000,000 FFCB, VRN, 4.69%, 4/17/06,
resets monthly off the
1-month LIBOR minus
0.06% with no caps(3) 7,003,528
- --------------------------------------------------------------------------------
12,000,000 FFCB, VRN, 4.69%, 4/22/06,
resets monthly off the
1-month LIBOR minus
0.11% with no caps(3) 11,998,620
- --------------------------------------------------------------------------------
3,800,000 FFCB, VRN, 4.71%, 4/20/06,
resets monthly off the
1-month LIBOR minus
0.10% with no caps(3) 3,800,718
- --------------------------------------------------------------------------------
20,000,000 FFCB, VRN, 4.72%, 4/28/06,
resets monthly off the
1-month LIBOR minus
0.10% with no caps(3) 20,004,300
- --------------------------------------------------------------------------------
14,425,000 FFCB, VRN, 4.73%, 4/24/06,
resets monthly off the
1-month LIBOR minus
0.08% with no caps(3) 14,433,193
- --------------------------------------------------------------------------------
15,000,000 FFCB, VRN, 4.75%, 4/28/06,
resets monthly off the
1-month LIBOR minus
0.07% with no caps(3) 15,005,790
- --------------------------------------------------------------------------------
20,000,000 FNMA, VRN, 4.55%, 4/7/06,
resets monthly off the
1-month LIBOR minus
0.12% with no caps(3) 20,003,380
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $201,432,569) 201,496,140
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS(1) -- 13.0%
7,255,305 GNMA, Series 1998-6,
Class FA, VRN, 5.26%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.51% with a cap of 9.00% 7,327,793
- --------------------------------------------------------------------------------
906,341 GNMA, Series 1998-17,
Class F, VRN, 5.25%,
4/16/06, resets monthly off
the 1-month LIBOR plus
0.50% with no caps 915,837
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 601,297 GNMA, Series 2000-22,
Class FG, VRN, 4.95%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.20% with no caps $ 601,613
- --------------------------------------------------------------------------------
4,262,498 GNMA, Series 2001-59,
Class FD, VRN, 5.25%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.50% with no caps 4,313,341
- --------------------------------------------------------------------------------
8,796,660 GNMA, Series 2001-62,
Class FB, VRN, 5.25%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.50% with no caps 8,904,041
- --------------------------------------------------------------------------------
4,993,889 GNMA, Series 2002-13,
Class FA, VRN, 5.25%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.50% with a cap of 8.50% 5,046,299
- --------------------------------------------------------------------------------
8,904,240 GNMA, Series 2002-24,
Class FA, VRN, 5.25%,
4/16/06, resets monthly off
the 1-month LIBOR plus
0.50% with a cap of 8.50% 8,985,999
- --------------------------------------------------------------------------------
2,954,876 GNMA, Series 2002-29,
Class FA SEQ, VRN, 5.13%,
4/20/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 9.00% 2,971,427
- --------------------------------------------------------------------------------
2,458,481 GNMA, Series 2002-31,
Class FW, VRN, 5.15%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.40% with a cap of 8.50% 2,476,347
- --------------------------------------------------------------------------------
9,320,289 GNMA, Series 2003-7,
Class FA, VRN, 5.20%,
4/16/06, resets monthly off
the 1-month LIBOR plus
0.45% with no caps 9,422,095
- --------------------------------------------------------------------------------
2,189,349 GNMA, Series 2003-14,
Class F, VRN, 5.13%,
4/20/06, resets monthly off
the 1-month LIBOR plus
0.35% with no caps 2,195,670
- --------------------------------------------------------------------------------
4,773,420 GNMA, Series 2003-42,
Class FW, VRN, 5.13%,
4/20/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 7.00% 4,768,847
- --------------------------------------------------------------------------------
9,561,099 GNMA, Series 2004-11,
Class UC, 5.00%, 4/16/26 9,515,904
- --------------------------------------------------------------------------------
6,125,737 GNMA, Series 2004-39,
Class XF SEQ, VRN, 5.00%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.25% with a cap of 7.50% 6,136,052
- --------------------------------------------------------------------------------
3,970,065 GNMA, Series 2004-42,
Class AB SEQ, 6.00%,
3/20/32 3,980,121
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
Ginnie Mae - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
$ 9,999,824 GNMA, Series 2004-46,
Class QH, 4.50%, 4/20/25 $ 9,930,475
- --------------------------------------------------------------------------------
54,637,292 GNMA, Series 2004-53,
Class FB SEQ, VRN, 5.15%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.40% with a cap of 7.50% 55,069,855
- --------------------------------------------------------------------------------
28,353,607 GNMA, Series 2004-82,
Class DM, 5.00%, 10/20/27 28,168,627
- --------------------------------------------------------------------------------
20,268,208 GNMA, Series 2005-24,
Class F, VRN, 4.95%,
4/16/06, resets monthly off
the 1-month LIBOR plus
0.20% with a cap of 7.00% 20,262,330
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $191,348,039) 190,992,673
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 7.6%
$111,526,000 FNMA Discount Notes,
4.61%, 4/3/06(3)(4)
(Cost $111,497,437) $ 111,526,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 132.6%
(Cost $1,974,310,345) 1,951,968,536
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (32.6)% (479,979,352)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $1,471,989,184
================================================================================
FUTURES CONTRACTS*
Expiration Underlying Face Unrealized
Contracts Purchased Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
175 U.S. Treasury
5-Year Notes June 2006 $18,276,563 $(94,729)
====================================
*FUTURES CONTRACTS typically are based on an index or specific securities and
tend to track the performance of the index or specific securities while
remaining very liquid (easy to buy and sell). By investing its cash assets in
futures, the fund has increased exposure to certain markets while maintaining
easy access to cash.
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Bank
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon
will vary significantly from current market rates.
SEQ = Sequential Payer
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective March 31, 2006.
(1) Final maturity indicated, unless otherwise noted.
(2) Forward commitment.
(3) Security, or a portion thereof, has been segregated for a forward
commitment and/or futures contract.
(4) The rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
9
Government Bond - Performance
TOTAL RETURNS AS OF MARCH 31, 2006
--------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 2.17% 4.15% 5.61% 7.66% 5/16/80
- --------------------------------------------------------------------------------
CITIGROUP TREASURY/
MORTGAGE INDEX(1) 2.44% 4.79% 6.15% --(2) --
- --------------------------------------------------------------------------------
CITIGROUP U.S.
TREASURY
10+YEAR INDEX 2.14% 6.36% 7.71% 10.16%(3) --
- --------------------------------------------------------------------------------
Advisor Class 1.91% 3.90% -- 5.07% 10/9/97
- --------------------------------------------------------------------------------
Performance information prior to September 3, 2002, is that of the American
Century Treasury Fund, all of the net assets of which were acquired by
Government Bond pursuant to a plan of reorganization approved by Treasury
shareholders on August 2, 2002.
(1) When Government Bond merged with the Treasury fund in September 2002, the
fund's benchmark was changed from the Citigroup U.S. Treasury 10+ Year Index
to the Citigroup Treasury/Mortgage Index to better reflect the fund's
broader investment mandate.
(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.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. 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.
(continued)
- ------
10
Government Bond - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made March 31, 1996
Periods ended March 31
- ----------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
- ----------------------------------------------------------------------------------------------------
Investor Class 4.05% 11.04% 6.09% 1.51% 13.17% 3.01% 13.17% 2.42% 0.50% 2.17%
- ----------------------------------------------------------------------------------------------------
Citigroup
Treasury/Mortgage
Index 4.90% 11.73% 6.57% 2.31% 12.53% 5.17% 11.06% 4.21% 1.33% 2.44%
- ----------------------------------------------------------------------------------------------------
Citigroup U.S.
Treasury
10+ Year Index 2.84% 20.63% 7.09% 3.00% 12.82% 1.10% 20.45% 6.51% 2.75% 2.14%
- ----------------------------------------------------------------------------------------------------
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. 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.
- ------
11
Government Bond - Portfolio Commentary
PORTFOLIO MANAGER: ROBERT GAHAGAN
PERFORMANCE SUMMARY
Government Bond posted a positive return for the 12 months ended March 31,
2006, as the bond market turned in a mixed performance. Government Bond returned
2.17%*, underperforming its benchmark--the Citigroup Treasury/Mortgage Index
(+2.44%) on a net basis. The returns of the Citigroup Index are not reduced by
operating expenses.
The returns of both Government Bond and its benchmark were primarily dictated by
the performance of the Treasury, mortgage-backed, and government agency sectors
of the U.S. bond market, which returned 1.95%, 2.67%, and 2.58%, respectively,
according to the sector returns of the Lehman Brothers U.S. Aggregate Index. As
discussed on page 2, conditions were challenging for these sectors--price
depreciation was prevalent as interest rates and yields rose, but the losses
were generally small enough to be offset by bond yields, resulting in modest
positive total returns.
A TALE OF ALTERNATING MARKETS
The modest returns don't tell the whole story, however. The 12-month period
alternated between up and down movements in bond prices each quarter. It started
with a strong bond rally in the second quarter of 2005, followed by a reversal
in the third quarter, a modest recovery in the fourth quarter of 2005, and
another selloff in the first quarter of 2006.
Changing investor perceptions of the economy, inflation, and Federal Reserve
(Fed) policy helped cause this up-and-down pattern. Soaring energy prices and
rising short-term interest rates fostered doubts about financial health and
economic growth, triggering the bond rally at the start of the 12-month period.
But inflation fears surfaced in the wake of Hurricanes Katrina and Rita, causing
a bond market reversal in the third quarter of 2005.
Fourth quarter events calmed the inflation worries but brought instead an
inverted Treasury yield curve (the two-year Treasury yield rose above its
10-year counterpart for the first time since 2000), which has often been a
harbinger of economic downturns. This generated speculation that the Fed might
end its latest series of rate hikes in early 2006. Instead, the U.S. economy
rebounded in the first quarter of 2006, forcing the Fed to continue raising
rates.
PORTFOLIO AT A GLANCE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/06 3/31/05
- --------------------------------------------------------------------------------
Weighted Average
Maturity 6.1 years 5.4 years
- --------------------------------------------------------------------------------
Average Duration
(effective) 4.1 years 3.9 years
- --------------------------------------------------------------------------------
YIELDS AS OF MARCH 31, 2006
- --------------------------------------------------------------------------------
30-DAY SEC YIELD
- --------------------------------------------------------------------------------
Investor Class 4.54%
- --------------------------------------------------------------------------------
Advisor Class 4.28%
- --------------------------------------------------------------------------------
*All fund returns and yields referenced in this commentary are for Investor
Class shares.
(continued)
- ------
12
Government Bond - Portfolio Commentary
PORTFOLIO STRATEGY & OUTLOOK
The investment team positioned Government Bond defensively in anticipation of
higher interest rates and bond price depreciation. Because of this, the
portfolio performed better versus the benchmark when the bond market weakened
than it did when the market rallied. Periods when Government Bond outperformed
the benchmark were largely offset by periods when it underperformed, so the
portfolio's expenses ultimately made the biggest difference between its
12-month performance and that of its Citigroup benchmark. The benchmark index's
returns are not reduced by management fees.
Government Bond's duration was shorter than that of the benchmark throughout the
year, which limited gains when bonds rallied, but also limited losses when bond
prices fell. Government Bond held overweights versus the benchmark in MBS,
government agency securities, collateralized mortgage obligations (CMOs),
asset-backed securities (ABS), and commercial mortgage-backed securities (CMBS).
These were positive factors for Government Bond's return, as each of these bond
sectors outperformed Treasury bonds overall for the period.
HOW GOVERNMENT BOND FITS IN A DIVERSIFIED INVESTMENT STRATEGY
Government Bond is designed to serve as a diversifier for your investment
portfolio, especially for credit-sensitive investors looking for a high-quality
bond fund, or a bond fund that is diversified across all government bond
sectors. It has historically delivered steady monthly income, which can help
cushion the impact of price declines during periods when interest rates are
rising.
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
3/31/06 9/30/05
- --------------------------------------------------------------------------------
U.S. Government
Agency Securities 25.5% 22.3%
- --------------------------------------------------------------------------------
U.S. Government Agency
Mortgage-Backed
Securities 22.5% 30.3%
- --------------------------------------------------------------------------------
U.S. Government Agency
Collateralized Mortgage
Obligations 18.1% 18.7%
- --------------------------------------------------------------------------------
U.S. Treasury Securities 12.9% 9.0%
- --------------------------------------------------------------------------------
U.S. Government Agency
Asset-Backed Securities 3.0% 3.7%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 1.7% 1.3%
- --------------------------------------------------------------------------------
Collateral Received for
Securities Lending 16.3% 14.7%
- --------------------------------------------------------------------------------
- ------
13
Government Bond - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 35.1%
$10,000,000 FHLB, 4.75%, 8/17/07 $ 9,954,731
- --------------------------------------------------------------------------------
8,000,000 FHLB, 4.00%, 3/10/08 7,846,699
- --------------------------------------------------------------------------------
4,000,000 FHLB, 4.625%, 9/11/20 3,681,388
- --------------------------------------------------------------------------------
28,700,000 FHLMC, 4.90%, 11/3/08(1) 28,460,067
- --------------------------------------------------------------------------------
11,500,000 FHLMC, 4.625%, 12/19/08(1)(2) 11,376,342
- --------------------------------------------------------------------------------
2,800,000 FHLMC, 6.625%, 9/15/09 2,932,289
- --------------------------------------------------------------------------------
25,000,000 FHLMC, 5.625%, 3/15/11(1)(2) 25,529,675
- --------------------------------------------------------------------------------
5,200,000 FHLMC, 5.50%, 3/28/16(1)(2) 5,193,339
- --------------------------------------------------------------------------------
8,655,000 FHLMC, 5.30%, 5/12/20 8,237,223
- --------------------------------------------------------------------------------
10,000,000 FNMA, 3.25%, 8/15/08 9,607,090
- --------------------------------------------------------------------------------
10,000,000 FNMA, 4.50%, 10/15/08(2) 9,874,970
- --------------------------------------------------------------------------------
24,800,000 FNMA, 6.625%, 9/15/09 25,963,740
- --------------------------------------------------------------------------------
24,560,000 FNMA, 6.00%, 5/15/11(2) 25,489,768
- --------------------------------------------------------------------------------
15,600,000 FNMA, 5.80%, 2/9/26 15,297,906
- --------------------------------------------------------------------------------
7,550,000 FNMA, 6.625%, 11/15/30(2) 8,887,097
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $201,834,367) 198,332,324
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(3) -- 31.0%
6,543,895 FHLMC, 4.50%, 1/1/19 6,261,075
- --------------------------------------------------------------------------------
7,868,026 FHLMC, 5.50%, 10/1/34 7,696,227
- --------------------------------------------------------------------------------
5,243,000 FNMA, 5.00%, settlement
date 4/12/06(4) 4,992,322
- --------------------------------------------------------------------------------
22,774,000 FNMA, 6.00%, settlement
date 4/12/06(4) 22,774,000
- --------------------------------------------------------------------------------
25,887,600 FNMA, 5.00%, settlement
date 4/18/06(4) 25,240,410
- --------------------------------------------------------------------------------
9,794,000 FNMA, 5.50%, settlement
date 4/18/06(4) 9,735,843
- --------------------------------------------------------------------------------
27,700,000 FNMA, 6.50%, settlement
date 5/11/06(4) 28,228,018
- --------------------------------------------------------------------------------
23,875,099 FNMA, 4.50%, 5/1/19 22,856,898
- --------------------------------------------------------------------------------
1,081,508 FNMA, 6.50%, 3/1/32 1,106,081
- --------------------------------------------------------------------------------
1,028,509 FNMA, 7.00%, 6/1/32 1,059,846
- --------------------------------------------------------------------------------
1,445,237 FNMA, 6.50%, 8/1/32 1,479,087
- --------------------------------------------------------------------------------
14,735,040 FNMA, 5.50%, 7/1/33 14,416,498
- --------------------------------------------------------------------------------
3,262,237 FNMA, 5.00%, 11/1/33 3,115,495
- --------------------------------------------------------------------------------
3,852,182 FNMA, 5.50%, 9/1/34 3,766,929
- --------------------------------------------------------------------------------
23,486,819 FNMA, 5.50%, 10/1/34 22,967,033
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $178,872,071) 175,695,762
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS(3) -- 24.9%
$ 2,961,898 FHLMC, Series 2560,
Class FG SEQ, VRN, 5.25%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.50% with a cap of 8.50% $ 2,983,555
- --------------------------------------------------------------------------------
5,567,772 FHLMC, Series 2625,
Class FJ SEQ, VRN, 5.05%,
4/15/06, resets monthly off
the 1-month LIBOR plus
0.30% with a cap of 7.50% 5,577,922
- --------------------------------------------------------------------------------
1,567,339 FHLMC, Series 2689,
Class PY, 4.00%, 2/15/10 1,561,511
- --------------------------------------------------------------------------------
5,770,747 FHLMC, Series 2779,
Class FM SEQ, VRN, 5.10%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 7.50% 5,794,609
- --------------------------------------------------------------------------------
14,482,304 FHLMC, Series 2780,
Class BD SEQ, 4.50%,
10/15/17 14,247,792
- --------------------------------------------------------------------------------
15,141,036 FHLMC, Series 2812,
Class EF SEQ, VRN, 5.15%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.40% with a cap of 7.50% 15,231,776
- --------------------------------------------------------------------------------
8,456,741 FHLMC, Series 2831,
Class AF, VRN, 5.05%,
4/15/06, resets monthly off
the 1-month LIBOR plus
0.30% with a cap of 7.50% 8,480,293
- --------------------------------------------------------------------------------
9,293,934 FHLMC, Series 2836,
Class ND, 4.00%, 7/15/13 9,133,781
- --------------------------------------------------------------------------------
15,399,840 FHLMC, Series 2855,
Class FK SEQ, VRN, 5.10%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 7.50% 15,460,500
- --------------------------------------------------------------------------------
6,704,972 FHLMC, Series 2900,
Class PA, 4.50%, 3/15/14 6,627,503
- --------------------------------------------------------------------------------
5,381,859 FNMA, Series 2003-42,
Class FK, VRN, 5.22%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.40% with a cap of 7.50% 5,417,417
- --------------------------------------------------------------------------------
10,294,724 FNMA, Series 2003-43,
Class LF, VRN, 5.17%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 8.00% 10,345,549
- --------------------------------------------------------------------------------
8,874,827 FNMA, Series 2003-52,
Class KF SEQ, VRN, 5.22%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.40% with a cap of 7.50% 8,921,216
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
14
Government Bond - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
$12,319,408 FNMA, Series 2003-84,
Class AL, 4.00%, 4/25/13 $ 12,145,150
- --------------------------------------------------------------------------------
10,400,238 FNMA, Series 2003-124,
Class PB, 4.00%, 3/25/31 10,284,660
- --------------------------------------------------------------------------------
8,415,371 FNMA, Series 2004 W5,
Class F1, VRN, 5.27%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.45% with a cap of 7.50% 8,463,642
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $141,342,790) 140,676,876
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 17.8%
31,720,000 U.S. Treasury Bonds, 8.125%,
8/15/21(1) 41,989,350
- --------------------------------------------------------------------------------
10,700,000 U.S. Treasury Bonds, 7.125%,
2/15/23(2) 13,162,680
- --------------------------------------------------------------------------------
5,760,000 U.S. Treasury Bonds, 6.875%,
8/15/25(2) 7,033,052
- --------------------------------------------------------------------------------
2,300,000 U.S. Treasury Bonds, 4.50%,
2/15/36(2) 2,158,766
- --------------------------------------------------------------------------------
30,130,000 U.S. Treasury Notes, 4.50%,
2/28/11(1)(2) 29,700,437
- --------------------------------------------------------------------------------
7,000,000 U.S. Treasury Notes, 4.50%,
2/15/16(2) 6,810,237
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $102,727,565) 100,854,522
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
ASSET-BACKED SECURITIES(3) -- 4.1%
5,010,846 FHLMC, Series T19, Class A,
VRN, 5.16%, 4/25/06, resets
monthly off the 1-month
LIBOR plus 0.17% with
no caps 5,013,296
- --------------------------------------------------------------------------------
5,041,779 FHLMC, Series T20, Class A7,
VRN, 5.12%, 4/25/06, resets
monthly off the 1-month
LIBOR plus 0.15% with
no caps 5,045,313
- --------------------------------------------------------------------------------
9,973,706 FHLMC, Series T21, Class A,
VRN, 5.18%, 4/25/06, resets
monthly off the 1-month
LIBOR plus 0.18% with
no caps 9,979,572
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,780,800 FHLMC, Series T34,
Class A1V, VRN, 4.94%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.12% with no caps $ 1,781,635
- --------------------------------------------------------------------------------
1,546,681 FHLMC, Series T35, Class A,
VRN, 4.96%, 4/25/06, resets
monthly off the 1-month
LIBOR plus 0.14% with
no caps 1,547,510
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
ASSET-BACKED SECURITIES
(Cost $23,368,829) 23,367,326
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.3%
13,022,000 FNMA Discount Notes,
4.61%, 4/3/06(5)
(Cost $13,018,665) 13,022,000
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR
SECURITIES LENDING(6) -- 22.4%
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, Deutsche Bank AG,
(collateralized by various U.S. Government
Agency obligations in a pooled account at
the lending agent), 4.82%, dated 3/31/06,
due 4/3/06 (Delivery value $100,040,167) 100,000,000
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government
Agency obligations in a pooled account at
the lending agent), 4.875%, dated 3/31/06,
due 4/3/06 (Delivery value $26,767,840) 26,756,970
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED FOR
SECURITIES LENDING
(Cost $126,756,970) 126,756,970
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 137.6%
(Cost $787,921,257) 778,705,780
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (37.6)% (212,813,023)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $ 565,892,757
================================================================================
See Notes to Financial Statements. (continued)
- ------
15
Government Bond - Schedule of Investments
MARCH 31, 2006
FUTURES CONTRACTS*
Expiration Underlying Face Unrealized
Contracts Purchased Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
111 U.S. Treasury
2-Year Notes June 2006 $22,628,391 $ 43,110
- --------------------------------------------------------------------------------
75 U.S. Treasury
5-Year Notes June 2006 7,832,813 45,534
- --------------------------------------------------------------------------------
167 U.S. Treasury
10-Year Notes June 2006 17,767,234 137,288
- --------------------------------------------------------------------------------
$48,228,438 $225,932
====================================
*FUTURES CONTRACTS typically are based on an index or specific securities and
tend to track the performance of the index or specific securities while
remaining very liquid (easy to buy and sell). By selling futures, the fund
hedges its investments against price fluctuations.
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 March 31, 2006.
(1) Security, or a portion thereof, has been segregated for a forward
commitment and/or futures contract.
(2) Security, or a portion thereof, was on loan as of March 31, 2006.
(3) Final maturity indicated, unless otherwise noted.
(4) Forward commitment.
(5) The rate indicated is the yield to maturity at purchase.
(6) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 5 in
Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
16
Inflation-Adjusted Bond - Performance
TOTAL RETURNS AS OF MARCH 31, 2006
----------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 0.56% 6.59% 6.08% 2/10/97
- --------------------------------------------------------------------------------
CITIGROUP U.S.
INFLATION-LINKED
SECURITIES INDEX 0.81% 7.21% 6.85%(1) --
- --------------------------------------------------------------------------------
Institutional Class 0.77% -- 4.90% 10/1/02
- --------------------------------------------------------------------------------
Advisor Class 0.37% 6.34% 6.55% 6/15/98
- --------------------------------------------------------------------------------
(1) Since 2/28/97, the date nearest the Investor Class's inception for which
data are available.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. 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.
(continued)
- ------
17
Inflation-Adjusted Bond - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made February 10, 1997
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended March 31
- ----------------------------------------------------------------------------------------------------
1997* 1998 1999 2000 2001 2002 2003 2004 2005 2006
- ----------------------------------------------------------------------------------------------------
Investor Class -1.98% 3.45% 3.37% 5.52% 12.62% 4.16% 16.42% 10.04% 2.57% 0.56%
- ----------------------------------------------------------------------------------------------------
Citigroup U.S.
Inflation-Linked
Securities Index -1.37% 3.93% 4.11% 6.39% 13.54% 4.37% 18.20% 10.83% 2.78% 0.81%
- ----------------------------------------------------------------------------------------------------
*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.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. 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.
- ------
18
Inflation-Adjusted Bond - Portfolio Commentary
PORTFOLIO MANAGER: JEREMY FLETCHER
RETURN SUMMARY & PERSPECTIVE
Inflation-Adjusted Bond returned 0.56%* for the 12 months ended March 31, 2006.
By comparison, the Citigroup U.S. Inflation-Linked Securities Index returned
0.81%. However, it's worth remembering that expenses do not reduce the index's
return.
Inflation-linked bonds produced limited returns for the 12 months, curtailed by:
(1) rising short-term interest rates that weighed on the performance of bonds in
general, and high-credit-quality bonds in particular, (2) relatively contained
"core" inflation (inflation excluding often-volatile food and energy
components), and (3) market perceptions that inflation is currently more of a
concern than a problem. We talk about the strategies that we employed for
Inflation-Adjusted Bond in the Portfolio Strategy & Outlook section on the next
page.
LIMITED RETURNS FOR INFLATION-LINKED SECURITIES
Inflation-linked bonds posted limited returns for the 12 months, hampered by a
few formidable hurdles that included rising interest rates. Warning of the
inflationary threats posed by elevated energy prices and a tightening labor
market, the Federal Reserve (the Fed) raised short-term interest rates
throughout the 12 months. By the end of March 2006, the Fed had completed eight
consecutive quarter-point increases, and contrary to market hopes, failed to
rule out the possibility of additional rate hikes.
In its most recent post-meeting statement--and for the first time this
cycle--the Fed also acknowledged the inflationary risks posed by higher
commodities prices. At the same time, however, reassurance was once again given
that inflation expectations remained contained. The latest reading on "core"
consumer prices generally supported that point of view, revealing an unadjusted
2.1% increase for the 12 months ended March 31.
Bond prices fell and yields rose in that environment, with the yield on the
Treasury's benchmark 10-year bond rising from approximately 4.49% to 4.86%--the
highest level since June 2004. Treasury Inflation Protected Securities (TIPS)
performed similarly, pushing up the real yields at which such securities trade
as prices fell. Further dampening the prices of inflation-linked securities was
the markets' willingness to discount inflation as more of a concern than a
problem.
PORTFOLIO AT A GLANCE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/06 3/31/05
- --------------------------------------------------------------------------------
Weighted Average
Maturity 10.7 years 10.6 years
- --------------------------------------------------------------------------------
Average Duration
(effective) 6.3 years 6.6 years
- --------------------------------------------------------------------------------
YIELDS AS OF MARCH 31, 2006
- --------------------------------------------------------------------------------
30-DAY SEC YIELD
- --------------------------------------------------------------------------------
Investor Class 9.85%
- --------------------------------------------------------------------------------
Institutional Class 10.06%
- --------------------------------------------------------------------------------
Advisor Class 9.59%
- --------------------------------------------------------------------------------
*All fund returns and yields referenced in this commentary are for Investor
Class shares.
(continued)
- ------
19
Inflation-Adjusted Bond - Portfolio Commentary
BREAKEVEN RATES DECLINED
With interest rates and bond yields rising, inflation contained according to the
Fed and core-inflation numbers generally supporting that claim, and the market
generally accepting that perspective, breakeven rates on TIPS fell. Representing
the yield gap between inflation-linked Treasurys and their conventional
counterparts, breakeven rates on 5-year TIPS dropped by nearly 50 basis points
(0.50%), breakevens on 10-year TIPS declined by 20 basis points, and breakeven
rates on 30-year TIPS declined by a little more than 10 basis points.
PORTFOLIO STRATEGY & OUTLOOK
On the portfolio front, we continued to focus on our investment process, which
uses a consistent, repeatable framework that seeks to identify the best relative
values among the U.S. inflation-linked securities universe. That also entailed
actively applying a multi-step approach that includes: yield curve and duration
positioning, security selection, portfolio construction, and attribution
analysis.
Inflation-Adjusted Bond experienced substantial cash inflows over the 12 months,
and we primarily put that money to work across the TIPS maturity curve. In
following this "curve-neutral" approach we hoped to ensure performance similar
to that of the broader inflation-linked securities market. For now, we expect to
continue that strategy but will also closely monitor the market in case
attractive opportunities arise in one specific maturity range or another.
In addition, we worked side-by-side with our corporate credit research team in
search of what we believed to be value-added inflation-linked securities outside
of TIPS. As a result, we added to an already-established position in Tennessee
Valley Authority inflation-indexed bonds maturing in 2007. These government
agency securities tend to offer slightly higher yields than their Treasury
counterparts while enjoying similarly high credit ratings.
Lastly, with interest rates and bond yields rising, we conservatively positioned
Inflation-Adjusted Bond's duration-- a widely used gauge of interest rate
sensitivity--keeping it conservatively below that of the Citigroup index toward
the end of 2005 and into the start of 2006. Then, as the outlook for bonds began
to shift toward the end of the 12 months, we increased the portfolio's duration
to be more in-line with that of the index--a course that we expect to maintain
for the time being.
INFLATION-ADJUSTED BOND'S PLACE IN A DIVERSIFIED PORTFOLIO
A specialty bond holding, Inflation-Adjusted Bond offers a high-credit-quality
investment that combats domestic inflation while enjoying a portfolio built
around securities that offer negative correlations with stocks. Because the pace
of inflation fluctuates from month to month, however, the fund can best be used
as a long-term inflation hedge and is not managed to provide steady current
income.
PORTFOLIO COMPOSITION BY MATURITY(1)
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
3/31/06 9/30/05
- --------------------------------------------------------------------------------
0 - 5-Year Notes(2) 27.4% 29.5%
- --------------------------------------------------------------------------------
5 - 10-Year Notes 42.6% 42.5%
- --------------------------------------------------------------------------------
10 - 30-Year Bonds 30.0% 28.0%
- --------------------------------------------------------------------------------
(1) Excludes collateral received for securities lending.
(2) Includes temporary cash investments.
- ------
20
Inflation-Adjusted Bond - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 91.2%
$75,137,020 U.S. Treasury Inflation
Indexed Bonds, 2.375%,
1/15/25 $ 75,533,293
- --------------------------------------------------------------------------------
82,805,494 U.S. Treasury Inflation
Indexed Bonds, 2.00%,
1/15/26 78,497,042
- --------------------------------------------------------------------------------
85,434,078 U.S. Treasury Inflation
Indexed Bonds, 3.625%,
4/15/28(1) 105,043,868
- --------------------------------------------------------------------------------
86,015,097 U.S. Treasury Inflation
Indexed Bonds, 3.875%,
4/15/29(1) 110,421,883
- --------------------------------------------------------------------------------
33,216,903 U.S. Treasury Inflation
Indexed Bonds, 3.375%,
4/15/32(1) 40,929,470
- --------------------------------------------------------------------------------
261,524 U.S. Treasury Inflation
Indexed Notes, 3.375%,
1/15/07(1) 264,405
- --------------------------------------------------------------------------------
41,477,670 U.S. Treasury Inflation
Indexed Notes, 3.625%,
1/15/08(1) 42,623,200
- --------------------------------------------------------------------------------
57,813,251 U.S. Treasury Inflation
Indexed Notes, 3.875%,
1/15/09(1) 60,545,852
- --------------------------------------------------------------------------------
61,038,530 U.S. Treasury Inflation
Indexed Notes, 4.25%,
1/15/10(1) 65,599,756
- --------------------------------------------------------------------------------
43,324,686 U.S. Treasury Inflation
Indexed Notes, 0.875%,
4/15/10(1) 41,050,183
- --------------------------------------------------------------------------------
49,777,796 U.S. Treasury Inflation
Indexed Notes, 3.50%,
1/15/11 52,634,195
- --------------------------------------------------------------------------------
75,531,225 U.S. Treasury Inflation
Indexed Notes, 3.375%,
1/15/12(1) 80,104,414
- --------------------------------------------------------------------------------
67,645,737 U.S. Treasury Inflation
Indexed Notes, 3.00%,
7/15/12(1) 70,512,766
- --------------------------------------------------------------------------------
86,245,658 U.S. Treasury Inflation
Indexed Notes, 1.875%,
7/15/13(1) 83,776,272
- --------------------------------------------------------------------------------
74,032,860 U.S. Treasury Inflation
Indexed Notes, 2.00%,
1/15/14(1) 72,277,541
- --------------------------------------------------------------------------------
78,565,725 U.S. Treasury Inflation
Indexed Notes, 2.00%,
7/15/14(1) 76,647,621
- --------------------------------------------------------------------------------
83,060,800 U.S. Treasury Inflation
Indexed Notes, 1.625%,
1/15/15(1) 78,411,389
- --------------------------------------------------------------------------------
71,270,357 U.S. Treasury Inflation
Indexed Notes, 1.875%,
7/15/15 68,564,364
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$52,739,808 U.S. Treasury Inflation
Indexed Notes, 2.00%,
1/15/16(1) $ 51,176,178
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $1,265,649,864) 1,254,613,692
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 4.9%
25,952,250 SLM Corporation, 1.32%,
1/25/10 25,043,402
- --------------------------------------------------------------------------------
43,963,080 Toyota Motor Credit Corp.
Inflation Indexed Bonds,
1.22%, 10/1/09 42,376,013
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $69,915,330) 67,419,415
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 3.0%
41,293,230 TVA Inflation Indexed Notes,
3.375%, 1/15/07
(Cost $42,047,296) 41,616,969
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.2%
2,238,000 FNMA Discount Notes,
4.61%, 4/3/06(2)
(Cost $2,237,427) 2,238,000
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR
SECURITIES LENDING(3) -- 29.0%
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, Deutsche Bank AG,
(collateralized by various U.S. Government
Agency obligations in a pooled account at
the lending agent), 4.82%, dated 3/31/06,
due 4/3/06 (Delivery value $350,140,583) 350,000,000
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government
Agency obligations in a pooled account at
the lending agent), 4.875%, dated 3/31/06,
due 4/3/06 (Delivery value $49,075,773) 49,055,844
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED FOR
SECURITIES LENDING
(Cost $399,055,844) 399,055,844
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 128.3%
(Cost $1,778,905,761) 1,764,943,920
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (28.3)% (389,759,988)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $1,375,183,932
================================================================================
See Notes to Financial Statements. (continued)
- ------
21
Inflation-Adjusted Bond - Schedule of Investments
MARCH 31, 2006
NOTES TO SCHEDULE OF INVESTMENTS
FNMA = Federal National Mortgage Association
TVA = Tennessee Valley Authority
(1) Security, or a portion thereof, was on loan as of March 31, 2006.
(2) The rate indicated is the yield to maturity at purchase.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 5 in
Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
22
Short-Term Government - Performance
TOTAL RETURNS AS OF MARCH 31, 2006
--------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 2.22% 2.71% 4.18% 6.01% 12/15/82
- --------------------------------------------------------------------------------
CITIGROUP U.S.
TREASURY/AGENCY
1- TO 3-YEAR INDEX 2.41% 3.35% 4.90% 7.01%(1) --
- --------------------------------------------------------------------------------
Advisor Class 1.96% 2.45% -- 3.46% 7/8/98
- --------------------------------------------------------------------------------
(1) 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 March 31, 1996
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended March 31
- ----------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
- ----------------------------------------------------------------------------------------------------
Investor Class 4.69% 6.66% 5.39% 2.51% 9.25% 4.68% 5.52% 1.40% -0.16% 2.22%
- ----------------------------------------------------------------------------------------------------
Citigroup U.S.
Treasury/Agency
1- to 3-Year Index 5.39% 7.49% 6.09% 3.72% 9.77% 5.61% 6.71% 2.45% -0.27% 2.41%
- ----------------------------------------------------------------------------------------------------
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. 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.
- ------
23
Short-Term Government - Portfolio Commentary
PORTFOLIO MANAGER: ROBERT GAHAGAN
PERFORMANCE SUMMARY
Short-Term Government posted a 2.22%* return for the 12 months ended March 31,
2006, but underperformed its benchmark, the Citigroup U.S. Treasury/Agency 1- to
3-Year Index (+2.41%), on a net basis. The returns of the Citigroup Index are
not reduced by operating expenses.
The returns of both Short-Term Government and its benchmark were primarily
dictated by the performance of the Treasury, mortgage-backed, and government
agency sectors of the U.S. bond market, which returned 1.95%, 2.67%, and 2.58%,
respectively, according to the sector returns of the Lehman Brothers U.S.
Aggregate Index. As discussed on page 2, conditions were challenging for these
sectors--price depreciation was prevalent as interest rates and yields rose, but
the losses were generally small enough to be offset by bond yields, resulting in
modest positive total returns.
A TALE OF ALTERNATING MARKETS
The modest returns don't tell the whole story, however. The 12-month period
alternated between up and down movements in bond prices each quarter. It started
with a strong bond rally in the second quarter of 2005, followed by a reversal
in the third quarter, a modest recovery in the fourth quarter of 2005, and
another selloff in the first quarter of 2006.
Changing investor perceptions of the economy, inflation, and Federal Reserve
(Fed) policy helped cause this up-and-down pattern. Soaring energy prices and
rising short-term interest rates fostered doubts about financial health and
economic growth, triggering the bond rally at the start of the 12-month period.
But inflation fears surfaced in the wake of Hurricanes Katrina and Rita, causing
a bond market reversal in the third quarter of 2005.
Fourth quarter events calmed the inflation worries but brought instead an
inverted Treasury yield curve (the two-year Treasury yield rose above its
10-year counterpart for the first time since 2000), which has often been a
harbinger of economic downturns. This generated speculation that the Fed might
end its latest series of rate hikes in early 2006. Instead, the U.S. economy
rebounded in the first quarter of 2006, forcing the Fed to continue raising
rates.
PORTFOLIO AT A GLANCE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/06 3/31/05
- --------------------------------------------------------------------------------
Weighted Average
Maturity 2.4 years 2.5 years
- --------------------------------------------------------------------------------
Average Duration
(effective) 1.6 years 1.6 years
- --------------------------------------------------------------------------------
YIELDS AS OF MARCH 31, 2006
- --------------------------------------------------------------------------------
30-DAY SEC YIELD
- --------------------------------------------------------------------------------
Investor Class 4.27%
- --------------------------------------------------------------------------------
Advisor Class 4.02%
- --------------------------------------------------------------------------------
*All fund returns and yields referenced in this commentary are for Investor
Class shares.
(continued)
- ------
24
Short-Term Government - Portfolio Commentary
PORTFOLIO STRATEGY & OUTLOOK
The investment team positioned Short-Term Government defensively in anticipation
of higher interest rates and bond price depreciation. Because of this, the
portfolio performed better versus the benchmark when the bond market weakened
than it did when the market rallied. Periods when Short-Term Government
outperformed the benchmark were largely offset by periods when it
underperformed, so the portfolio's expenses ultimately made the biggest
difference between its 12-month performance and that of its Citigroup benchmark.
The benchmark index's returns are not reduced by management fees.
Short-Term Government's duration was shorter than that of the benchmark
throughout the year, which limited gains when bonds rallied, but also limited
losses when bond prices fell. Short-Term Government held a significant
underweight in Treasurys versus the benchmark, as well as overweights in
government agency securities, collateralized mortgage obligations (CMOs),
asset-backed securities (ABS), and commercial mortgage-backed securities (CMBS).
These were positive factors for the portfolio's return, as each of these bond
sectors outperformed Treasury bonds overall for the period.
HOW SHORT-TERM GOVERNMENT FITS IN A DIVERSIFIED INVESTMENT STRATEGY
Short-Term Government is designed to enhance the "cash" portion of a
well-diversified investment portfolio. Its goal is to provide higher income than
is typically available from money market funds, while offering the relative
safety of principal and high credit quality associated with an investment in
short-term U.S. Treasury and government agency securities.
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
3/31/06 9/30/05
- --------------------------------------------------------------------------------
Collateralized Mortgage
Obligations 32.4% 33.7%
- --------------------------------------------------------------------------------
U.S. Government
Agency Securities 29.8% 24.3%
- --------------------------------------------------------------------------------
U.S. Government Agency
Mortgage-Backed
Securities 12.7% 19.4%
- --------------------------------------------------------------------------------
U.S. Treasury Securities
and Equivalents 9.0% 4.8%
- --------------------------------------------------------------------------------
Asset-Backed Securities 3.5% 3.6%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 0.3% 0.6%
- --------------------------------------------------------------------------------
Collateral Received for
Securities Lending 12.3% 13.6%
- --------------------------------------------------------------------------------
- ------
25
Short-Term Government - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS(1) -- 39.2%
$ 7,905,278 Bank of America Commercial
Mortgage Inc., Series 2004-1,
Class A1 SEQ, 3.16%,
11/10/39 $ 7,576,782
- --------------------------------------------------------------------------------
71,000,000 Bear Stearns Commercial
Mortgage Securities
STRIPS - COUPON, Series
2004 T16, Class X2, VRN,
0.97%, 4/1/06 2,407,174
- --------------------------------------------------------------------------------
4,491,452 Bear Stearns Commercial
Mortgage Securities, Series
2003-2, Class A5, 3.99%,
1/25/33 (Acquired 12/10/04,
Cost $4,508,997)(2) 4,408,634
- --------------------------------------------------------------------------------
79,460,340 Commercial Mortgage
Acceptance Corp. STRIPS -
COUPON, Series 1998 C2,
Class X, VRN, 1.14%, 4/1/06 2,441,101
- --------------------------------------------------------------------------------
1,403,898 FHLMC, Series 2552,
Class HA SEQ, 5.00%,
9/15/16 1,394,437
- --------------------------------------------------------------------------------
3,403,327 FHLMC, Series 2605,
Class PB, 4.00%, 11/15/10 3,395,717
- --------------------------------------------------------------------------------
11,435,078 FHLMC, Series 2624,
Class FE SEQ, VRN, 5.05%,
4/15/06, resets monthly off
the 1-month LIBOR plus
0.30% with a cap of 8.00% 11,457,113
- --------------------------------------------------------------------------------
9,465,212 FHLMC, Series 2625,
Class FJ SEQ, VRN, 5.05%,
4/15/06, resets monthly off
the 1-month LIBOR plus
0.30% with a cap of 7.50% 9,482,467
- --------------------------------------------------------------------------------
5,327,889 FHLMC, Series 2689,
Class PY, 4.00%, 2/15/10 5,308,080
- --------------------------------------------------------------------------------
5,916,536 FHLMC, Series 2695,
Class PA, 4.00%, 5/15/09 5,901,668
- --------------------------------------------------------------------------------
6,298,043 FHLMC, Series 2706,
Class UA, 3.50%, 4/15/09 6,271,333
- --------------------------------------------------------------------------------
4,215,406 FHLMC, Series 2709,
Class PA, 3.75%, 1/15/11 4,202,081
- --------------------------------------------------------------------------------
14,479,402 FHLMC, Series 2718,
Class FW, VRN, 5.10%,
4/15/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 8.00% 14,573,648
- --------------------------------------------------------------------------------
12,080,140 FHLMC, Series 2743,
Class OK, 4.00%, 4/15/21 11,904,169
- --------------------------------------------------------------------------------
17,828,852 FHLMC, Series 2764,
Class OA, 3.50%, 4/15/10 17,694,976
- --------------------------------------------------------------------------------
5,770,747 FHLMC, Series 2779,
Class FM SEQ, VRN, 5.10%,
4/17/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 7.50% 5,794,609
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 24,137,173 FHLMC, Series 2780,
Class BD SEQ, 4.50%,
10/15/17 $ 23,746,320
- --------------------------------------------------------------------------------
12,201,149 FHLMC, Series 2827,
Class F, VRN, 5.10%,
4/15/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 7.50% 12,268,121
- --------------------------------------------------------------------------------
8,316,722 FHLMC, Series 2831,
Class AF, VRN, 5.05%,
4/15/06, resets monthly off
the 1-month LIBOR plus
0.30% with a cap of 7.50% 8,339,884
- --------------------------------------------------------------------------------
12,783,139 FHLMC, Series 2888,
Class GA, 4.00%, 10/15/11 12,637,987
- --------------------------------------------------------------------------------
3,178,365 FHLMC, Series 2890,
Class AB SEQ, 3.75%,
12/15/11 3,078,698
- --------------------------------------------------------------------------------
12,968,828 FHLMC, Series 2900,
Class PA, 4.50%, 3/15/14 12,818,986
- --------------------------------------------------------------------------------
30,000,000 FHLMC, Series 2931,
Class QA, 4.50%, 4/15/15 29,573,010
- --------------------------------------------------------------------------------
17,007,483 FHLMC, Series 2937,
Class KA, 4.50%, 12/15/14 16,806,556
- --------------------------------------------------------------------------------
17,907,183 FHLMC, Series 2941,
Class XA, 5.00%, 2/15/25 17,777,607
- --------------------------------------------------------------------------------
817,389 FHLMC, Series 2943,
Class HA, 5.00%, 9/15/19 814,103
- --------------------------------------------------------------------------------
18,320,046 FNMA, Series 2003-17,
Class FN, VRN, 5.12%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.30% with no caps 18,411,609
- --------------------------------------------------------------------------------
10,000,190 FNMA, Series 2003-24,
Class BF, VRN, 5.17%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.35% with no caps 10,042,291
- --------------------------------------------------------------------------------
8,072,788 FNMA, Series 2003-42,
Class FK, VRN, 5.22%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.40% with a cap of 7.50% 8,126,125
- --------------------------------------------------------------------------------
10,294,723 FNMA, Series 2003-43,
Class LF, VRN, 5.17%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.35% with a cap of 8.00% 10,345,548
- --------------------------------------------------------------------------------
1,250,104 FNMA, Series 2003-57,
Class KL, 3.50%, 3/25/09 1,246,689
- --------------------------------------------------------------------------------
8,415,371 FNMA, Series 2004 W5,
Class F1, VRN, 5.27%,
4/25/06, resets monthly off
the 1-month LIBOR plus
0.45% with a cap of 7.50% 8,463,642
- --------------------------------------------------------------------------------
9,796,730 FNMA, Series 2004-50,
Class MA, 4.50%, 5/25/19 9,725,302
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
26
Short-Term Government - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
$ 26,169,783 GMAC Commercial Mortgage
Securities, Inc. STRIPS -
COUPON, Series 2000 C3,
Class X, VRN, 1.33%, 4/1/06
(Acquired 2/22/02, Cost
$1,800,195)(2) $ 1,176,777
- --------------------------------------------------------------------------------
10,100,000 Greenwich Capital
Commercial Funding Corp.,
Series 2005 GG3, Class A2
SEQ, VRN, 4.31%, 4/1/06 9,753,651
- --------------------------------------------------------------------------------
15,000,000 LB-UBS Commercial
Mortgage Trust, Series
2004 C4, Class A2, VRN,
4.57%, 4/11/06 14,710,170
- --------------------------------------------------------------------------------
9,750,000 LB-UBS Commercial
Mortgage Trust, Series
2005 C2, Class A2 SEQ,
4.82%, 4/15/30 9,558,383
- --------------------------------------------------------------------------------
7,136,124 Morgan Stanley Capital I,
Series 2004 T13, Class A1
SEQ, 2.85%, 9/13/45 6,850,129
- --------------------------------------------------------------------------------
11,743,205 Washington Mutual, Inc.,
Series 2002 AR19, Class A6,
4.16%, 2/25/33 11,613,549
- --------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $375,589,663) 372,099,126
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 36.2%
57,950,000 FHLB, 4.75%, 8/17/07 57,687,660
- --------------------------------------------------------------------------------
8,425,000 FHLB, 4.00%, 3/10/08 8,263,611
- --------------------------------------------------------------------------------
149,725,000 FHLMC, 5.00%, 9/17/07(3) 149,540,539
- --------------------------------------------------------------------------------
42,700,000 FHLMC, 4.90%, 11/3/08 42,343,028
- --------------------------------------------------------------------------------
23,100,000 FHLMC, 6.625%, 9/15/09 24,191,383
- --------------------------------------------------------------------------------
63,500,000 FNMA, 3.25%, 8/15/08(4) 61,005,021
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $344,363,348) 343,031,242
- --------------------------------------------------------------------------------
FIXED-RATE U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(1) -- 14.2%
4,252,559 FHLMC, 5.00%, 6/1/09 4,233,925
- --------------------------------------------------------------------------------
9,056,863 FHLMC, 5.00%, 7/1/09 9,017,176
- --------------------------------------------------------------------------------
332,437 FHLMC, 6.50%, 1/1/11 338,783
- --------------------------------------------------------------------------------
565,806 FHLMC, 6.50%, 5/1/11 578,503
- --------------------------------------------------------------------------------
503,843 FHLMC, 6.50%, 12/1/12 514,568
- --------------------------------------------------------------------------------
1,420,480 FHLMC, 6.00%, 2/1/13 1,436,989
- --------------------------------------------------------------------------------
75,800 FHLMC, 7.00%, 11/1/13 77,989
- --------------------------------------------------------------------------------
58,788 FHLMC, 7.00%, 12/1/14 60,489
- --------------------------------------------------------------------------------
2,316,850 FHLMC, 6.00%, 1/1/15 2,346,114
- --------------------------------------------------------------------------------
979,843 FHLMC, 7.50%, 5/1/16 1,023,087
- --------------------------------------------------------------------------------
2,015,619 FHLMC, 5.50%, 11/1/17 2,004,563
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 18,152,209 FHLMC, 5.50%, 11/1/18 $ 18,046,545
- --------------------------------------------------------------------------------
12,497,168 FHLMC, 4.50%, 6/1/19 11,941,593
- --------------------------------------------------------------------------------
20,760,000 FNMA, 6.00%, settlement
date 4/12/06(5) 20,760,000
- --------------------------------------------------------------------------------
5,468,520 FNMA, 5.50%, settlement
date 4/18/06(5) 5,436,048
- --------------------------------------------------------------------------------
36,175,000 FNMA, 6.50%, settlement
date 5/11/06(5) 36,864,567
- --------------------------------------------------------------------------------
33,442 FNMA, 8.00%, 5/1/12 35,237
- --------------------------------------------------------------------------------
2,071,107 FNMA, 6.50%, 1/1/13 2,120,211
- --------------------------------------------------------------------------------
21,687 FNMA, 6.50%, 3/1/13 22,201
- --------------------------------------------------------------------------------
232,275 FNMA, 6.00%, 6/1/13 235,366
- --------------------------------------------------------------------------------
27,520 FNMA, 6.50%, 6/1/13 28,178
- --------------------------------------------------------------------------------
61,924 FNMA, 6.00%, 1/1/14 62,774
- --------------------------------------------------------------------------------
520,548 FNMA, 6.00%, 7/1/14 528,001
- --------------------------------------------------------------------------------
935,141 FNMA, 5.50%, 4/1/16 931,074
- --------------------------------------------------------------------------------
11,660,377 FNMA, 4.50%, 5/1/19 11,163,097
- --------------------------------------------------------------------------------
704,883 FNMA, 7.00%, 5/1/32 726,359
- --------------------------------------------------------------------------------
809,959 FNMA, 7.00%, 5/1/32 834,636
- --------------------------------------------------------------------------------
275,000 FNMA, 7.00%, 6/1/32 283,598
- --------------------------------------------------------------------------------
2,037,253 FNMA, 7.00%, 6/1/32 2,099,324
- --------------------------------------------------------------------------------
1,174,695 FNMA, 7.00%, 8/1/32 1,210,486
- --------------------------------------------------------------------------------
16,202 GNMA, 5.50%, 1/20/09 16,206
- --------------------------------------------------------------------------------
28,898 GNMA, 9.00%, 12/20/16 30,942
- --------------------------------------------------------------------------------
27,348 GNMA, 9.00%, 8/20/17 29,283
- --------------------------------------------------------------------------------
31,308 GNMA, 9.50%, 11/20/19 34,344
- --------------------------------------------------------------------------------
TOTAL FIXED-RATE U.S. GOVERNMENT
AGENCY MORTGAGE-BACKED
SECURITIES
(Cost $136,930,215) 135,072,256
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 9.3%
70,000,000 U.S. Treasury Notes, 4.375%,
12/31/07(4) 69,464,081
- --------------------------------------------------------------------------------
5,100,000 U.S. Treasury Notes, 3.375%,
11/15/08(4) 4,921,102
- --------------------------------------------------------------------------------
13,905,000 U.S. Treasury Notes, 4.50%,
2/28/11(4) 13,706,756
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $88,778,857) 88,091,939
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(1) -- 4.2%
1,012,172 Ameriquest Mortgage
Securities Inc., Series
2003-8, Class AV2, VRN,
5.25%, 4/25/06, resets
monthly off the 1-month
LIBOR plus 0.43% with
no caps 1,013,808
- --------------------------------------------------------------------------------
10,000,000 CNH Equipment Trust,
Series 2005 B, Class A3 SEQ,
4.27%, 1/15/10 9,847,200
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
27
Short-Term Government - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
$ 30,000,000 Ford Credit Auto Owner
Trust, Series 2005 A,
Class A4 SEQ, 3.72%,
10/15/09 $ 29,268,930
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $41,009,649) 40,129,938
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY
SECURITIES AND EQUIVALENTS(6) -- 1.7%
15,000,000 BECC, 3.28%, 11/15/11 14,546,565
- --------------------------------------------------------------------------------
382,500 TIGR, 3.21%, 11/15/06 218,264
- --------------------------------------------------------------------------------
1,077,000 TR, 3.23%, 11/15/06 1,044,758
- --------------------------------------------------------------------------------
100,000 U.S. Treasury Corpus, 3.28%,
11/15/06 96,977
- --------------------------------------------------------------------------------
TOTAL ZERO-COUPON U.S. TREASURY
SECURITIES AND EQUIVALENTS
(Cost $16,084,038) 15,906,564
- --------------------------------------------------------------------------------
ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(1) -- 1.2%
25,617 FHLMC, 4.97%, 8/1/18 25,863
- --------------------------------------------------------------------------------
96,045 FHLMC, 5.49%, 11/1/18 96,598
- --------------------------------------------------------------------------------
451,124 FHLMC, 5.91%, 9/1/20 460,914
- --------------------------------------------------------------------------------
60,522 FHLMC, 4.75%, 1/1/21 60,334
- --------------------------------------------------------------------------------
73,169 FHLMC, 7.01%, 3/1/24 73,548
- --------------------------------------------------------------------------------
17,807 FNMA, 7.49%, 8/1/14 17,785
- --------------------------------------------------------------------------------
114,042 FNMA, 4.75%, 4/1/16 114,046
- --------------------------------------------------------------------------------
1,296 FNMA, 5.25%, 8/1/16 1,310
- --------------------------------------------------------------------------------
62,009 FNMA, 5.53%, 1/1/17 63,128
- --------------------------------------------------------------------------------
301,060 FNMA, 5.50%, 5/1/17 306,850
- --------------------------------------------------------------------------------
163,917 FNMA, 5.08%, 7/1/17 164,066
- --------------------------------------------------------------------------------
66,761 FNMA, 5.35%, 7/1/17 67,971
- --------------------------------------------------------------------------------
155,584 FNMA, 5.42%, 2/1/18 156,820
- --------------------------------------------------------------------------------
90,598 FNMA, 6.50%, 2/1/18 93,329
- --------------------------------------------------------------------------------
75,426 FNMA, 5.08%, 5/1/18 76,631
- --------------------------------------------------------------------------------
56,172 FNMA, 5.82%, 6/1/18 56,641
- --------------------------------------------------------------------------------
80,584 FNMA, 5.86%, 8/1/19 81,529
- --------------------------------------------------------------------------------
461,810 FNMA, 5.44%, 9/1/19 466,245
- --------------------------------------------------------------------------------
170,868 FNMA, 5.64%, 1/1/20 173,580
- --------------------------------------------------------------------------------
58,041 FNMA, 5.94%, 3/1/21 59,070
- --------------------------------------------------------------------------------
50,721 FNMA, 4.75%, 8/1/21 50,826
- --------------------------------------------------------------------------------
65,073 FNMA, 4.81%, 5/1/22 65,815
- --------------------------------------------------------------------------------
112,599 FNMA, 5.31%, 5/1/22 113,422
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 80,185 FNMA, 6.17%, 1/1/23 $ 80,810
- --------------------------------------------------------------------------------
11,749 FNMA, 5.875%, 6/1/23 12,191
- --------------------------------------------------------------------------------
15,778 FNMA, 5.875%, 7/1/23 16,371
- --------------------------------------------------------------------------------
255,222 FNMA, 5.05%, 8/1/23 259,573
- --------------------------------------------------------------------------------
83,347 FNMA, 5.60%, 8/1/23 84,940
- --------------------------------------------------------------------------------
1,490,751 FNMA, 5.36%, 5/1/25 1,514,779
- --------------------------------------------------------------------------------
17,037 FNMA, 4.375%, 4/1/26 17,005
- --------------------------------------------------------------------------------
19,965 FNMA, 4.70%, 1/1/27 20,046
- --------------------------------------------------------------------------------
17,610 FNMA, 5.99%, 1/1/27 17,921
- --------------------------------------------------------------------------------
49,949 FNMA, 4.59%, 1/1/29 50,558
- --------------------------------------------------------------------------------
6,350,217 FNMA, 4.62%, 3/1/33 6,356,255
- --------------------------------------------------------------------------------
46,527 GNMA, 4.375%, 5/20/17 46,423
- --------------------------------------------------------------------------------
97,470 GNMA, 4.875%, 2/20/21 98,386
- --------------------------------------------------------------------------------
49,593 GNMA, 5.625%, 11/20/21 50,084
- --------------------------------------------------------------------------------
1,224 GNMA, 4.375%, 1/20/22 1,233
- --------------------------------------------------------------------------------
85,266 GNMA, 5.25%, 8/20/26 86,677
- --------------------------------------------------------------------------------
TOTAL ADJUSTABLE-RATE U.S.
GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $11,843,503) 11,559,573
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.4%
Repurchase Agreement, Bank of America
Securities, LLC, (collateralized by various
U.S. Treasury obligations, 3.50%-10.625%,
5/31/07-8/15/15 valued at $3,434,853),
in a joint trading account at 4.46%, dated
3/31/06, due 4/3/06 (Delivery value $3,370,252)
(Cost $3,369,000) 3,369,000
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR
SECURITIES LENDING(7) -- 14.9%
REPURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government
Agency obligations in a pooled account at
the lending agent), 4.875%, dated 3/31/06,
due 4/3/06 (Delivery value $141,097,565)
(Cost $141,040,267) 141,040,267
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 121.3%
(Cost $1,159,008,540) 1,150,299,905
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (21.3)% (201,838,903)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $ 948,461,002
================================================================================
See Notes to Financial Statements. (continued)
- ------
28
Short-Term Government - Schedule of Investments
MARCH 31, 2006
FUTURES CONTRACTS*
Expiration Underlying Face Unrealized
Contracts Purchased Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
150 U.S. Treasury
2-Year Notes June 2006 $30,578,906 $(36,275)
====================================
Expiration Underlying Face Unrealized
Contracts Sold Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
200 U.S. Treasury
5-Year Notes June 2006 $20,887,500 $ 64,980
- --------------------------------------------------------------------------------
224 U.S. Treasury
10-Year Notes June 2006 23,831,500 267,246
- --------------------------------------------------------------------------------
$44,719,000 $332,226
===================================
*FUTURES CONTRACTS typically are based on an index or specific securities and
tend to track the performance of the index or specific securities while
remaining very liquid (easy to buy and sell). By investing its cash assets in
futures, the fund has increased exposure to certain markets while maintaining
easy access to cash. By selling futures, the fund hedges its investments
against price fluctuations.
NOTES TO SCHEDULE OF INVESTMENTS
BECC = Book Entry Callable Corpus
Equivalent = Security whose principal payments are secured by U.S. Treasurys
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
LB-UBS = Lehman Brothers Inc. -- UBS AG
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
TIGR = Treasury Investment Growth Receipts
TR = Treasury Receipts
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective March 31, 2006.
(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 March 31, 2006 was $5,585,411,
which represented 0.6% of total net assets.
(3) Security, or a portion thereof, has been segregated for a forward
commitment and/or futures contract.
(4) Security, or a portion thereof, was on loan as of March 31, 2006.
(5) Forward commitment.
(6) The rate indicated is the yield to maturity at purchase. These securities
are issued at a substantial discount from their value at maturity.
(7) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 5 in
Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
29
Shareholder Fee Examples (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from October 1, 2005 to March 31, 2006.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century may charge you a $12.50 semiannual account maintenance fee if
the value of those shares is less than $10,000. We will redeem shares
automatically in one of your accounts to pay the $12.50 fee. In determining your
total eligible investment amount, we will include your investments in all
pERSONAL ACCOUNTS (including American Century Brokerage accounts) registered
under your Social Security number. PERSONAL ACCOUNTS include individual
accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell
Education Savings Accounts and IRAs (including traditional, Roth, Rollover,
SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you
have only business, business retirement, employer-sponsored or American Century
Brokerage accounts, you are currently not subject to this fee. We will not
charge the fee as long as you choose to manage your accounts exclusively online.
If you are subject to the Account Maintenance Fee, your account value could be
reduced by the fee amount.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
(continued)
- ------
30
Shareholder Fee Examples (Unaudited)
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 10/1/05 - EXPENSE
10/1/05 3/31/06 3/31/06 RATIO*
- --------------------------------------------------------------------------------
GINNIE MAE SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,007.00 $2.85 0.57%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,005.70 $4.10 0.82%
- --------------------------------------------------------------------------------
C Class $1,000 $1,002.00 $7.84 1.57%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,022.09 $2.87 0.57%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,020.84 $4.13 0.82%
- --------------------------------------------------------------------------------
C Class $1,000 $1,017.10 $7.90 1.57%
- --------------------------------------------------------------------------------
GOVERNMENT BOND SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,000.00 $2.44 0.49%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $998.80 $3.69 0.74%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,022.49 $2.47 0.49%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,021.24 $3.73 0.74%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
182, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
(continued)
- ------
31
Shareholder Fee Examples (Unaudited)
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 10/1/05 - EXPENSE
10/1/05 3/31/06 3/31/06 RATIO*
- --------------------------------------------------------------------------------
INFLATION-ADJUSTED BOND SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $978.30 $2.42 0.49%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $979.40 $1.43 0.29%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $977.70 $3.65 0.74%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,022.49 $2.47 0.49%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,023.49 $1.46 0.29%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,021.24 $3.73 0.74%
- --------------------------------------------------------------------------------
SHORT-TERM GOVERNMENT SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,010.60 $2.86 0.57%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,009.40 $4.11 0.82%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,022.09 $2.87 0.57%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,020.84 $4.13 0.82%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
182, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
32
Statement of Assets and Liabilities
MARCH 31, 2006
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
Investment securities, at value
(cost of $1,974,310,345,
$661,164,287, $1,379,849,917, and
$1,017,968,273, respectively) -
including $--, $124,218,194,
$390,841,880, and $138,846,754 of
securities on loan, respectively $1,951,968,536 $651,948,810 $1,365,888,076 $1,009,259,638
- -----------------------------------
Investments made with cash
collateral received for securities
on loan, at value (cost of $--,
$126,756,970, $399,055,844, and
$141,040,267, respectively) -- 126,756,970 399,055,844 141,040,267
- ---------------------------------------------------------------------------------------------------------
Total investment securities, at
value (cost of $1,974,310,345,
$787,921,257, $1,778,905,761, and
$1,159,008,540, respectively) 1,951,968,536 778,705,780 1,764,943,920 1,150,299,905
- -----------------------------------
Cash -- 1,736,099 -- --
- -----------------------------------
Receivable for investments sold -- 12,305 -- 29,311
- -----------------------------------
Receivable for capital shares sold 254,997 182,450 1,505,289 16,366
- -----------------------------------
Receivable for variation
margin on futures contracts 8,203 -- -- --
- -----------------------------------
Interest receivable 7,031,720 3,851,222 9,428,485 4,702,308
- ---------------------------------------------------------------------------------------------------------
1,959,263,456 784,487,856 1,775,877,694 1,155,047,890
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Payable for collateral received
for securities on loan -- 126,756,970 399,055,844 141,040,267
- -----------------------------------
Disbursements in excess of
demand deposit cash 1,289,282 -- 952,699 368,781
- -----------------------------------
Payable for investments purchased 484,645,855 91,503,214 -- 64,695,365
- -----------------------------------
Payable for variation margin
on futures contracts -- 23,498 -- 17,500
- -----------------------------------
Accrued management fees 695,887 224,681 433,735 452,375
- -----------------------------------
Distribution fees payable 25,997 8,825 125,742 6,300
- -----------------------------------
Service fees payable 19,174 8,825 125,742 6,300
- -----------------------------------
Dividends payable 598,077 69,086 -- --
- ---------------------------------------------------------------------------------------------------------
487,274,272 218,595,099 400,693,762 206,586,888
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $1,471,989,184 $565,892,757 $1,375,183,932 $ 948,461,002
=========================================================================================================
See Notes to Financial Statements. (continued)
- ------
33
Statement of Assets and Liabilities
MARCH 31, 2006
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- ---------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------------
Capital paid in $1,552,305,629 $583,126,802 $1,394,998,234 $997,805,685
- -----------------------------------
Accumulated net realized loss
on investment transactions (57,879,907) (8,244,500) (5,852,461) (40,931,999)
- -----------------------------------
Net unrealized depreciation
on investments (22,436,538) (8,989,545) (13,961,841) (8,412,684)
- ---------------------------------------------------------------------------------------------------------
$1,471,989,184 $565,892,757 $1,375,183,932 $948,461,002
=========================================================================================================
INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------
Net assets $1,382,021,660 $524,556,878 $704,447,230 $919,295,472
- -----------------------------------
Shares outstanding 136,636,611 50,790,829 65,637,847 98,611,941
- -----------------------------------
Net asset value per share $10.11 $10.33 $10.73 $9.32
- ---------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- ---------------------------------------------------------------------------------------------------------
Net assets N/A N/A $81,860,064 N/A
- -----------------------------------
Shares outstanding N/A N/A 7,628,417 N/A
- -----------------------------------
Net asset value per share N/A N/A $10.73 N/A
- ---------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------
Net assets $73,997,705 $41,335,879 $588,876,638 $29,165,530
- -----------------------------------
Shares outstanding 7,315,945 4,002,411 54,902,859 3,128,556
- -----------------------------------
Net asset value per share $10.11 $10.33 $10.73 $9.32
- ---------------------------------------------------------------------------------------------------------
C CLASS
- ---------------------------------------------------------------------------------------------------------
Net assets $15,969,819 N/A N/A N/A
- -----------------------------------
Shares outstanding 1,578,891 N/A N/A N/A
- -----------------------------------
Net asset value per share $10.11 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
34
Statement of Operations
YEAR ENDED MARCH 31, 2006
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- ---------------------------------------------------------------------------------------------------------
INVESTMENT INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------------
INCOME:
- -----------------------------------
Interest $ 72,397,508 $ 23,304,077 $ 65,849,083 $ 37,201,853
- -----------------------------------
Securities lending -- 201,377 188,512 115,967
- ---------------------------------------------------------------------------------------------------------
72,397,508 23,505,454 66,037,595 37,317,820
- ---------------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------
Management fees 8,490,167 2,466,933 4,727,095 5,229,058
- -----------------------------------
Distribution fees:
- -----------------------------------
Advisor Class 201,412 113,729 1,149,480 91,511
- -----------------------------------
C Class 114,310 -- -- --
- -----------------------------------
Service fees:
- -----------------------------------
Advisor Class 201,412 113,729 1,149,480 91,511
- -----------------------------------
C Class 38,103 -- -- --
- -----------------------------------
Trustees' fees and expenses 61,834 20,891 48,422 37,744
- -----------------------------------
Other expenses 2,572 2,616 1,801 2,452
- ---------------------------------------------------------------------------------------------------------
9,109,810 2,717,898 7,076,278 5,452,276
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 63,287,698 20,787,556 58,961,317 31,865,544
- ---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON:
- -----------------------------------
Investment transactions (5,063,309) (2,995,131) (4,254,196) (8,844,798)
- -----------------------------------
Futures and swaps transactions (1,801,565) (452,213) 529,047 (907,022)
- ---------------------------------------------------------------------------------------------------------
(6,864,874) (3,447,344) (3,725,149) (9,751,820)
- ---------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED
APPRECIATION (DEPRECIATION) ON:
- -----------------------------------
Investments (17,109,049) (7,278,300) (55,486,835) (2,167,279)
- -----------------------------------
Futures and swaps (620,684) 176,366 (74,532) 811,743
- ---------------------------------------------------------------------------------------------------------
(17,729,733) (7,101,934) (55,561,367) (1,355,536)
- ---------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS) (24,594,607) (10,549,278) (59,286,516) (11,107,356)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 38,693,091 $ 10,238,278 $ (325,199) $ 20,758,188
=========================================================================================================
See Notes to Financial Statements.
- ------
35
Statement of Changes in Net Assets
YEARS ENDED MARCH 31, 2006 AND MARCH 31, 2005
- ---------------------------------------------------------------------------------------------------------
GINNIE MAE GOVERNMENT BOND
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2006 2005 2006 2005
- ---------------------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 63,287,698 $ 57,749,459 $ 20,787,556 $ 13,044,572
- -----------------------------------
Net realized gain (loss) (6,864,874) 8,226,349 (3,447,344) (4,143,015)
- -----------------------------------
Change in net unrealized
appreciation (depreciation) (17,729,733) (35,435,008) (7,101,934) (7,406,492)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 38,693,091 30,540,800 10,238,278 1,495,065
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From net investment income:
- -----------------------------------
Investor Class (67,469,503) (72,275,870) (19,367,942) (12,225,426)
- -----------------------------------
Advisor Class (3,582,947) (2,776,887) (1,687,220) (1,172,247)
- -----------------------------------
C Class (564,273) (419,480) -- --
- -----------------------------------
From net realized gains:
- -----------------------------------
Investor Class -- -- -- (6,666,179)
- -----------------------------------
Advisor Class -- -- -- (732,581)
- ---------------------------------------------------------------------------------------------------------
Decrease in net assets
from distributions (71,616,723) (75,472,237) (21,055,162) (20,796,433)
- ---------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from capital
share transactions (64,452,222) (132,063,076) 89,038,699 (6,215,372)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (97,375,854) (176,994,513) 78,221,815 (25,516,740)
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of period 1,569,365,038 1,746,359,551 487,670,942 513,187,682
- ---------------------------------------------------------------------------------------------------------
End of period $1,471,989,184 $1,569,365,038 $565,892,757 $487,670,942
=========================================================================================================
See Notes to Financial Statements. (continued)
- ------
36
Statement of Changes in Net Assets
YEARS ENDED MARCH 31, 2006 AND MARCH 31, 2005
- ---------------------------------------------------------------------------------------------------------
INFLATION-ADJUSTED BOND SHORT-TERM GOVERNMENT
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2006 2005 2006 2005
- ---------------------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 58,961,317 $ 29,318,945 $ 31,865,544 $ 20,309,823
- -----------------------------------
Net realized gain (loss) (3,725,149) 3,166,481 (9,751,820) (9,447,709)
- -----------------------------------
Change in net unrealized
appreciation (depreciation) (55,561,367) (10,774,581) (1,355,536) (13,319,896)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (325,199) 21,710,845 20,758,188 (2,457,782)
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From net investment income:
- -----------------------------------
Investor Class (35,009,404) (21,185,489) (31,389,308) (20,427,361)
- -----------------------------------
Institutional Class (3,630,125) (2,343,420) -- --
- -----------------------------------
Advisor Class (20,321,788) (5,790,036) (1,159,472) (905,665)
- -----------------------------------
From net realized gains:
- -----------------------------------
Investor Class (2,075,533) (1,548,568) -- --
- -----------------------------------
Institutional Class (224,717) (159,704) -- --
- -----------------------------------
Advisor Class (1,499,559) (548,631) -- --
- ---------------------------------------------------------------------------------------------------------
Decrease in net assets
from distributions (62,761,126) (31,575,848) (32,548,780) (21,333,026)
- ---------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from capital
share transactions 431,868,846 367,757,684 (11,639,381) (48,130,024)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 368,782,521 357,892,681 (23,429,973) (71,920,832)
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------
Beginning of period 1,006,401,411 648,508,730 971,890,975 1,043,811,807
- ---------------------------------------------------------------------------------------------------------
End of period $1,375,183,932 $1,006,401,411 $948,461,002 $ 971,890,975
=========================================================================================================
See Notes to Financial Statements.
- ------
37
Notes to Financial Statements
MARCH 31, 2006
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 high current income while maintaining liquidity and safety of
principal by investing primarily in Government National Mortgage Association
securities. In addition, Ginnie Mae may buy other U.S. government securities,
including U.S. Treasury securities and other securities issued or guaranteed by
the U.S. government and its agencies and instrumentalities. Government Bond
seeks high current income and intends to pursue this objective by investing in
U.S. government debt securities, including U.S. Treasury securities and other
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, by other U.S. government agencies and
instrumentalities, and by other non-U.S. government entities such as
corporations. Short-Term Government seeks high current income while maintaining
safety of principal. Short-Term Government intends to pursue its objective by
investing in U.S. government securities, including U.S. Treasury securities and
other securities issued or guaranteed by the U.S. government and its agencies
and instrumentalities. In addition, Short-Term Government may also invest in
investment-grade debt securities of U.S. companies, and non-U.S. government
mortgage-backed, asset-backed and other fixed income securities. The following
is a summary of the funds' significant accounting policies.
MULTIPLE CLASS -- Ginnie Mae is authorized to issue the Investor Class, the
Advisor Class, and the C 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. 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 funds are allocated to each class of shares
based on their relative net assets.
SECURITY VALUATIONS -- Debt securities maturing in greater than 60 days are
valued at current market value as provided by a commercial pricing service or at
the mean of the most recent bid and asked prices. Debt securities maturing
within 60 days may be valued at cost, plus or minus any amortized discount or
premium. If the funds determine that the market price of a portfolio security is
not readily available, or that the valuation methods mentioned above do not
reflect the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Trustees or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the funds to fair
value a security include: an event occurred after the close of the exchange on
which a portfolio security principally trades (but before the close of the New
York Stock Exchange) that was likely to have changed the value of the security;
a security has been declared in default; or trading in a security has been
halted during the trading day.
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 paydown gain (loss) and accretion of discounts and amortization of
premiums. Inflation adjustments related to inflation-linked debt securities are
reflected as interest income.
SECURITIES ON LOAN -- Government Bond, Inflation-Adjusted and Short-Term
Government may lend portfolio securities through their 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.
(continued)
- ------
38
Notes to Financial Statements
MARCH 31, 2006
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURES CONTRACTS -- The funds may enter into futures contracts in order to
manage the funds' exposure to changes in market conditions. One of the risks of
entering into futures contracts is the possibility that the change in value of
the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the funds are required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the funds. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The funds recognize a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
futures and swaps transactions and unrealized appreciation (depreciation) on
futures and swaps, respectively.
SWAP AGREEMENTS -- The funds may enter into a swap agreement in order to attempt
to obtain or preserve a particular return or spread at a lower cost than
obtaining a return or spread through purchases and/or sales of instruments in
other markets; protect against currency fluctuations; attempt to manage duration
to protect against any increase in the price of securities the funds anticipate
purchasing at a later date; or gain exposure to certain markets in the most
economical way possible. A swap agreement is a contract in which two parties
agree to exchange the returns earned or realized on predetermined investments or
instruments. The funds will segregate cash, cash equivalents or other
appropriate liquid securities on their records in amounts sufficient to meet
requirements. Unrealized gains are reported as an asset and unrealized losses
are reported as a liability on the Statement of Assets and Liabilities. Swap
agreements are valued daily and changes in value, including the periodic amounts
of interest to be paid or received on swaps, are recorded as unrealized
appreciation (depreciation) on futures and swaps. Realized gain or loss is
recorded upon receipt or payment of a periodic settlement or termination of swap
agreements. The risks of entering into swap agreements include the possible lack
of liquidity, failure of the counterparty to meet its obligations, and that
there may be unfavorable changes in the underlying investments and instruments.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) 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.
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 or American Century Global
Investment Management, Inc. (ACGIM), 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. 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. The funds will segregate cash, cash
equivalents or other appropriate liquid securities on their records in amounts
sufficient to meet the purchase price. The funds account for "roll" transactions
as purchases and sales; as such these transactions may increase portfolio
turnover.
(continued)
- ------
39
Notes to Financial Statements
MARCH 31, 2006
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAX STATUS -- It is each fund's policy to distribute substantially 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.
INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and
trustees are indemnified against certain liabilities arising out of the
performance of their duties to the funds. In addition, in the normal course of
business, the funds enter into contracts that provide general indemnifications.
The funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the funds. The risk of material
loss from such claims is considered by management to be remote.
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 (the fee) per class.
The Agreement provides that all expenses of the funds, except brokerage
commissions, taxes, 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 and
accrued daily based on the daily net assets of each specific class of shares of
each fund and paid monthly in arrears. The fee consists of (1) an Investment
Category Fee based on the daily net assets of the funds and certain other
accounts managed by the investment advisor that are in the same broad investment
category as each fund and (2) a Complex Fee based on the assets of all the funds
in the American Century family of funds. 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 and C Classes) for the funds range from
0.2500% to 0.3100%. The Institutional Class and the Advisor Class is 0.2000% and
0.2500%, respectively, less at each point within the Complex Fee range.
The effective annual management fee for each class of each fund for the year
ended March 31, 2006, was as follows:
- --------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED GOVERNMENT
- --------------------------------------------------------------------------------
Investor Class 0.57% 0.49% 0.49% 0.57%
- --------------------------------------------------------------------------------
Institutional Class N/A N/A 0.29% N/A
- --------------------------------------------------------------------------------
Advisor Class 0.32% 0.24% 0.24% 0.32%
- --------------------------------------------------------------------------------
C Class 0.57% N/A N/A N/A
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a Master
Distribution and Shareholder Services Plan for the Advisor Class and a Master
Distribution and Individual Shareholder Services Plan for the C Class
(collectively, the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans
provide that 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% 0.75%
- --------------------------------------------------
Service Fee 0.25% 0.25%
- --------------------------------------------------
(continued)
- ------
40
Notes to Financial Statements
MARCH 31, 2006
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The fees are computed and accrued daily based on each class's daily net assets
and paid monthly in arrears. The distribution fee provides compensation for
expenses incurred by financial intermediaries 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 year
ended March 31, 2006, 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 advisor, ACIM, the
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services, LLC. An officer and an interested director of these entities are
officers and directors of unrelated entities and those unrelated entities own
53% of the shares of Short-Term Government.
The funds have a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
Government Bond, Inflation-Adjusted and Short-Term Government have a securities
lending agreement with JPMCB. JPMCB is a custodian of the funds and a wholly
owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in
ACC.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year ended
March 31, 2006, were as follows:
- ------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED GOVERNMENT
- ------------------------------------------------------------------------------------------
PURCHASES
- ------------------------------------------------------------------------------------------
U.S. Treasury
& Government
Agency Obligations $4,866,529,035 $2,200,085,707 $730,472,183 $2,387,758,477
- ------------------------------------------------------------------------------------------
Investment securities
other than U.S.
Treasury & Government
Agency Obligations -- -- -- $19,859,482
- ------------------------------------------------------------------------------------------
PROCEEDS FROM SALES
- ------------------------------------------------------------------------------------------
U.S. Treasury
& Government
Agency Obligations $4,906,545,858 $2,108,843,449 $329,047,406 $2,343,401,720
- ------------------------------------------------------------------------------------------
Investment securities
other than U.S.
Treasury & Government
Agency Obligations -- -- -- $75,224,489
- ------------------------------------------------------------------------------------------
(continued)
- ------
41
Notes to Financial Statements
MARCH 31, 2006
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
- ------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- -------------------------
Sold 18,321,635 $ 188,449,951 17,507,134 $ 184,259,061
- -------------------------
Issued in reinvestment
of distributions 5,572,335 57,300,069 1,663,033 17,494,951
- -------------------------
Redeemed (30,721,321) (315,865,549) (10,096,690) (106,178,060)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (6,827,351) $ (70,115,529) 9,073,477 $ 95,575,952
==========================================================================================
YEAR ENDED MARCH 31, 2005
- -------------------------
Sold 19,946,445 $ 208,382,783 8,086,239 $ 86,400,776
- -------------------------
Issued in reinvestment
of distributions 5,810,573 60,606,863 1,588,111 16,906,999
- -------------------------
Redeemed (40,283,324) (420,009,000) (10,765,621) (114,813,584)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (14,526,306) $(151,019,354) (1,091,271) $ (11,505,809)
==========================================================================================
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- -------------------------
Sold 4,715,457 $ 48,510,368 1,548,903 $ 16,325,310
- -------------------------
Issued in reinvestment
of distributions 287,105 2,951,546 155,235 1,635,142
- -------------------------
Redeemed (4,707,072) (48,322,096) (2,327,175) (24,497,705)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 295,490 $ 3,139,818 (623,037) $ (6,537,253)
==========================================================================================
YEAR ENDED MARCH 31, 2005
- -------------------------
Sold 4,211,035 $ 44,083,027 2,102,459 $ 22,452,895
- -------------------------
Issued in reinvestment
of distributions 239,445 2,497,129 173,579 1,847,642
- -------------------------
Redeemed (3,204,654) (33,442,837) (1,778,853) (19,010,100)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 1,245,826 $ 13,137,319 497,185 $ 5,290,437
==========================================================================================
C CLASS
- ------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- -------------------------
Sold 484,200 $ 4,992,904 N/A N/A
- -------------------------
Issued in reinvestment
of distributions 51,972 534,098
- -------------------------
Redeemed (291,811) (3,003,513)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 244,361 $ 2,523,489
==========================================================================================
YEAR ENDED MARCH 31, 2005
- -------------------------
Sold 737,130 $ 7,703,967 N/A N/A
- -------------------------
Issued in reinvestment
of distributions 36,142 377,011
- -------------------------
Redeemed (216,680) (2,262,019)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 556,592 $ 5,818,959
==========================================================================================
(continued)
- ------
42
Notes to Financial Statements
MARCH 31, 2006
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
Transactions in shares of the funds were as follows (unlimited number of shares
authorized):
- ------------------------------------------------------------------------------------------
INFLATION-ADJUSTED SHORT-TERM GOVERNMENT
- ------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- -------------------------
Sold 26,416,556 $ 293,488,995 16,428,852 $ 154,154,897
- -------------------------
Issued in reinvestment
of distributions 2,527,181 28,176,716 3,244,147 30,481,127
- -------------------------
Redeemed (20,735,882) (229,236,493) (19,408,837) (182,434,011)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 8,207,855 $ 92,429,218 264,162 $ 2,202,013
==========================================================================================
YEAR ENDED MARCH 31, 2005
- -------------------------
Sold 28,330,190 $ 316,872,288 9,757,224 $ 92,855,508
- -------------------------
Issued in reinvestment
of distributions 1,551,284 17,175,583 2,063,698 19,626,696
- -------------------------
Redeemed (14,679,749) (162,948,186) (16,600,996) (158,025,826)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 15,201,725 $ 171,099,685 (4,780,074) $ (45,543,622)
==========================================================================================
INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- -------------------------
Sold 3,192,871 $ 35,263,478 N/A N/A
- -------------------------
Issued in reinvestment
of distributions 310,232 3,457,002
- -------------------------
Redeemed (1,656,463) (18,394,235)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 1,846,640 $ 20,326,245
==========================================================================================
YEAR ENDED MARCH 31, 2005
- -------------------------
Sold 2,234,652 $ 24,966,020 N/A N/A
- -------------------------
Issued in reinvestment
of distributions 215,757 2,387,895
- -------------------------
Redeemed (1,570,009) (17,409,613)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 880,400 $ 9,944,302
==========================================================================================
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- -------------------------
Sold 38,125,590 $ 423,368,361 1,369,614 $ 12,903,564
- -------------------------
Issued in reinvestment
of distributions 1,926,939 21,421,663 123,634 1,159,472
- -------------------------
Redeemed (11,381,958) (125,676,641) (2,965,150) (27,904,430)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 28,670,571 $ 319,113,383 (1,471,902) $(13,841,394)
==========================================================================================
YEAR ENDED MARCH 31, 2005
- -------------------------
Sold 20,198,672 $225,747,660 2,105,959 $ 20,093,923
- -------------------------
Issued in reinvestment
of distributions 555,710 6,166,872 94,927 902,827
- -------------------------
Redeemed (4,049,515) (45,200,835) (2,477,594) (23,583,152)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 16,704,867 $186,713,697 (276,708) $ (2,586,402)
==========================================================================================
(continued)
- ------
43
Notes to Financial Statements
MARCH 31, 2006
5. SECURITIES LENDING
As of March 31, 2006, securities in Government Bond, Inflation-Adjusted, and
Short-Term Government valued at $124,218,194, $390,841,880, and $138,846,754,
respectively, were on loan through the lending agent, JPMCB, to certain approved
borrowers. JPMCB 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. Any deficiencies or excess of collateral
must be delivered or transferred by the member firms no later than the close of
business on the next business day. The total value of all collateral received,
at this date, was $126,757,374, $399,055,844, and $141,542,724, respectively.
Government Bond, Inflation-Adjusted and Short-Term Government's 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 Government Bond, Inflation-Adjusted and Short-Term
Government may be delayed or limited.
6. BANK LINE OF CREDIT
The funds, along with certain other funds managed by ACIM or ACGIM, have a
$500,000,000 unsecured bank line of credit agreement with JPMCB, which was
renewed from $575,000,000 effective December 14, 2005. The funds may borrow
money for temporary or emergency purposes to fund shareholder redemptions.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.50%. The funds did not borrow from the line during the year ended March 31,
2006.
7. FEDERAL TAX INFORMATION
The tax character of distributions paid during the years ended March 31, 2006
and March 31, 2005 were as follows:
- --------------------------------------------------------------------------------
GINNIE MAE GOVERNMENT BOND
- --------------------------------------------------------------------------------
2006 2005 2006 2005
- --------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM
- --------------------------------------------------------------------------------
Ordinary income $71,616,723 $75,472,237 $21,055,162 $15,615,512
- --------------------------------------------------------------------------------
Long-term capital gains -- -- -- $5,180,921
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFLATION-ADJUSTED SHORT-TERM GOVERNMENT
- --------------------------------------------------------------------------------
2006 2005 2006 2005
- --------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM
- --------------------------------------------------------------------------------
Ordinary income $58,961,317 $29,318,951 $32,548,780 $21,333,026
- --------------------------------------------------------------------------------
Long-term capital gains $3,799,809 $2,256,897 -- --
- --------------------------------------------------------------------------------
The book-basis 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 paydown losses, certain income items and net realized
gains and losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
(continued)
- ------
44
Notes to Financial Statements
MARCH 31, 2006
7. FEDERAL TAX INFORMATION (CONTINUED)
The reclassifications, which reflect character differences primarily related to
federal income tax treatment of paydown losses, were as follows:
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- ---------------------------------------------------------------------------------------------------------
Undistributed net investment income $(8,329,025) $(266,937) -- $(682,122)
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized loss $8,329,025 $266,937 -- $682,122
- ---------------------------------------------------------------------------------------------------------
As of March 31, 2006, the components of distributable earnings on a tax-basis
and the federal tax cost of investments were as follows:
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT INFLATION- SHORT-TERM
GINNIE MAE BOND ADJUSTED BOND GOVERNMENT
- ---------------------------------------------------------------------------------------------------------
Federal tax cost of investments $1,974,703,122 $788,118,194 $1,781,608,319 $1,159,277,120
=========================================================================================================
Gross tax appreciation
of investments $ 5,339,381 -- $ 15,006,927 $ 398,357
- --------------------------------
Gross tax depreciation
of investments (28,073,967) (9,412,414) (31,671,326) (9,375,572)
- ---------------------------------------------------------------------------------------------------------
Net tax appreciation
(depreciation) of investments $(22,734,586) $(9,412,414) $(16,664,399) $(8,977,215)
=========================================================================================================
Net tax appreciation
(depreciation) on derivatives -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Net tax appreciation
(depreciation) $(22,734,586) $(9,412,414) $(16,664,399) $(8,977,215)
=========================================================================================================
Undistributed ordinary income -- -- -- --
- --------------------------------
Accumulated capital losses $(52,583,938) $(3,508,594) $(841,009) $(35,348,539)
- --------------------------------
Capital loss deferral $(4,997,921) $(4,313,037) $(2,308,894) $(5,018,929)
- ---------------------------------------------------------------------------------------------------------
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 and the realization for tax purposes of unrealized gains on certain
futures contracts and swap agreements.
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 as follows:
- --------------------------------------------------------------------------------
2007 2008 2009 2011
- --------------------------------------------------------------------------------
Ginnie Mae -- $(7,179,913) $(255,936) $(285,414)
- --------------------------------------------------------------------------------
Government Bond -- -- -- --
- --------------------------------------------------------------------------------
Inflation-Adjusted -- -- -- --
- --------------------------------------------------------------------------------
Short-Term
Government $(157,838) $(15,890,616) $(3,678,384) --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2012 2013 2014
- --------------------------------------------------------------------------------
Ginnie Mae $(22,060,955) $(11,922,927) $(10,878,793)
- --------------------------------------------------------------------------------
Government Bond -- $(3,508,594) --
- --------------------------------------------------------------------------------
Inflation-Adjusted -- -- $(841,009)
- --------------------------------------------------------------------------------
Short-Term
Government -- $(8,188,381) $(7,433,320)
- --------------------------------------------------------------------------------
The capital loss deferrals represent net capital losses incurred in the
five-month period ended March 31, 2006. The funds have elected to treat such
losses as having been incurred in the following fiscal year for federal income
tax purposes.
8. OTHER TAX INFORMATION (UNAUDITED)
The following information is provided pursuant to provisions of the Internal
Revenue Code.
The funds hereby designate capital gain distributions for the fiscal year ended
March 31, 2006, as follows:
- --------------------------------------------------------------------------------
GINNIE MAE GOVERNMENT BOND INFLATION-ADJUSTED SHORT-TERM GOVERNMENT
- --------------------------------------------------------------------------------
-- -- $3,790,382 --
- --------------------------------------------------------------------------------
- ------
45
Ginnie Mae - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.34 $10.61 $10.85 $10.58 $10.63
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss)(1) 0.43 0.37 0.29 0.48 0.58
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.18) (0.15) (0.04) 0.35 (0.01)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.25 0.22 0.25 0.83 0.57
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.48) (0.49) (0.49) (0.56) (0.62)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.11 $10.34 $10.61 $10.85 $10.58
==========================================================================================
TOTAL RETURN(2) 2.47% 2.11% 2.43% 8.03% 5.43%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.57% 0.58% 0.59% 0.59% 0.59%
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 4.15% 3.58% 2.77% 4.46% 5.42%
- -------------------------
Portfolio Turnover Rate 315% 315% 356% 356% 218%
- -------------------------
Net Assets, End of Period
(in thousands) $1,382,022 $1,482,999 $1,676,815 $2,100,358 $1,699,876
- ------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
46
Ginnie Mae - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.34 $10.61 $10.85 $10.58 $10.63
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss)(1) 0.40 0.35 0.27 0.46 0.55
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.17) (0.16) (0.04) 0.35 (0.01)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.23 0.19 0.23 0.81 0.54
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.46) (0.46) (0.47) (0.54) (0.59)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.11 $10.34 $10.61 $10.85 $10.58
==========================================================================================
TOTAL RETURN(2) 2.22% 1.85% 2.18% 7.76% 5.17%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.82% 0.83% 0.84% 0.84% 0.84%
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 3.90% 3.33% 2.52% 4.21% 5.17%
- -------------------------
Portfolio Turnover Rate 315% 315% 356% 356% 218%
- -------------------------
Net Assets, End of Period
(in thousands) $73,998 $72,571 $61,288 $75,999 $42,675
- ------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
47
Ginnie Mae - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- ------------------------------------------------------------------------------------------
C CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002(1)
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.34 $10.61 $10.85 $10.57 $10.63
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss)(2) 0.33 0.28 0.22 0.40 0.37
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.18) (0.17) (0.05) 0.36 (0.02)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.15 0.11 0.17 0.76 0.35
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.38) (0.38) (0.41) (0.48) (0.41)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.11 $10.34 $10.61 $10.85 $10.57
==========================================================================================
TOTAL RETURN(3) 1.45% 1.10% 1.60% 7.23% 3.41%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.57% 1.58% 1.42% 1.33% 1.34%(4)
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 3.15% 2.58% 1.94% 3.72% 4.51%(4)
- -------------------------
Portfolio Turnover Rate 315% 315% 356% 356% 218%(5)
- -------------------------
Net Assets, End of Period
(in thousands) $15,970 $13,795 $8,257 $5,078 $806
- ------------------------------------------------------------------------------------------
(1) June 15, 2001 (commencement of sale) through March 31, 2002.
(2) Computed using average shares outstanding throughout the period.
(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 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, 2002.
See Notes to Financial Statements.
- ------
48
Government Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.52 $10.93 $11.25 $10.60 $10.76
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss) 0.42(1) 0.29(1) 0.28(1) 0.38 0.48
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.19) (0.24) (0.02) 0.99 (0.16)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.23 0.05 0.26 1.37 0.32
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.42) (0.30) (0.29) (0.38) (0.48)
- -------------------------
From Net
Realized Gains -- (0.16) (0.29) (0.34) --
- ------------------------------------------------------------------------------------------
Total Distributions (0.42) (0.46) (0.58) (0.72) (0.48)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.33 $10.52 $10.93 $11.25 $10.60
==========================================================================================
TOTAL RETURN(2) 2.17% 0.50% 2.42% 13.17% 3.01%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.49% 0.50% 0.51% 0.51% 0.51%
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 3.94% 2.70% 2.56% 3.34% 4.45%
- -------------------------
Portfolio Turnover Rate 416% 553% 376% 229% 164%
- -------------------------
Net Assets, End of Period
(in thousands) $524,557 $438,997 $468,052 $590,433 $421,312
- ------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
49
Government Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.52 $10.93 $11.25 $10.60 $10.76
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss) 0.39(1) 0.26(1) 0.25(1) 0.35 0.46
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.19) (0.24) (0.02) 0.99 (0.16)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.20 0.02 0.23 1.34 0.30
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.39) (0.27) (0.26) (0.35) (0.46)
- -------------------------
From Net
Realized Gains -- (0.16) (0.29) (0.34) --
- ------------------------------------------------------------------------------------------
Total Distributions (0.39) (0.43) (0.55) (0.69) (0.46)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.33 $10.52 $10.93 $11.25 $10.60
==========================================================================================
TOTAL RETURN(2) 1.91% 0.25% 2.16% 12.89% 2.75%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.74% 0.75% 0.76% 0.76% 0.76%
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 3.69% 2.45% 2.31% 3.09% 4.20%
- -------------------------
Portfolio Turnover Rate 416% 553% 376% 229% 164%
- -------------------------
Net Assets, End of Period
(in thousands) $41,336 $48,674 $45,136 $44,456 $42,285
- ------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
50
Inflation-Adjusted Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.25 $11.45 $10.86 $9.89 $9.87
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss) 0.56 0.45 0.39 0.48 0.38
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.49) (0.17) 0.67 1.12 0.02
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.07 0.28 1.06 1.60 0.40
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.56) (0.45) (0.39) (0.48) (0.38)
- -------------------------
From Net
Realized Gains (0.03) (0.03) (0.08) (0.15) --(1)
- ------------------------------------------------------------------------------------------
Total Distributions (0.59) (0.48) (0.47) (0.63) (0.38)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.73 $11.25 $11.45 $10.86 $9.89
==========================================================================================
TOTAL RETURN(2) 0.56% 2.57% 10.04% 16.42% 4.16%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.49% 0.50% 0.50% 0.51% 0.51%
- -------------------------
Ratio of Net Investment
Income (Loss) to Average
Net Assets 4.85% 3.77% 3.50% 4.20% 3.12%
- -------------------------
Portfolio Turnover Rate 27% 68% 54% 136% 40%
- -------------------------
Net Assets, End of Period
(in thousands) $704,447 $646,214 $483,353 $352,315 $185,518
- ------------------------------------------------------------------------------------------
(1) Per-share amount was less than $0.005.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
51
Inflation-Adjusted Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
2006 2005 2004 2003(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.25 $11.45 $10.86 $10.84
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment Income (Loss) 0.58 0.47 0.41 0.20
- -------------------------------
Net Realized and
Unrealized Gain (Loss) (0.49) (0.17) 0.67 0.17
- --------------------------------------------------------------------------------
Total From
Investment Operations 0.09 0.30 1.08 0.37
- --------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net Investment Income (0.58) (0.47) (0.41) (0.20)
- -------------------------------
From Net Realized Gains (0.03) (0.03) (0.08) (0.15)
- --------------------------------------------------------------------------------
Total Distributions (0.61) (0.50) (0.49) (0.35)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $10.73 $11.25 $11.45 $10.86
================================================================================
TOTAL RETURN(2) 0.77% 2.77% 10.24% 3.53%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.29% 0.30% 0.30% 0.31%(3)
- -------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets 5.05% 3.97% 3.70% 3.80%(3)
- -------------------------------
Portfolio Turnover Rate 27% 68% 54% 136%(4)
- -------------------------------
Net Assets, End of Period
(in thousands) $81,860 $65,058 $56,103 $34,196
- --------------------------------------------------------------------------------
(1) October 1, 2002 (commencement of sale) through March 31, 2003.
(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.
(4) Portfolio turnover is calculated at the fund level. Percentage indicated was
calculated for the year ended March 31, 2003.
See Notes to Financial Statements.
- ------
52
Inflation-Adjusted Bond - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.25 $11.45 $10.86 $9.89 $9.87
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss) 0.54 0.42 0.36 0.45 0.36
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.49) (0.17) 0.67 1.12 0.02
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.05 0.25 1.03 1.57 0.38
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.54) (0.42) (0.36) (0.45) (0.36)
- -------------------------
From Net
Realized Gains (0.03) (0.03) (0.08) (0.15) --(1)
- ------------------------------------------------------------------------------------------
Total Distributions (0.57) (0.45) (0.44) (0.60) (0.36)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.73 $11.25 $11.45 $10.86 $9.89
==========================================================================================
TOTAL RETURN(2) 0.37% 2.33% 9.78% 16.13% 3.88%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.74% 0.75% 0.75% 0.76% 0.76%
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 4.60% 3.52% 3.25% 3.95% 2.87%
- -------------------------
Portfolio Turnover Rate 27% 68% 54% 136% 40%
- -------------------------
Net Assets, End of Period
(in thousands) $588,877 $295,129 $109,053 $41,673 $9,613
- ------------------------------------------------------------------------------------------
(1) Per-share amount is less than $0.005.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
53
Short-Term Government- Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $9.44 $9.66 $9.69 $9.46 $9.47
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss) 0.32(1) 0.19(1) 0.15(1) 0.29 0.45
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.11) (0.21) (0.02) 0.23 (0.01)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.21 (0.02) 0.13 0.52 0.44
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.33) (0.20) (0.16) (0.29) (0.45)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.32 $9.44 $9.66 $9.69 $9.46
==========================================================================================
TOTAL RETURN(2) 2.22% (0.16)% 1.40% 5.52% 4.68%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.57% 0.58% 0.59% 0.59% 0.59%
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 3.41% 2.04% 1.54% 2.96% 4.67%
- -------------------------
Portfolio Turnover Rate 292% 283% 232% 185% 165%
- -------------------------
Net Assets, End of Period
(in thousands) $919,295 $928,460 $996,677 $957,413 $832,199
- ------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
54
Short-Term Government- Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $9.44 $9.66 $9.69 $9.46 $9.47
- ------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment
Income (Loss) 0.29(1) 0.17(1) 0.13(1) 0.26 0.42
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.11) (0.21) (0.02) 0.23 (0.01)
- ------------------------------------------------------------------------------------------
Total From
Investment Operations 0.18 (0.04) 0.11 0.49 0.41
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.30) (0.18) (0.14) (0.26) (0.42)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.32 $9.44 $9.66 $9.69 $9.46
==========================================================================================
TOTAL RETURN(2) 1.96% (0.41)% 1.15% 5.26% 4.42%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.82% 0.83% 0.84% 0.84% 0.84%
- -------------------------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 3.16% 1.79% 1.29% 2.71% 4.42%
- -------------------------
Portfolio Turnover Rate 292% 283% 232% 185% 165%
- -------------------------
Net Assets, End of Period
(in thousands) $29,166 $43,431 $47,135 $68,102 $36,430
- ------------------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. 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.
See Notes to Financial Statements.
- ------
55
Report of Independent Registered Public Accounting Firm
To the Trustees of the American Century Government Income Trust and Shareholders
of the Ginnie Mae Fund, the Government Bond Fund, the Inflation-Adjusted Bond
Fund, and the Short-Term Government Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Ginnie Mae Fund, the Government
Bond Fund, the Inflation-Adjusted Bond Fund, and the Short-Term Government Fund
(four of the six funds comprising the American Century Government Income Trust,
hereafter referred to as the "Funds") at March 31, 2006, the results of each of
their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Kansas City, Missouri
May 18, 2006
- ------
56
Management
The individuals listed below serve as trustees or officers of the funds. Each
trustee serves until his or her successor is duly elected and qualified or until
he or she retires. Effective March 2004, mandatory retirement age for
independent trustees is 73. However, the mandatory retirement age may be
extended for a period not to exceed two years with the approval of the remaining
independent trustees. Those listed as interested trustees are "interested"
primarily by virtue of their engagement as officers of American Century
Companies, Inc. (ACC) or its wholly owned, direct or indirect, subsidiaries,
including the funds' investment advisor, American Century Investment Management,
Inc. (ACIM); the funds' principal underwriter, American Century Investment
Services, Inc. (ACIS); and the funds' transfer agent, American Century Services,
LLC (ACS).
The other trustees (more than three-fourths of the total number) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned, direct or indirect,
subsidiaries, including ACIM, ACIS, and ACS. The trustees serve in this capacity
for eight registered investment companies in the American Century family of
funds.
All persons named as officers of the funds also serve in similar capacities for
the other 14 investment companies advised by ACIM or American Century Global
Investment Management, Inc. (ACGIM), a wholly owned subsidiary of ACIM, unless
otherwise noted. Only officers with policy-making functions are listed. No
officer is compensated for his or her service as an officer of the funds. The
listed officers are interested persons of the funds and are appointed or
re-appointed on an annual basis.
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
ANTONIO CANOVA, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2005
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer, Brocade
Communications Systems, Inc. (May 2001 to December 2005); Vice
President-Administration, Brocade Communications Systems, Inc. (November 2004 to
December 2005); Vice President-Finance, Brocade Communications Systems, Inc.
(November 2000 to November 2004)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
JOHN FREIDENRICH, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2005
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member and Manager, Regis
Management Company, LLC (April 2004 to present); Partner and Founder, Bay
Partners (Venture capital firm, 1976 to present); Partner and Founder, Ware &
Freidenrich (1968 to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
(continued)
- ------
57
Management
INDEPENDENT TRUSTEES (CONTINUED)
- --------------------------------------------------------------------------------
RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board
FIRST YEAR OF SERVICE: 1995
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law
and Business, Stanford Law School (1979 to present); Marc and Eva Stern
Professor of Law and Business, Columbia University School of Law (1992 to
present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
KATHRYN A. HALL, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2001
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chief Executive Officer and
Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to
present); President and Managing Director, Laurel Management Company, LLC (1996
to April 2002)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
MYRON S. SCHOLES, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1941
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 1980
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Oak Hill Platinum
Partners, and a Partner, Oak Hill Capital Management (1999 to present); Frank E.
Buck Professor of Finance-Emeritus, Stanford Graduate School of Business (1981
to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors
(investment advisor, 1982 to present); Director, Chicago Mercantile Exchange
(2000 to present)
- --------------------------------------------------------------------------------
JOHN B. SHOVEN, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1947
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2002
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford
University (1977 to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to
present); Director, Watson Wyatt Worldwide (2002 to present); Director,
Palmsource Inc. (2002 to present)
- --------------------------------------------------------------------------------
JEANNE D. WOHLERS, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 1984
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Director and Partner,
Windy Hill Productions, LP (educational software, 1994 to 1998)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Quintus Corporation (automation
solutions, 1995 to present)
- --------------------------------------------------------------------------------
INTERESTED TRUSTEE
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: Trustee, President
FIRST YEAR OF SERVICE: 1997
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC
(September 2000 to present); President, ACC (June 1997 to present); Also serves
as: Chief Executive Officer and President, ACIM, ACGIM, ACIS and other ACC
subsidiaries; Executive Vice President, ACS; Director, ACC, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
(continued)
- ------
58
Management
OFFICERS
- --------------------------------------------------------------------------------
JONATHAN THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Executive Vice President
FIRST YEAR OF SERVICE: 2005
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Executive Vice President, ACC
(November 2005 to present); Chief Administrative Officer, ACC (February 2006 to
present); Also serves as: President, ACS; Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer, ACIM, ACGIM, ACS, ACIS and other
ACC subsidiaries; Managing Director, Morgan Stanley (March 2000 to November
2005)
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Financial
Officer
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Assistant Treasurer, ACC (January
1995 to present); Also serves as: Senior Vice President, ACS; Assistant
Treasurer, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
FIRST YEAR OF SERVICE: 1998
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (February 2001
to present); General Counsel, ACC (June 1998 to present); Also serves as: Senior
Vice President and General Counsel, ACIM, ACGIM, ACS, ACIS and other ACC
subsidiaries
- --------------------------------------------------------------------------------
CHARLES C.S. PARK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM, and ACS (March 2005 to present); Vice President, ACS (February 2000 to
present); Assistant General Counsel, ACS (January 1998 to March 2005)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
FIRST YEAR OF SERVICE: 1996
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
to present); Controller-Fund Accounting, ACS (June 1997 to present)
- --------------------------------------------------------------------------------
C. JEAN WADE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1964
POSITION(S) HELD WITH FUND: Controller(1)
FIRST YEAR OF SERVICE: 1996
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
to present); Controller-Fund Accounting, ACS (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
FIRST YEAR OF SERVICE: 1997
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (October 2001
to present); Vice President, Corporate Tax, ACS (April 1998 to present); Also
serves as: Vice President, ACIM, ACGIM, ACIS and other ACC subsidiaries
- --------------------------------------------------------------------------------
(1) Ms. Wade serves in a similar capacity for seven other investment companies
advised by ACIM.
The SAI has additional information about the funds' trustees and is available
without charge, upon request, by calling 1-800-345-2021.
- ------
59
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 of shares are authorized for sale by Inflation-Adjusted Bond:
Investor Class, Institutional Class, and Advisor Class. The total expense ratio
of Institutional Class shares is lower than that of Investor Class shares. The
total expense ratios of Advisor and C Class shares are higher than that of
Investor Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through certain
financial intermediaries (such as banks, broker-dealers, insurance companies and
investment advisors), which may require payment of a transaction fee to the
financial intermediary.
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 unified management fee
of Institutional Class shares is 0.20% less than the unified management fee 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 contingent deferred sales charge (CDSC) of 1.00%. There is no CDSC
on shares acquired through reinvestment of dividends or capital gains. The
unified management fee for C Class shares is the same as for Investor Class
shares. C Class shares also are subject to a Rule 12b-1 service and distribution
fee of 1.00%.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
- ------
60
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 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 funds' investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the funds. A description of the policies and procedures
the advisor 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 americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The funds file their complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The funds' Forms N-Q are available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The funds also make their complete schedule
of portfolio holdings for the most recent quarter of their fiscal year available
on their Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
61
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. AGENCY INDEX is composed of those securities included
in the Lehman Brothers U.S. Aggregate Index that are public obligations of U.S.
government agencies, quasi-federal corporations, and corporate or foreign debt
guaranteed by the U.S. government.
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 LEHMAN BROTHERS U.S. CORPORATE INDEX is composed of those securities
included in the Lehman Brothers U.S. Aggregate Index that are U.S.
dollar-denominated, investment-grade, fixed-rate, taxable securities sold by
industrial, utility and financial issuers.
The LEHMAN BROTHERS U.S. CORPORATE HIGH-YIELD INDEX covers the U.S.
dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond
market.
(continued)
- ------
62
Index Definitions
The LEHMAN BROTHERS U.S. FIXED-RATE MORTGAGE-BACKED SECURITIES (MBS) INDEX is
the MBS Fixed-Rate component of the Lehman Brothers U.S. Aggregate Index. It
covers the mortgage-backed pass-through securities of the Government National
Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA),
and the Federal Home Loan Mortgage Corporation (FHLMC).
The LEHMAN BROTHERS U.S. TREASURY INDEX is composed of those securities included
in the Lehman Brothers U.S. Aggregate Index that are public obligations of the
U.S. Treasury with a remaining maturity of one year or more.
The MORTGAGE BANKERS ASSOCIATION REFINANCING INDEX is a gauge of mortgage
refinancing activity that covers all U.S. mortgage applications to refinance an
existing mortgage. The index includes conventional and government refinances,
regardless of producer coupon rate refinanced into or out of.
- ------
63
Notes
- ------
64
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
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 PROFESSIONALS, 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 ADVISOR:
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
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
0605 (c)2006 American Century Proprietary Holdings, Inc.
SH-ANN-48886S All rights reserved.
[front cover]
American Century Investments
ANNUAL REPORT
[photo of woman and girl]
MARCH 31, 2006
Capital Preservation Fund
Government Agency Money Market Fund
[american century investments logo and text logo]
Table of Contents
Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Market Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CAPITAL PRESERVATION
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Portfolio Composition by Maturity . . . . . . . . . . . . . . . . . . . . . 3
Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
GOVERNMENT AGENCY MONEY MARKET
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Portfolio Composition by Maturity . . . . . . . . . . . . . . . . . . . . . 6
Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . 20
OTHER INFORMATION
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The opinions expressed in the Market Perspective and each of the Portfolio
Commentaries 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 of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the annual report for the American Century
Capital Preservation and Government Agency Money Market funds for the 12 months
ended March 31, 2006. We hope you find this information helpful in monitoring
your investment. Another useful resource we offer is our Web site,
americancentury.com, where we post quarterly portfolio commentaries, the views
of our senior investment officers, and other communications about investments,
portfolio strategy, and the markets.
Our Web site currently highlights American Century's recently-announced
strategic collaboration with Lance Armstrong and the Lance Armstrong Foundation
(LAF). Our new campaign, featuring Lance, is designed to encourage investors to
take a more active role in planning their financial futures and make every
investment decision count.
American Century's collaboration with Lance Armstrong and the LAF is a perfect
fit. Like members of our family, Lance is a cancer survivor, and shares our
values of optimism, focus, and determination. In addition, Lance and our family
have dedicated our success to improving lives, through the LAF and the Stowers
Institute for Medical Research, respectively. To learn more about American
Century's collaboration with Lance Armstrong and the LAF, please visit
www.lanceface.com on the Web and click on the links to related sites.
Besides the exciting new collaboration, we've enjoyed other good news--in
January, American Century was named, for the seventh consecutive year, one of
FORTUNE magazine's 100 Best Companies to Work For in America. Fostering a
positive work environment can benefit fund investors as well as our company--it
helps us continue to attract and retain talented people.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER
AMERICAN CENTURY COMPANIES, INC.
/s/James E. Stowers III
James E. Stowers III
CHAIRMAN OF THE BOARD
AMERICAN CENTURY COMPANIES, INC.
- ------
1
Market Perspective
[photo of David MacEwen]
BY DAVID MACEWEN, CHIEF INVESTMENT OFFICER, FIXED INCOME
RATE HIKES, ENERGY PRICES, & HURRICANE DAMAGE TEMPERED ECONOMIC GROWTH
The resilient U.S. economy grew at a moderate rate during the 12 months ended
March 31, 2006, but showed signs of slowing in the months ahead. Real annualized
GDP growth averaged approximately 3.5% for the 12 months, despite faltering to a
1.7% rate in the fourth quarter of 2005 after one of the worst hurricane seasons
in history.
Besides severe damage to the Gulf Coast from Hurricanes Katrina and Rita, the
economy withstood eight additional interest rate hikes by the Federal Reserve
(on top of seven hikes in the prior 10 months), a flattened Treasury yield
curve, and soaring energy prices.
Relatively stable "core" inflation (without energy and food prices), an
improving labor market, and the fact that long-term interest rates stayed
relatively low for much of the period aided economic growth. But record-high
energy prices, a belated upturn in long-term interest rates, and indications
that the housing boom might finally be over raised concerns about consumer
spending and economic growth in the second half of 2006.
GOOD TIMES FOR HIGH-YIELD & MONEY MARKET SECURITIES
High-yield and money market securities were fixed-income market leaders during
this period of moderate economic growth and rising interest rates. The Lehman
Brothers Corporate High-Yield Index significantly outperformed the other bond
market indices in the table below. The table also shows that a key money market
benchmark, the three-month Treasury bill, outpaced most other market indices as
the Federal Reserve raised rates.
In general, shorter-maturity securities suffered less price depreciation than
their more rate change-sensitive, longer-maturity counterparts. Relatively
higher-yielding securities--including mortgage-backed and agency
securities--outperformed because their yields cushioned against price declines.
The investment-grade corporate sector was a notable exception. Poor auto
industry performance in 2005, before General Motors and Ford were downgraded to
high-yield, hurt returns in this sector.
- --------------------------------------------------------------------------------
U.S. FIXED-INCOME TOTAL RETURNS
For the 12 months ended March 31, 2006
- --------------------------------------------------------------------------------
TREASURY SECURITIES
- --------------------------------------------------------------------------------
3-month bill 3.55%
- --------------------------------------------------------------------------------
2-year note 2.07%
- --------------------------------------------------------------------------------
5-year note 0.45%
- --------------------------------------------------------------------------------
10-year note 0.40%
- --------------------------------------------------------------------------------
30-year bond 0.37%
- --------------------------------------------------------------------------------
LEHMAN BROTHERS U.S. BOND MARKET INDICES
- --------------------------------------------------------------------------------
Corporate High-Yield 7.43%
- --------------------------------------------------------------------------------
Fixed-Rate Mortgage-Backed 2.67%
- --------------------------------------------------------------------------------
Agency 2.58%
- --------------------------------------------------------------------------------
Aggregate (multi-sector) 2.26%
- --------------------------------------------------------------------------------
Treasury 1.95%
- --------------------------------------------------------------------------------
Corporate Investment-Grade 1.63%
- --------------------------------------------------------------------------------
Source: Lehman Brothers Inc.
- ------
2
Capital Preservation - Performance
TOTAL RETURNS AS OF MARCH 31, 2006
------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 3.06% 1.76% 3.36% 4.75% 10/13/72
- --------------------------------------------------------------------------------
90-DAY U.S. TREASURY
BILL INDEX 3.53% 2.08% 3.61% 6.24% --
- --------------------------------------------------------------------------------
LIPPER U.S. TREASURY
MONEY MARKET FUNDS
AVERAGE RETURN(1) 2.82% 1.47% 3.16% 5.84% --
- --------------------------------------------------------------------------------
Fund's Lipper Ranking(1) 13 of 85 7 of 71 7 of 48 -- --
- --------------------------------------------------------------------------------
(1) Data provided by Lipper Inc. - A Reuters Company. (c)2006 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
Lipper Fund Performance - Performance data is total return, and is
preliminary and subject to revision.
Lipper Rankings - Rankings are based only on the universe shown and are
based on average annual total returns. This listing might not represent the
complete universe of funds tracked by Lipper.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by
Lipper and may be incomplete. No offer or solicitations to buy or sell any
of the securities herein is being made by Lipper.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. To obtain performance data current to the most recent month end, please
call 1-800-345-2021 or visit americancentury.com.
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks to
preserve the value of your investment at $1.00 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.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY MATURITY
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
3/31/06 9/30/05
- --------------------------------------------------------------------------------
1-30 days 12% 19%
- --------------------------------------------------------------------------------
31-90 days 41% 51%
- --------------------------------------------------------------------------------
91-180 days 43% 25%
- --------------------------------------------------------------------------------
More than 180 days 4% 5%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YIELDS AS OF MARCH 31, 2006
- --------------------------------------------------------------------------------
7-DAY CURRENT YIELD
- --------------------------------------------------------------------------------
3.98%
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE YIELD
- --------------------------------------------------------------------------------
4.06%
- --------------------------------------------------------------------------------
- ------
3
Capital Preservation - Portfolio Commentary
PORTFOLIO MANAGER: LYNN PASCHEN
PERFORMANCE SUMMARY
For the fiscal year ended March 31, 2006, Capital Preservation returned 3.06%,
outpacing the 2.82% average return of the 85 funds in Lipper Inc.'s U.S.
Treasury money market funds category. The fund's fiscal-year return ranked in
the top 16% of the Lipper category, which is consistent with its longer-term
performance--the fund's five- and ten-year returns ranked in the top 15% of the
Lipper group. (See the previous page for additional performance information.)
MONEY MARKET RATES ROSE
Money market rates increased during the one-year period, reaching their highest
levels in five years. As the economy maintained its momentum and inflation
increased modestly over the past year, the Federal Reserve continued to raise
short-term interest rates. The Fed enacted eight quarter-point rate hikes during
the fiscal year, boosting its federal funds rate target from 2.75% to 4.75%--its
highest level since April 2001. The Fed has now raised rates 15 times since
mid-2004, the longest uninterrupted stretch of rate hikes since the
runaway-inflation days of the late-1970s.
The Fed's actions provided a similar lift to money market rates; the three-month
Treasury bill yield--a common benchmark for money market rates--rose from 2.79%
to 4.63% during the one-year period.
PORTFOLIO STRATEGY
Capital Preservation's seven-day current yield increased from 2.10% to 3.98%
during the fiscal year, tracking the rise in Treasury money market yields. We
maintained a relatively short average maturity for the portfolio in order to
reflect higher money market rates more quickly. For the most part, the fund's
average maturity ranged from 45-55 days, compared with a typical average
maturity of 70-80 days for the fund when the Fed was LOWERING rates in 2001-03.
The WAM reflects the economic impact of the fund's dollar rolls. The dollar
rolls do not result in individual security positions on the fund's schedule of
investments.
From time to time, however, we extended the portfolio's average maturity to 60
days or more to take advantage of seasonal trends that produced more attractive
yields on longer-term securities. For example, we lengthened the average
maturity in December 2005 to bridge a period of yield volatility in the Treasury
bill market, when T-bill yields declined at the end of the calendar year and
then rose back up after year-end.
We also implemented a higher average maturity at the end of the one-year period,
when yields rose as the supply of Treasury securities increased significantly.
In March, the U.S. Treasury issued short-term cash management bills to cover
government expenses until tax payments arrive in mid-April.
LOOKING AHEAD
Based on federal funds rate futures, the Fed is expected to raise short-term
interest rates again in May 2006, but the timing of any further increases--if
there are any--is much less clear. Consequently, after enjoying nearly two years
of steadily rising yields, money market investors may see more stable rates in
the second half of 2006. But regardless of the near-term outlook for rates, a
money market fund like Capital Preservation can help preserve capital and add
stability to a diversified portfolio.
- ------
4
Capital Preservation - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS(1) -- 76.5%
$100,000,000 U.S. Cash Management Bills,
4.68%, 4/17/06 $ 99,818,136
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 4.19%,
4/6/06 99,941,792
- --------------------------------------------------------------------------------
138,000,000 U.S. Treasury Bills, 4.14%,
4/13/06 137,809,531
- --------------------------------------------------------------------------------
278,000,000 U.S. Treasury Bills, 4.33%,
4/20/06 277,362,194
- --------------------------------------------------------------------------------
225,000,000 U.S. Treasury Bills, 4.50%,
4/27/06 224,268,461
- --------------------------------------------------------------------------------
125,000,000 U.S. Treasury Bills, 4.20%,
5/4/06 124,512,677
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 4.25%,
5/11/06 99,528,194
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 4.30%,
5/25/06 49,673,188
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 4.23%,
6/1/06 99,294,602
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 4.50%,
6/8/06 99,148,866
- --------------------------------------------------------------------------------
125,000,000 U.S. Treasury Bills, 4.52%,
6/15/06 123,824,844
- --------------------------------------------------------------------------------
75,000,000 U.S. Treasury Bills, 4.44%,
6/22/06 74,241,643
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 4.52%,
6/29/06 98,883,544
- --------------------------------------------------------------------------------
25,000,000 U.S. Treasury Bills, 4.24%,
7/6/06 24,717,333
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 4.25%,
7/13/06 49,392,300
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Bills, 4.41%,
7/27/06 49,283,213
- --------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 4.55%,
8/31/06 98,078,889
- --------------------------------------------------------------------------------
125,000,000 U.S. Treasury Bills, 4.61%,
9/7/06 122,457,877
- --------------------------------------------------------------------------------
75,000,000 U.S. Treasury Bills, 4.64%,
9/14/06 73,394,181
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY BILLS 2,025,631,465
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES(1) -- 11.3%
$ 75,000,000 U.S. Treasury Notes,
2.00%, 5/15/06 $ 74,791,139
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Notes,
4.625%, 5/15/06 50,022,748
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Notes,
2.50%, 5/31/06 49,828,447
- --------------------------------------------------------------------------------
50,000,000 U.S. Treasury Notes,
2.75%, 7/31/06 49,678,046
- --------------------------------------------------------------------------------
25,000,000 U.S. Treasury Notes,
2.375%, 8/15/06 24,819,989
- --------------------------------------------------------------------------------
25,000,000 U.S. Treasury Notes,
2.375%, 8/31/06 24,790,651
- --------------------------------------------------------------------------------
25,000,000 U.S. Treasury Notes,
2.625%, 11/15/06 24,657,759
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY NOTES 298,588,779
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY
SECURITIES(2) -- 1.3%
10,000,000 STRIPS - PRINCIPAL,
4.28%, 5/15/06 9,949,067
- --------------------------------------------------------------------------------
25,000,000 STRIPS - PRINCIPAL,
4.42%, 8/15/06 24,593,605
- --------------------------------------------------------------------------------
TOTAL ZERO-COUPON U.S.
TREASURY SECURITIES 34,542,672
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 89.1% 2,358,762,916
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- 10.9% 288,951,295
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $2,647,714,211
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
STRIPS = Separate Trading of Registered Interest and Principal of Securities
(1) The rates for U.S. Treasury Bills are the yield to maturity at purchase. The
rates for U.S. Treasury Notes are the stated coupon rates.
(2) Security is a zero-coupon bond. The rate indicated is the yield to maturity
at purchase. Zero-coupon securities are issued at a substantial discount
from their value at maturity.
See Notes to Financial Statements.
- ------
5
Government Agency Money Market - Performance
TOTAL RETURNS AS OF MARCH 31, 2006
------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
INVESTOR CLASS 3.27% 1.88% 3.51% 4.07% 12/5/89
- --------------------------------------------------------------------------------
90-DAY U.S. TREASURY
BILL INDEX 3.53% 2.08% 3.61% 4.15%(1) --
- --------------------------------------------------------------------------------
LIPPER U.S. GOVERNEMENT
MONEY MARKET FUNDS
AVERAGE RETURN(2) 2.94% 1.55% 3.31% 3.83%(3) --
- --------------------------------------------------------------------------------
Fund's Lipper Ranking(2) 11 of 114 9 of 99 10 of 73 4 of 34(3) --
- --------------------------------------------------------------------------------
Advisor Class 3.01% 1.62% -- 2.63% 4/12/99
- --------------------------------------------------------------------------------
(1) Since 11/30/89, the date nearest the Investor Class's inception for which
data are available.
(2) Data provided by Lipper Inc. - A Reuters Company. (c)2006 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
Lipper Fund Performance - Performance data is total return, and is
preliminary and subject to revision.
Lipper Rankings - Rankings are based only on the universe shown and are
based on average annual total returns. This listing might not represent the
complete universe of funds tracked by Lipper.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by
Lipper and may be incomplete. No offer or solicitations to buy or sell any
of the securities herein is being made by Lipper.
(3) Since 12/31/89, the date nearest the Investor Class's inception for which
data are available.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. To obtain performance data current to the most recent month end, please
call 1-800-345-2021 or visit americancentury.com.
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks to
preserve the value of your investment at $1.00 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.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY MATURITY
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
3/31/06 9/30/05
- --------------------------------------------------------------------------------
1-30 days 54% 65%
- --------------------------------------------------------------------------------
31-90 days 34% 30%
- --------------------------------------------------------------------------------
91-180 days 5% 5%
- --------------------------------------------------------------------------------
More than 180 days 7% --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YIELDS AS OF MARCH 31, 2006
- --------------------------------------------------------------------------------
7-DAY CURRENT YIELD
- --------------------------------------------------------------------------------
Investor Class 4.17%
- --------------------------------------------------------------------------------
Advisor Class 3.92%
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE YIELD
- --------------------------------------------------------------------------------
Investor Class 4.26%
- --------------------------------------------------------------------------------
Advisor Class 4.00%
- --------------------------------------------------------------------------------
- ------
6
Government Agency Money Market - Portfolio Commentary
PORTFOLIO MANAGER: DENISE LATCHFORD
PERFORMANCE SUMMARY
For the fiscal year ended March 31, 2006, Government Agency Money Market
returned 3.27%*, ahead of the 2.94% average return of the 114 funds in Lipper
Inc.'s U.S. government money market funds category. The fund's fiscal-year
return ranked in the top 10% of the Lipper category, which is consistent with
its longer-term performance--the fund's five-year return ranked in the top 10%
of the Lipper group, while its 10-year return ranked in the top 15%. (See the
previous page for additional performance information.)
ECONOMIC AND MARKET REVIEW
Money market rates increased during the one-year period, reaching their highest
levels in five years. As the economy maintained its momentum and inflation
increased modestly over the past year, the Federal Reserve continued to raise
short-term interest rates. The Fed enacted eight quarter-point rate hikes during
the fiscal year, boosting its federal funds rate target from 2.75% to 4.75%--its
highest level since April 2001. The Fed has now raised rates 15 times since
mid-2004, the longest uninterrupted stretch of rate hikes since the
runaway-inflation days of the late-1970s.
The Fed's actions provided a similar lift to money market rates; the three-month
Treasury bill yield rose from 2.79% to 4.63% during the one-year period.
PORTFOLIO STRATEGY
Government Agency Money Market's seven-day current yield increased from 2.21% to
4.17% during the fiscal year, tracking the broad rise in money market yields. We
maintained a relatively short average maturity for the portfolio in order to
reflect higher money market rates more quickly. From an average maturity of
about 50 days at the beginning of the fiscal year, we gradually shortened it
down to 25-35 days by August 2005 and kept it in this range until December 2005.
In December, we took advantage of attractive yields in six-month government
agency securities and extended the portfolio's average maturity back out to
45-55 days, where it remained through the end of the fiscal year. Even at this
level, the average maturity was short by historical standards. For example, the
fund's average maturity hovered around 75-85 days in 2003, when the Fed was
finishing its extended series of interest rate CUTS.
We increased the portfolio's holdings of discount government agency notes, which
offered more attractive yields during the fiscal year. We reduced the fund's
position in floating-rate notes to make room for the additional discount notes.
LOOKING AHEAD
Based on federal funds rate futures, the Fed is expected to raise short-term
interest rates again in May 2006, but the timing of any further increases--if
there are any--is much less clear. Consequently, after enjoying nearly two years
of steadily rising yields, money market investors may see more stable rates in
the second half of 2006. But regardless of the near-term outlook for rates, a
money market fund like Government Agency Money Market can help preserve capital
and add stability to a diversified portfolio.
*All fund returns and yields referenced in this commentary are for Investor
Class shares.
- ------
7
Government Agency Money Market - Schedule of Investments
MARCH 31, 2006
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 66.4%
$ 1,000,000 FFCB, 1.91%, 6/26/06 $ 992,874
- --------------------------------------------------------------------------------
25,000,000 FFCB, VRN, 4.65%, 4/4/06,
resets weekly off the 3-month
T-Bill plus 0.04% with no caps 25,000,658
- --------------------------------------------------------------------------------
12,250,000 FFCB, VRN, 4.65%, 4/4/06,
resets weekly off the 3-month
T-Bill plus 0.04% with no caps 12,249,614
- --------------------------------------------------------------------------------
16,000,000 FFCB, VRN, 4.71%, 4/4/06,
resets weekly off the 3-month
T-Bill plus 0.10% with no caps 15,992,825
- --------------------------------------------------------------------------------
10,000,000 FFCB, VRN, 4.76%, 4/4/06,
resets weekly off the 3-month
T-Bill plus 0.15% with no caps 10,000,000
- --------------------------------------------------------------------------------
2,500,000 FHLB, 2.00%, 4/5/06 2,499,310
- --------------------------------------------------------------------------------
20,000,000 FHLB, 2.375%, 4/5/06 19,995,407
- --------------------------------------------------------------------------------
10,000,000 FHLB, 1.81%, 4/7/06 9,995,662
- --------------------------------------------------------------------------------
11,000,000 FHLB, 2.50%, 4/11/06 10,994,157
- --------------------------------------------------------------------------------
8,000,000 FHLB, 2.23%, 4/21/06 7,990,898
- --------------------------------------------------------------------------------
5,000,000 FHLB, 3.75%, 4/21/06 4,997,992
- --------------------------------------------------------------------------------
1,500,000 FHLB, 2.08%, 4/24/06 1,497,677
- --------------------------------------------------------------------------------
35,325,000 FHLB, 2.25%, 5/15/06 35,227,428
- --------------------------------------------------------------------------------
46,935,000 FHLB, 3.00%, 5/15/06 46,843,036
- --------------------------------------------------------------------------------
9,695,000 FHLB, 5.375%, 5/15/06 9,703,796
- --------------------------------------------------------------------------------
19,350,000 FHLB, 2.875%, 5/22/06 19,303,677
- --------------------------------------------------------------------------------
1,000,000 FHLB, 4.00%, 5/30/06 998,953
- --------------------------------------------------------------------------------
2,000,000 FHLB, 3.50%, 6/8/06 1,995,579
- --------------------------------------------------------------------------------
1,000,000 FHLB, 3.10%, 6/23/06 996,438
- --------------------------------------------------------------------------------
12,250,000 FHLB, 3.25%, 8/11/06 12,189,191
- --------------------------------------------------------------------------------
4,210,000 FHLB, 2.875%, 8/15/06 4,178,631
- --------------------------------------------------------------------------------
6,000,000 FHLB, 3.50%, 8/15/06 5,966,667
- --------------------------------------------------------------------------------
5,125,000 FHLB, 2.875%, 9/15/06 5,082,797
- --------------------------------------------------------------------------------
2,590,000 FHLB, 3.75%, 9/28/06 2,578,195
- --------------------------------------------------------------------------------
1,280,000 FHLB, 2.75%, 11/15/06 1,264,598
- --------------------------------------------------------------------------------
3,870,000 FHLB, 4.125%, 11/15/06 3,856,297
- --------------------------------------------------------------------------------
1,500,000 FHLB, 4.875%, 11/15/06 1,501,225
- --------------------------------------------------------------------------------
1,000,000 FHLB, 3.75%, 11/30/06 992,055
- --------------------------------------------------------------------------------
5,000,000 FHLB, 5.00%, 1/29/07 5,000,000
- --------------------------------------------------------------------------------
8,000,000 FHLB, 2.875%, 2/15/07 7,857,330
- --------------------------------------------------------------------------------
6,155,000 FHLB, 3.375%, 2/15/07 6,070,894
- --------------------------------------------------------------------------------
5,000,000 FHLB, 4.80%, 2/23/07 5,000,000
- --------------------------------------------------------------------------------
15,000,000 FHLB, VRN, 4.52%, 4/3/06,
resets monthly off the
1-month LIBOR minus 0.11%
with no caps 14,998,345
- --------------------------------------------------------------------------------
10,000,000 FHLB, VRN, 4.66%, 4/5/06,
resets weekly off the 3-month
T-Bill plus 0.05% with no caps 10,000,000
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$10,000,000 FHLB, VRN, 4.77%, 6/13/06,
resets quarterly off the
3-month LIBOR minus 0.12%
with no caps $ 9,998,613
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES 333,810,819
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
DISCOUNT NOTES(1) -- 36.1%
24,172,000 FFCB Discount Notes, 4.63%,
4/3/06 24,165,782
- --------------------------------------------------------------------------------
34,900,000 FHLB Discount Notes, 4.55%,
4/5/06 34,882,443
- --------------------------------------------------------------------------------
25,000,000 FHLB Discount Notes, 4.55%,
4/12/06 24,965,243
- --------------------------------------------------------------------------------
25,000,000 FHLB Discount Notes, 4.57%,
4/17/06 24,949,278
- --------------------------------------------------------------------------------
10,000,000 FHLB Discount Notes, 4.62%,
4/19/06 9,976,900
- --------------------------------------------------------------------------------
8,200,000 FHLB Discount Notes, 4.70%,
4/26/06 8,175,377
- --------------------------------------------------------------------------------
9,000,000 FHLB Discount Notes, 4.72%,
5/12/06 8,953,980
- --------------------------------------------------------------------------------
20,500,000 FHLB Discount Notes, 4.63%,
5/17/06 20,378,720
- --------------------------------------------------------------------------------
20,000,000 FHLB Discount Notes, 4.67%,
5/24/06 19,862,494
- --------------------------------------------------------------------------------
5,000,000 TVA Discount Notes, 4.51%,
4/6/06 4,996,868
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
DISCOUNT NOTES 181,307,085
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 102.5% 515,117,904
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (2.5)% (12,326,095)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $502,791,809
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
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.
TVA = Tennessee Valley Authority
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective March 31, 2006.
(1) The rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
8
Shareholder Fee Examples (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from October 1, 2005 to March 31, 2006.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century may charge you a $12.50 semiannual account maintenance fee if
the value of those shares is less than $10,000. We will redeem shares
automatically in one of your accounts to pay the $12.50 fee. In determining your
total eligible investment amount, we will include your investments in all
PERSONAL ACCOUNTS (including American Century Brokerage accounts) registered
under your Social Security number. PERSONAL ACCOUNTS include individual
accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell
Education Savings Accounts and IRAs (including traditional, Roth, Rollover,
SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you
have only business, business retirement, employer-sponsored or American Century
Brokerage accounts, you are currently not subject to this fee. We will not
charge the fee as long as you choose to manage your accounts exclusively online.
If you are subject to the Account Maintenance Fee, your account value could be
reduced by the fee amount.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
(continued)
- ------
9
Shareholder Fee Examples (Unaudited)
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 10/1/05 - EXPENSE
10/1/05 3/31/06 3/31/06 RATIO*
- --------------------------------------------------------------------------------
CAPITAL PRESERVATION SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,017.50 $2.41 0.48%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,022.54 $2.42 0.48%
- --------------------------------------------------------------------------------
GOVERNMENT AGENCY MONEY MARKET SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,018.70 $2.42 0.48%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,017.50 $3.67 0.73%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,022.54 $2.42 0.48%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,021.29 $3.68 0.73%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
182, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
10
Statement of Assets and Liabilities
MARCH 31, 2006
- --------------------------------------------------------------------------------
CAPITAL GOVERNMENT
PRESERVATION AGENCY
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) $2,358,762,916 $515,117,904
- ----------------------------------------
Cash -- 1,987,345
- ----------------------------------------
Receivable for investments sold 386,050,284 --
- ----------------------------------------
Receivable for capital shares sold 183,309 75,404
- ----------------------------------------
Interest receivable 6,554,219 2,945,104
- --------------------------------------------------------------------------------
2,751,550,728 520,125,757
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess
of demand deposit cash 2,955,667 --
- ----------------------------------------
Payable for investments purchased 99,818,136 17,129,357
- ----------------------------------------
Accrued management fees 1,062,714 197,523
- ----------------------------------------
Distribution fees payable -- 3,534
- ----------------------------------------
Service fees payable -- 3,534
- --------------------------------------------------------------------------------
103,836,517 17,333,948
- --------------------------------------------------------------------------------
NET ASSETS $2,647,714,211 $502,791,809
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital paid in $2,648,021,213 $502,804,826
- ----------------------------------------
Accumulated net realized loss
on investment transactions (307,002) (13,017)
- --------------------------------------------------------------------------------
$2,647,714,211 $502,791,809
================================================================================
INVESTOR CLASS
- --------------------------------------------------------------------------------
Net assets $2,647,714,211 $485,820,769
- ----------------------------------------
Shares outstanding 2,648,021,213 485,832,725
- ----------------------------------------
Net asset value per share $1.00 $1.00
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
Net assets -- $16,971,040
- ----------------------------------------
Shares outstanding -- 16,971,197
- ----------------------------------------
Net asset value per share -- $1.00
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
11
Statement of Operations
YEAR ENDED MARCH 31, 2006
- --------------------------------------------------------------------------------
CAPITAL GOVERNMENT
PRESERVATION AGENCY
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ----------------------------------------
Interest $93,238,979 $18,276,585
- -------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------
Management fees 12,643,983 2,300,050
- ----------------------------------------
Distribution fees -- Advisor Class -- 35,812
- ----------------------------------------
Service fees -- Advisor Class -- 35,812
- ----------------------------------------
Trustees' fees and expenses 107,496 19,768
- ----------------------------------------
Other expenses 4,605 --
- -------------------------------------------------------------------------------
12,756,084 2,391,442
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 80,482,895 15,885,143
- -------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
ON INVESTMENT TRANSACTIONS (92,042) (138)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $80,390,853 $15,885,005
===============================================================================
See Notes to Financial Statements.
- ------
12
Statement of Changes in Net Assets
YEARS ENDED MARCH 31, 2006 AND MARCH 31, 2005
- ----------------------------------------------------------------------------------------------------
CAPITAL PRESERVATION GOVERNMENT AGENCY
- ----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2006 2005 2006 2005
- ----------------------------------------------------------------------------------------------------
OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income $ 80,482,895 $ 32,154,118 $ 15,885,143 $ 6,128,227
- ---------------------------------
Net realized gain (loss) (92,042) (180,522) (138) (2,465)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 80,390,853 31,973,596 15,885,005 6,125,762
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
From net investment income:
- ---------------------------------
Investor Class (80,482,895) (32,154,118) (15,450,341) (6,078,333)
- ---------------------------------
Advisor Class -- -- (434,802) (49,894)
- ----------------------------------------------------------------------------------------------------
Decrease in net assets
from distributions (80,482,895) (32,154,118) (15,885,143) (6,128,227)
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- ----------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from capital
share transactions (113,993,592) (166,318,899) 11,902,379 1,011,062
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (114,085,634) (166,499,421) 11,902,241 1,008,597
NET ASSETS
- ----------------------------------------------------------------------------------------------------
Beginning of period 2,761,799,845 2,928,299,266 490,889,568 489,880,971
- ----------------------------------------------------------------------------------------------------
End of period $2,647,714,211 $2,761,799,845 $502,791,809 $490,889,568
====================================================================================================
See Notes to Financial Statements.
- ------
13
Notes to Financial Statements
MARCH 31, 2006
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 in short-term money market securities issued
by the U.S. Treasury that are guaranteed by the direct full faith and credit
pledge of the U.S. government. Government Agency seeks maximum safety and
liquidity and intends to pursue its investment objective by investing in
short-term money market securities issued by 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 generally valued at amortized cost, which
approximates current market value. When such valuations do not reflect market
value, securities may be valued 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. 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 each fund's policy to distribute substantially 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.
INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and
trustees are indemnified against certain liabilities arising out of the
performance of their duties to the funds. In addition, in the normal course of
business, the funds enter into contracts that provide general indemnifications.
The funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the funds. The risk of material
loss from such claims is considered by management to be remote.
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)
- ------
14
Notes to Financial Statements
MARCH 31, 2006
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 (the fee) per class. The Agreement provides that
all expenses of the funds, except brokerage commissions, taxes, 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 and accrued daily based on the daily
net assets of each specific class of shares of each fund and paid monthly in
arrears. The fee consists of (1) an Investment Category Fee based on the daily
net assets of the funds and certain other accounts managed by the investment
advisor that are in the same broad investment category as each fund and (2) a
Complex Fee based on the assets of all the funds in the American Century family
of funds. 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 0.2500% to
0.3100%. The Advisor Class is 0.2500% less at each point within the Complex Fee
range. For the year ended March 31, 2006, 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 and accrued daily based on the Advisor Class's daily net
assets and paid monthly in arrears. 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 year ended March 31, 2006, 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 advisor, ACIM, the
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services, LLC. JPMorgan Chase Bank is a custodian of the funds and a wholly
owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in
ACC.
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
- -----------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- --------------------------
Sold 1,031,251,888 $ 1,031,251,888 246,368,848 $ 246,368,848
- --------------------------
Issued in reinvestment
of distributions 78,257,468 78,257,468 15,192,805 15,192,805
- --------------------------
Redeemed (1,223,502,948) (1,223,502,948) (254,149,656) (254,149,656)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) (113,993,592) $ (113,993,592) 7,411,997 $ 7,411,997
===============================================================================================
YEAR ENDED MARCH 31, 2005
- -----------------------------------------------------------------------------------------------
Sold 1,022,169,509 $ 1,022,169,509 261,440,869 $ 261,440,869
- --------------------------
Issued in reinvestment
of distributions 31,077,031 31,077,031 5,922,413 5,922,413
- --------------------------
Redeemed (1,219,565,439) (1,219,565,439) (278,585,412) (278,585,412)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) (166,318,899) $ (166,318,899) (11,222,130) $ (11,222,130)
===============================================================================================
(continued)
- ------
15
Notes to Financial Statements
MARCH 31, 2006
3. CAPITAL SHARE TRANSACTIONS (CONTINUED)
Transactions in shares of the funds were as follows (unlimited number of shares
authorized):
- --------------------------------------------------------------------------------
GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2006
- ----------------------------------------------
Sold 18,109,211 $ 18,109,211
- ----------------------------------------------
Issued in reinvestment of distributions 434,280 434,280
- ----------------------------------------------
Redeemed (14,053,109) (14,053,109)
- --------------------------------------------------------------------------------
Net increase (decrease) 4,490,382 $ 4,490,382
================================================================================
YEAR ENDED MARCH 31, 2005
- ----------------------------------------------
Sold 14,261,439 $14,261,439
- ----------------------------------------------
Issued in reinvestment of distributions 49,894 49,894
- ----------------------------------------------
Redeemed (2,078,141) (2,078,141)
- --------------------------------------------------------------------------------
Net increase (decrease) 12,233,192 $12,233,192
================================================================================
4. FEDERAL TAX INFORMATION
The book-basis 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 on the financial statements.
As of March 31, 2006, Capital Preservation and Government Agency have
undistributed ordinary income for federal income tax purposes of $3,758 and $-,
respectively. As of March 31, 2006, Capital Preservation and Government Agency
have net tax appreciation of investments of $10,622 and $-, respectively.
Following are the capital loss carryovers and capital loss deferral amounts at
March 31, 2006:
- --------------------------------------------------------------------------------
CAPITAL GOVERNMENT
PRESERVATION AGENCY
- --------------------------------------------------------------------------------
Accumulated capital losses $(301,682) $(13,005)
- --------------------------------------------------------------------------------
Capital loss deferral $(19,700) $(12)
- --------------------------------------------------------------------------------
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 as follows:
- --------------------------------------------------------------------------------
2012 2013 2014
- --------------------------------------------------------------------------------
Capital Preservation $(6,263) $(84,926) $(210,493)
- --------------------------------------------------------------------------------
Government Agency $(10,411) $(2,278) $(316)
- --------------------------------------------------------------------------------
The capital loss deferrals represent net capital losses incurred in the
five-month period ended March 31, 2006. The funds have elected to treat such
losses as having been incurred in the following fiscal year for federal income
tax purposes.
- ------
16
Capital Preservation - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
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 0.03 0.01 0.01 0.01 0.03
- ------------------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income (0.03) (0.01) (0.01) (0.01) (0.03)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================
TOTAL RETURN(1) 3.06% 1.14% 0.60% 1.19% 2.84%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.48% 0.48% 0.48% 0.48% 0.47%
- --------------------------
Ratio of Net Investment
Income to Average
Net Assets 3.01% 1.12% 0.59% 1.18% 2.76%
- --------------------------
Net Assets, End of Period
(in thousands) $2,647,714 $2,761,800 $2,928,299 $3,270,852 $3,333,519
- ------------------------------------------------------------------------------------------
(1) Total return assumes reinvestment of net investment income and capital gains
distributions, if any.
See Notes to Financial Statements.
- ------
17
Government Agency Money Market - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
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 0.03 0.01 0.01 0.01 0.03
- ------------------------------------------------------------------------------------------
Distributions
- ------------------------------
From Net
Investment Income (0.03) (0.01) (0.01) (0.01) (0.03)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================
TOTAL RETURN(1) 3.27% 1.27% 0.67% 1.25% 2.96%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.48% 0.48% 0.48% 0.48% 0.47%
- ------------------------------
Ratio of Net Investment
Income to Average
Net Assets 3.22% 1.26% 0.67% 1.24% 2.91%
- ------------------------------
Net Assets, End of Period
(in thousands) $485,821 $478,409 $489,633 $591,702 $614,223
- ------------------------------------------------------------------------------------------
(1) Total return assumes reinvestment of net investment income and capital gains
distributions, if any.
See Notes to Financial Statements.
- ------
18
Government Agency Money Market - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31
- ------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------
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 0.03 0.01 --(1) 0.01 0.03
- ------------------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net
Investment Income (0.03) (0.01) --(1) (0.01) (0.03)
- ------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================
TOTAL RETURN(2) 3.01% 1.02% 0.42% 0.99% 2.71%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.73% 0.73% 0.73% 0.73% 0.72%
- -------------------------------
Ratio of Net Investment
Income to Average
Net Assets 2.97% 1.01% 0.42% 0.99% 2.66%
- -------------------------------
Net Assets, End of Period
(in thousands) $16,971 $12,481 $248 $236 $219
- ------------------------------------------------------------------------------------------
(1) Per-share amount was less than $0.005.
(1) Total return assumes reinvestment of net investment income and capital gains
distributions, if any.
See Notes to Financial Statements.
- ------
19
Report of Independent Registered Public Accounting Firm
To the Trustees of the American Century Government Income Trust and Shareholders
of the Capital Preservation Fund and the Government Agency Money Market Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Capital Preservation Fund and
the Government Agency Money Market Fund (two of the six funds comprising the
American Century Government Income Trust, hereafter referred to as the "Funds")
at March 31, 2006, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Kansas City, Missouri
May 18, 2006
- ------
20
Management
The individuals listed below serve as trustees or officers of the funds. Each
trustee serves until his or her successor is duly elected and qualified or until
he or she retires. Effective March 2004, mandatory retirement age for
independent trustees is 73. However, the mandatory retirement age may be
extended for a period not to exceed two years with the approval of the remaining
independent trustees. Those listed as interested trustees are "interested"
primarily by virtue of their engagement as officers of American Century
Companies, Inc. (ACC) or its wholly owned, direct or indirect, subsidiaries,
including the funds' investment advisor, American Century Investment Management,
Inc. (ACIM); the funds' principal underwriter, American Century Investment
Services, Inc. (ACIS); and the funds' transfer agent, American Century Services,
LLC (ACS).
The other trustees (more than three-fourths of the total number) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned, direct or indirect,
subsidiaries, including ACIM, ACIS, and ACS. The trustees serve in this capacity
for eight registered investment companies in the American Century family of
funds.
All persons named as officers of the funds also serve in similar capacities for
the other 14 investment companies advised by ACIM or American Century Global
Investment Management, Inc. (ACGIM), a wholly owned subsidiary of ACIM, unless
otherwise noted. Only officers with policy-making functions are listed. No
officer is compensated for his or her service as an officer of the funds. The
listed officers are interested persons of the funds and are appointed or
re-appointed on an annual basis.
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
ANTONIO CANOVA, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1961
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2005
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer, Brocade
Communications Systems, Inc. (May 2001 to December 2005); Vice
President-Administration, Brocade Communications Systems, Inc. (November 2004 to
December 2005); Vice President-Finance, Brocade Communications Systems, Inc.
(November 2000 to November 2004)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
JOHN FREIDENRICH, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2005
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member and Manager, Regis
Management Company, LLC (April 2004 to present); Partner and Founder, Bay
Partners (Venture capital firm, 1976 to present); Partner and Founder, Ware &
Freidenrich (1968 to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
(continued)
- ------
21
Management
INDEPENDENT TRUSTEES (CONTINUED)
- --------------------------------------------------------------------------------
RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board
FIRST YEAR OF SERVICE: 1995
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law
and Business, Stanford Law School (1979 to present); Marc and Eva Stern
Professor of Law and Business, Columbia University School of Law (1992 to
present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
KATHRYN A. HALL, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2001
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Co-Chief Executive Officer and
Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to
present); President and Managing Director, Laurel Management Company, LLC (1996
to April 2002)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
MYRON S. SCHOLES, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1941
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 1980
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, Oak Hill Platinum
Partners, and a Partner, Oak Hill Capital Management (1999 to present); Frank E.
Buck Professor of Finance-Emeritus, Stanford Graduate School of Business (1981
to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors
(investment advisor, 1982 to present); Director, Chicago Mercantile Exchange
(2000 to present)
- --------------------------------------------------------------------------------
JOHN B. SHOVEN, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1947
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 2002
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford
University (1977 to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to
present); Director, Watson Wyatt Worldwide (2002 to present); Director,
Palmsource Inc. (2002 to present)
- --------------------------------------------------------------------------------
JEANNE D. WOHLERS, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Trustee
FIRST YEAR OF SERVICE: 1984
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Director and Partner,
Windy Hill Productions, LP (educational software, 1994 to 1998)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Quintus Corporation (automation
solutions, 1995 to present)
- --------------------------------------------------------------------------------
INTERESTED TRUSTEE
- --------------------------------------------------------------------------------
WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1955
POSITION(S) HELD WITH FUND: Trustee, President
FIRST YEAR OF SERVICE: 1997
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC
(September 2000 to present); President, ACC (June 1997 to present); Also serves
as: Chief Executive Officer and President, ACIM, ACGIM, ACIS and other ACC
subsidiaries; Executive Vice President, ACS; Director, ACC, ACIM, ACGIM, ACS,
ACIS and other ACC subsidiaries
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 37
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
- --------------------------------------------------------------------------------
(continued)
- ------
22
Management
OFFICERS
- --------------------------------------------------------------------------------
JONATHAN THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Executive Vice President
FIRST YEAR OF SERVICE: 2005
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Executive Vice President, ACC
(November 2005 to present); Chief Administrative Officer, ACC (February 2006 to
present); Also serves as: President, ACS; Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer, ACIM, ACGIM, ACS, ACIS and other
ACC subsidiaries; Managing Director, Morgan Stanley (March 2000 to November
2005)
- --------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Financial
Officer
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Assistant Treasurer, ACC (January
1995 to present); Also serves as: Senior Vice President, ACS; Assistant
Treasurer, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries
- --------------------------------------------------------------------------------
DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1958
POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel
FIRST YEAR OF SERVICE: 1998
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (February 2001
to present); General Counsel, ACC (June 1998 to present); Also serves as: Senior
Vice President and General Counsel, ACIM, ACGIM, ACS, ACIS and other ACC
subsidiaries
- --------------------------------------------------------------------------------
CHARLES C.S. PARK, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer
FIRST YEAR OF SERVICE: 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM, and ACS (March 2005 to present); Vice President, ACS (February 2000 to
present); Assistant General Counsel, ACS (January 1998 to March 2005)
- --------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Controller
FIRST YEAR OF SERVICE: 1996
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
to present); Controller-Fund Accounting, ACS (June 1997 to present)
- --------------------------------------------------------------------------------
C. JEAN WADE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1964
POSITION(S) HELD WITH FUND: Controller(1)
FIRST YEAR OF SERVICE: 1996
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
to present); Controller-Fund Accounting, ACS (June 1997 to present)
- --------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer
FIRST YEAR OF SERVICE: 1997
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (October 2001
to present); Vice President, Corporate Tax, ACS (April 1998 to present); Also
serves as: Vice President, ACIM, ACGIM, ACIS and other ACC subsidiaries
- --------------------------------------------------------------------------------
(1) Ms. Wade serves in a similar capacity for seven other investment companies
advised by ACIM.
The SAI has additional information about the funds' trustees and is available
without charge, upon request, by calling 1-800-345-2021.
- ------
23
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 for Advisor Class shares is
higher than that of Investor Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through certain
financial intermediaries (such as banks, broker-dealers, insurance companies and
investment advisors), which may require payment of a transaction fee to the
financial intermediary.
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.
- ------
24
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 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 funds' investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the funds. A description of the policies and procedures
the advisor 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 americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The funds file their complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The funds' Forms N-Q are available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The funds also make their complete schedule
of portfolio holdings for the most recent quarter of their fiscal year available
on their Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
- ------
25
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 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.
The LEHMAN BROTHERS U.S. AGENCY INDEX is composed of those securities included
in the Lehman Brothers U.S. Aggregate Index that are public obligations of U.S.
government agencies, quasi-federal corporations, and corporate or foreign debt
guaranteed by the U.S. government.
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 LEHMAN BROTHERS U.S. CORPORATE INDEX is composed of those securities
included in the Lehman Brothers U.S. Aggregate Index that are U.S.
dollar-denominated, investment-grade, fixed-rate, taxable securities sold by
industrial, utility and financial issuers.
The LEHMAN BROTHERS U.S. CORPORATE HIGH-YIELD INDEX covers the U.S.
dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond
market.
The LEHMAN BROTHERS U.S. FIXED-RATE MORTGAGE-BACKED SECURITIES (MBS) INDEX is
the MBS Fixed-Rate component of the Lehman Brothers U.S. Aggregate Index. It
covers the mortgage-backed pass-through securities of the Government National
Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA),
and the Federal Home Loan Mortgage Corporation (FHLMC).
The LEHMAN BROTHERS U.S. TREASURY INDEX is composed of those securities included
in the Lehman Brothers U.S. Aggregate Index that are public obligations of the
U.S. Treasury with a remaining maturity of one year or more.
- ------
26
Notes
- ------
27
Notes
- ------
28
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
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 PROFESSIONALS, 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 ADVISOR:
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
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
0605 (c)2006 American Century Proprietary Holdings, Inc.
SH-ANN-48885S All rights reserved.
ITEM 2. CODE OF ETHICS.
a. The registrant has adopted a Code of Ethics for Senior Financial Officers
that applies to the registrant's principal executive officer, principal
financial officer, principal accounting officer, and persons performing
similar functions.
b. No response required.
c. None.
d. None.
e. Not applicable.
f. The registrant's Code of Ethics for Senior Financial Officers was filed as
Exhibit 12 (a)(1) to American Century Asset Allocation Portfolios, Inc.'s
Annual Certified Shareholder Report on Form N-CSR, File No. 811-21591, on
September 29, 2005, and is incorporated herein by reference.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The registrant's board has determined that the registrant has at least
one audit committee financial expert serving on its audit committee.
(a)(2) Antonio Canova is the registrant's designated audit committee financial
expert. He is "independent" as defined in Item 3 of Form N-CSR.
(a)(3) Not applicable.
(b) No response required.
(c) No response required.
(d) No response required.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees.
The aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years were as follows:
FY 2005: $86,551
FY 2006: $111,714
(b) Audit-Related Fees.
The aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were as follows:
For services rendered to the registrant:
FY 2005: $0
FY 2006: $0
Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X (relating to certain engagements for non-audit
services with the registrant's investment adviser and its affiliates):
FY 2005: $0
FY 2006: $0
(c) Tax Fees.
The aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning were as follows:
For services rendered to the registrant:
FY 2005: $17,900
FY 2006: $22,331
These services included review of federal and state income tax forms
and federal excise tax forms.
Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X (relating to certain engagements for non-audit
services with the registrant's investment adviser and its affiliates):
FY 2005: $0
FY 2006: $0
(d) All Other Fees.
The aggregate fees billed in each of the last two fiscal years for products and
services provided by the principal accountant, other than the services reported
in paragraphs (a) through (c) of this Item were as follows:
For services rendered to the registrant:
FY 2005: $0
FY 2006: $0
Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X (relating to certain engagements for non-audit
services with the registrant's investment adviser and its affiliates):
FY 2005: $0
FY 2006: $0
(e)(1) In accordance with paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation
S-X, before the accountant is engaged by the registrant to render audit
or non-audit services, the engagement is approved by the registrant's
audit committee. Pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X, the registrant's audit committee also pre-approves its
accountant's engagements for non-audit services with the registrant's
investment adviser, its parent company, and any entity controlled by,
or under common control with the investment adviser that provides
ongoing services to the registrant, if the engagement relates directly
to the operations and financial reporting of the registrant.
(e)(2) All services described in each of paragraphs (b) through (d) of this
Item were pre-approved before the engagement by the registrant's audit
committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation
S-X. Consequently, none of such services were required to be approved
by the audit committee pursuant to paragraph (c)(7)(i)(C).
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant were as follows:
FY 2005: $172,900
FY 2006: $221,664
(h) The registrant's investment adviser and accountant have notified the
registrant's audit committee of all non-audit services that were
rendered by the registrant's accountant to the registrant's investment
adviser, its parent company, and any entity controlled by, or under
common control with the investment adviser that provides services to
the registrant, which services were not required to be pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The
notification provided to the registrant's audit committee included
sufficient details regarding such services to allow the registrant's
audit committee to consider the continuing independence of its
principal accountant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedule of investments is included as part of the report to stockholders
filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by
which shareholders may recommend nominees to the registrant's board.
ITEM 11. 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 second fiscal quarter of the
period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Registrant's Code of Ethics for Senior Financial Officers, which is the
subject of the disclosure required by Item 2 of Form N-CSR, was filed
as Exhibit 12(a)(1) to American Century Asset Allocation Portfolios,
Inc.'s Certified Shareholder Report on Form N-CSR, File No. 811-21591,
on September 29, 2005.
(a)(2) 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.
(a)(3) Not applicable.
(b) 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: May 25, 2006
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: May 25, 2006
By: /s/ Maryanne L. Roepke
------------------------------------------
Name: Maryanne L. Roepke
Title: Sr. Vice President, Treasurer, and
Chief Financial Officer
principal financial officer)
Date: May 25, 2006
