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
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AMERICAN CENTURY GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
(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)
CHARLES A. ETHERINGTON, 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
- --------------------------------------------------------------------------------
(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: 03-31
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Date of reporting period: 09-30-2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
AMERICAN CENTURY INVESTMENTS
Semiannual Report September 30, 2007
[photo of fall]
Ginnie Mae Fund
Government Bond Fund
Inflation-Adjusted Bond Fund
Short-Term Government Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
To help you monitor your investment, my colleagues and I take pride in providing
you with the semiannual report for the American Century(R) Ginnie Mae,
Government Bond, Inflation-Adjusted Bond, and Short-Term Government funds for
the six months ended September 30, 2007. This has been an eventful and exciting
period for us. We've been working diligently to secure a smooth executive
leadership transition.
I'm honored to be addressing you in the "Our Message" space long devoted to
company founder Jim Stowers, Jr. and his son Jim Stowers III. The Stowers family
remains an integral part of our heritage, leadership, and financial structure.
Jim Jr. continues as co-chair of the American Century Companies, Inc. (ACC)
board of directors with Richard Brown, who has been on the board since 1998 and
co-chairs the Stowers Institute for Medical Research board.
But times and opportunities change. As the latest step in a career transition
that began when he relinquished his executive leadership and investment
management responsibilities in early 2005, Jim III stepped down from the ACC
board in July 2007 to focus on new business ventures. Jim III's move reflects
his family's comfort with our direction and leadership, and gives the Stowers
more leeway to devote time and energy to other important priorities, such as the
Stowers Institute for Medical Research.
Meanwhile, American Century Investments, our clients, and our employees have
been my top priority since I became company president and CEO in March. We've
also added the executive talents of overall chief investment officer Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the products
and services we take pride in delivering to you.
/s/Jonathan Thomas
Jonathan Thomas
[photo of Jonathan Thomas]
Jonathan Thomas
PRESIDENT
AMERICAN CENTURY COMPANIES, INC.
[photo of James E. Stowers, Jr.]
James E. Stowers, Jr.
FOUNDER AND CO-CHAIRMAN OF THE BOARD
AMERICAN CENTURY COMPANIES, INC.
[photo of Richard Brown]
Richard Brown
CO-CHAIRMAN OF THE BOARD
AMERICAN CENTURY COMPANIES, INC.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Fixed-Income Total Returns. . . . . . . . . . . . . . . . . . . 2
GINNIE MAE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio at a Glance and Yields . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 7
GOVERNMENT BOND
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 11
Portfolio at a Glance and Yields . . . . . . . . . . . . . . . . . . 11
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 12
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 13
INFLATION-ADJUSTED BOND
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 17
Portfolio at a Glance and Yields . . . . . . . . . . . . . . . . . . 17
Portfolio Composition by Effective Maturity. . . . . . . . . . . . . 18
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 19
SHORT-TERM GOVERNMENT
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 23
Portfolio at a Glance and Yields . . . . . . . . . . . . . . . . . . 23
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 24
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 25
Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . 29
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 32
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 34
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 35
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 37
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 45
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 55
Approval of Management Agreements for Ginnie Mae, Government Bond,
Inflation-Adjusted Bond and Short-Term Government. . . . . . . . . . 57
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 62
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 63
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 64
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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By David MacEwen, Chief Investment Officer, Fixed Income
MODEST GROWTH, INFLATION, BOND RETURNS
U.S. bonds managed positive returns during the six months ended September 30,
2007. But the ride was bumpy -- bond market volatility surged to the highest
level in years as waves from the bursting housing and subprime mortgage bubbles
spread to the broader economy and financial markets.
U.S. economic growth was moderate over the last four complete calendar quarters,
running at an approximately 2-3% average annual rate. Many economists are
calling for sub-2% growth going forward. Inflation slowed, as the trailing
12-month percentage change in core consumer prices (without volatile food and
energy prices) finished September at 2.1%. That's down from 2.9% as recently as
September 2006.
To help alleviate some of the market and economic concerns, the Federal Reserve
(the Fed) lowered its benchmark federal funds rate target in September. This
came on top of cuts to its discount rate in both August and September -- the
Fed's first rate cuts since June 2003.
RATES FELL, CURVE STEEPENED
Against that backdrop, Treasury yields generally declined. The yield on the
two-year Treasury note fell from 4.58% to 3.99%; however, yields on longer-term
notes and bonds fell less. That's because investors worried about the potential
long-term inflation effects of Fed rate cuts, high energy and commodity prices,
and a weaker dollar. As a result, the yield curve (a graphic representation of
bond yields at different maturities) fell and steepened -- the difference in
yield between two- and 10-year Treasury securities increased sharply from seven
to 60 basis points (a basis point equals 0.01%).
HIGH-QUALITY BONDS DID BEST
The volatility, credit, and liquidity concerns in the market all favored
Treasury securities over higher-yielding, lower-quality alternatives (see the
returns table above). So, for example, while the Treasury market enjoyed its
best quarter in five years from July to September, July was one of the worst
months on record for high-yield bonds. Treasury inflation-indexed securities
performed best because of their combination of high credit quality and inflation
protection.
U.S. Fixed-Income Total Returns For the six months ended September 30, 2007*
TREASURY SECURITIES
3-Month Bill 2.69%
2-Year Note 3.25%
5-Year Note 3.60%
10-Year Note 2.72%
30-Year Bond 2.57%
CITIGROUP US BOND MARKET INDICES
High-Yield (corporate) 0.65%
Credit (investment-grade corporate) 1.50%
Mortgage 2.16%
Broad Investment-Grade (multi-sector) 2.42%
Agency 3.04%
Treasury 3.38%
Inflation-Linked Securities 3.76%
*Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
Ginnie Mae
Total Returns as of September 30, 2007
Average Annual Returns
6 5 10 Since Inception
months(1) 1 year years years Inception Date
INVESTOR CLASS(2) 1.94% 4.69% 3.32% 5.07% 7.14% 9/23/85
CITIGROUP
GNMA INDEX 2.23% 5.33% 4.11% 5.81% 7.98%(3) --
Institutional Class(1) -- -- -- -- 0.00% 9/28/07
Advisor Class(2) 1.81% 4.44% 3.06% -- 4.80% 10/9/97
C Class(2) 6/15/01
No sales charge* 1.43% 3.65% 2.36% -- 3.30% --
With sales charge* 0.43% 3.65% 2.36% 3.30% --
R Class(1) -- -- -- -- 0.00% 9/28/07
*Sales charges include initial sales charges and contingent deferred sales
charges (CDSCs), as applicable. C Class shares redeemed within 12 months of
purchase are subject to a maximum CDSC of 1.00%. Please see the Share Class
Information page for more about the applicable sales charges for each share
class. The SEC requires that mutual funds provide performance information net of
maximum sales charges in all cases where charges could be applied.
(1) Total returns for periods less than one year are not annualized.
(2) Class returns would have been lower if American Century had not voluntarily
waived a portion of its management fee.
(3) Since 9/30/85, 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.
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3
Ginnie Mae
Growth of $10,000 Over 10 Years
$10,000 investment made September 30, 1997
One-Year Returns Over 10 Years
Periods ended September 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor
Class 7.63% 1.65% 6.97% 11.31% 6.91% 2.69% 2.86% 2.76% 3.62% 4.69%*
Citigroup
GNMA Index 8.27% 2.58% 7.73% 11.89% 7.45% 3.33% 4.32% 3.54% 4.04% 5.33%
*Returns would have been lower, along with the ending value, if a portion of the
class's management fee had not been waived during the period.
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
PORTFOLIO COMMENTARY
Ginnie Mae
Lead Portfolio Managers: Hando Aguilar and Dan Shiffman
Macro Strategy Team Representative: Bob Gahagan
PERFORMANCE SUMMARY
Ginnie Mae returned 1.94%* for the six months ended September 30, 2007. By
comparison, the fund's benchmark, the Citigroup GNMA Index, returned 2.23%.
Portfolio returns reflect operating expenses, while the index returns do not.
It's also worth pointing out that Ginnie Mae outperformed the 1.87%** average
return of the 59 GNMA funds tracked by Lipper Inc. The portfolio's average
annual returns were also ahead of its Lipper group for the one-, five- and
10-year periods ended September 30, 2007.
The portfolio's absolute return reflected the challenging climate for taxable
bonds prevailing in recent months (see the Market Perspective on page 2).
Relative to the bench-mark, our yield-curve steepening bias helped performance,
while some of our sector and coupon allocation decisions limited relative
results. Duration positioning had a mixed effect.
MORTGAGES TRAILED BROADER MARKET
Mortgage-backed securities (MBS) produced returns that slightly trailed the
broader investment-grade bond market, with returns for the Citigroup GNMA Index
and Broad Investment-Grade Index of 2.23% and 2.42%, respectively. MBS returns
were limited by volatility, credit, and liquidity concerns. Mortgages tend to
perform best when interest rates are stable or change only gradually. That's
when their higher coupon payments account for a larger part of total return than
price changes. In addition, volatile interest rate environments necessitate
changing assumptions about mortgage refinancing activity, affecting the average
life and duration (interest rate sensitivity) of MBS.
* All fund returns and yields referenced in this commentary are for Investor
Class shares. Class returns would have been lower had a portion of its
management fee not been waived. Total returns for periods less than one year are
not annualized.
** The Lipper GNMA Funds average returns for the one-, five- and 10-year periods
ended September 30, 2007, were 4.52%, 3.12% and 4.99%, respectively.
Data provided by Lipper Inc. - A Reuters Company. ©2007 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.
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.
Portfolio at a Glance
As of As of
9/30/07 3/31/07
Average Duration (effective) 4.4 years 3.9 years
Average Life 7.5 years 6.3 years
Yields as of September 30, 2007(1)
30-Day SEC Yield(2)
Investor Class 4.95%
Advisor Class 4.70%
C Class 3.90%
(1) The Institutional Class and R Class commenced on September 28, 2007, the
last business day in the period. Therefore, 30-Day SEC yields were not
available.
(2) The yields presented reflect the waiver of a portion of the fund's
management fee. Without such waiver, the 30-day yields would have been lower.
- ------
5
Ginnie Mae
CURVE POSITIONING HELPED
Our yield-curve positioning contributed to the portfolio's performance relative
to the benchmark, as we maintained a yield curve-steepening bias during the
period using two- and 10-year Treasury futures. This trade helped relative
results as the yield curve steepened overall, particularly in August. For the
six months, the yield difference between two- and 10-year Treasurys went from
seven to 60 basis points (a basis point equals 0.01%). This curve-steepening
bias is a strategy we expect to carry forward, given our view of the economy,
interest rates, and shape of the curve.
COUPON STRUCTURE DETRACTED
Our coupon structure detracted from relative performance, as we held an
underweight position in discount bonds, which outperformed as interest rates
fell. Meanwhile, our underweight position in GNMA IIs and overweight in GNMA Is
had a net neutral effect on performance for the six months, despite some
volatility in between. These are securities formed from different pools of
mortgages -- GNMA Is are comprised of mortgages from a single issuer, while GNMA
IIs include mortgages of multiple issuers.
In addition, our duration was slightly longer than that of the index, which also
detracted from performance when interest rates rose briefly early in the period.
We got some of that performance back in the third quarter of the year when rates
fell.
RELATIVE-VALUE APPROACH
"We continued to focus on identifying attractive relative value investment
opportunities. Recently, we believed well-structured GNMA collateralized
mortgage obligations (CMOs) presented such an opportunity," said portfolio
manager Hando Aguilar. "We also liked these securities because their structure
helped limit the effect of interest rate volatility on the portfolio. Our GNMA
CMOs outperformed GNMA MBS as yield spreads widened more on GNMA MBS in recent
months. In addition, we continued to generate incremental return for the
portfolio via our cash-management use of floating-rate discount agency notes and
short-duration GNMA CMO floaters."
OUTLOOK
"We see a difficult path for the economy as a result of headwinds from housing,
the consumer, a slower job market, and higher energy prices," said Bob Gahagan,
a portfolio manager on the Ginnie Mae team and member of American Century's
fixed-income Macro Strategy Team. "Given our expectation for slower economic
growth and more Federal Reserve rate cuts, we think it makes sense to continue
our curve-steepening trade. In terms of sector allocations, we will remain on
the lookout for the best relative values we can find, so we'll continue to
evaluate GNMA Is versus GNMA IIs, as well as CMOs versus traditional GNMA
mortgage passthrough securities. We think our track record versus our
competition validates this steady, long-term, relative-value approach to
investing."
Types of Investments in Portfolio
% of fund % of fund
investments investments
as of as of
9/30/07 3/31/07
U.S. Government Agency
Mortgage-Backed
Securities (all GNMAs) 73.9% 74.4%
U.S. Government Agency
Collateralized Mortgage
Obligations (all GNMAs) 16.9% 14.8%
U.S. Government
Agency Securities 3.7% 6.9%
Temporary Cash Investments 5.5% 3.9%
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6
SCHEDULE OF INVESTMENTS
Ginnie Mae
SEPTEMBER 30, 2007 (UNAUDITED)
Principal Amount Value
U.S. Government Agency Mortgage-Backed Securities(1) -- 95.3%
$140,500,000 GNMA, 5.50%, settlement date 10/18/07(2) $ 138,546,206
130,000,000 GNMA, 6.00%, settlement date 10/18/07(2) 130,748,540
97,500,000 GNMA, 6.00%, settlement date 11/20/07(2) 98,033,228
179,238,136 GNMA, 5.00%, 6/15/33
to 5/20/36(3) 173,310,703
424,031,076 GNMA, 5.50%, 4/15/33
to 7/20/37(3) 417,865,557
153,624,786 GNMA, 6.00%, 7/20/16
to 3/15/37(3) 154,632,037
44,831,843 GNMA, 6.50%, 6/15/23
to 4/15/32 45,973,611
15,337,429 GNMA, 7.00%, 9/15/08
to 12/20/29 16,074,354
172,738 GNMA, 7.25%, 9/15/22
to 6/15/23 179,638
12,222,252 GNMA, 7.50%, 5/20/08
to 11/15/31 12,833,639
145,003 GNMA, 7.65%, 6/15/16
to 12/15/16 151,728
75,225 GNMA, 7.75%, 11/15/22
to 6/20/23 79,093
266,594 GNMA, 7.77%, 4/15/20 to 6/15/20 280,966
37,076 GNMA, 7.85%, 9/20/22 39,044
15,972 GNMA, 7.89%, 9/20/22 16,838
151,184 GNMA, 7.98%, 6/15/19
to 6/15/19 160,088
3,446,956 GNMA, 8.00%, 11/15/07
to 7/20/30 3,661,400
204,435 GNMA, 8.15%, 1/15/20
to 2/15/21 218,524
777,559 GNMA, 8.25%, 4/15/08
to 5/15/27 829,555
55,862 GNMA, 8.35%, 11/15/20 60,010
3,035,103 GNMA, 8.50%, 7/15/08
to 12/15/30 3,271,163
263,888 GNMA, 8.75%, 1/15/17
to 7/15/27 283,257
2,139,112 GNMA, 9.00%, 8/15/08
to 1/15/25 2,289,443
331,713 GNMA, 9.25%, 8/15/16
to 3/15/25 358,644
711,752 GNMA, 9.50%, 6/15/09
to 7/20/25 773,170
151,209 GNMA, 9.75%, 8/15/17
to 11/20/21 169,893
171,790 GNMA, 10.00%, 11/15/09
to 1/15/22 194,539
Principal Amount Value
$ 74,250 GNMA, 10.25%, 5/15/12
to 2/15/19 $82,394
98,541 GNMA, 10.50%, 3/15/14
to 7/15/19 111,991
5,569 GNMA, 10.75%, 12/15/09 5,857
162,036 GNMA, 11.00%, 12/15/09
to 6/15/20 178,298
2,564 GNMA, 11.25%, 2/20/16 2,912
39,463 GNMA, 11.50%, 2/15/13
to 10/20/18 44,544
21,077 GNMA, 12.00%, 10/15/10
to 12/15/12 23,273
13,670 GNMA, 12.25%, 2/15/14
to 5/15/15 15,436
55,831 GNMA, 12.50%, 5/15/10
to 12/15/13 61,370
103,419 GNMA, 13.00%, 1/15/11
to 8/15/15 117,669
46,520 GNMA, 13.50%, 5/15/10
to 9/15/14 53,169
7,206 GNMA, 13.75%, 8/15/14 8,315
3,246 GNMA, 14.00%, 6/15/11
to 7/15/11 3,706
31,723 GNMA, 14.50%, 10/15/12
to 12/15/12 36,745
35,701 GNMA, 15.00%, 7/15/11
to 10/15/12 41,533
4,388 GNMA, 16.00%, 12/15/11 5,149
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $1,220,848,382) 1,201,827,229
--------------
U.S. Government Agency Collateralized Mortgage Obligations(1) -- 21.8%
5,341,692 GNMA, Series 1998-6,
Class FA, VRN, 6.26%, 10/16/07, resets
monthly off the 1-month LIBOR plus 0.51% with
a cap of 9.00% 5,375,702
662,104 GNMA, Series 1998-17,
Class F, VRN, 6.25%, 10/16/07, resets monthly
off the 1-month LIBOR plus 0.50% with no caps 666,467
407,486 GNMA, Series 2000-22, Class FG, VRN, 5.95%,
10/16/07, resets monthly off the 1-month
LIBOR plus 0.20% with no caps 406,695
3,065,458 GNMA, Series 2001-59, Class FD, VRN, 6.25%,
10/16/07, resets monthly off the 1-month
LIBOR plus 0.50% with no caps 3,085,472
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7
Ginnie Mae
Principal Amount Value
$ 6,347,133 GNMA, Series 2001-62, Class FB, VRN, 6.25%,
10/16/07, resets monthly off the 1-month
LIBOR plus 0.50% with no caps $ 6,393,804
3,578,598 GNMA, Series 2002-13, Class FA, VRN, 6.25%,
10/16/07, resets monthly off the 1-month
LIBOR plus 0.50% with a cap of 8.50% 3,602,757
6,307,116 GNMA, Series 2002-24, Class FA, VRN, 6.25%,
10/16/07, resets monthly off the 1-month
LIBOR plus 0.50% with a cap of 8.50% 6,342,259
1,934,519 GNMA, Series 2002-29, Class FA SEQ, VRN,
5.85%, 10/20/07, resets monthly off the
1-month LIBOR plus 0.35% with a cap of 9.00% 1,937,270
1,715,201 GNMA, Series 2002-31, Class FW, VRN, 6.15%,
10/16/07, resets monthly off the 1-month
LIBOR plus 0.40% with a cap of 8.50% 1,721,252
7,570,227 GNMA, Series 2002-47,
Class PX, 6.00%, 5/20/31 7,540,211
18,137,151 GNMA, Series 2002-50, Class PD, 6.00%, 5/20/31 18,171,937
6,494,575 GNMA, Series 2002-57, Class PD, 6.00%, 6/20/31 6,456,919
1,332,677 GNMA, Series 2002-60, Class PE, 6.00%, 7/20/31 1,343,432
7,007,573 GNMA, Series 2003-7, Class FA, VRN, 6.20%, 10/16/07, resets
monthly off the 1-month LIBOR plus 0.45% with
no caps 7,030,978
676,549 GNMA, Series 2003-10, Class JC, 6.00%, 4/20/30 678,669
60,300 GNMA, Series 2003-12, Class ON, 4.00%, 2/16/28 60,191
1,123,999 GNMA, Series 2003-14, Class F, VRN, 5.85%,
10/20/07, resets monthly off the 1-month
LIBOR plus 0.35% with no caps 1,124,885
841,812 GNMA, Series 2003-31, Class GD, 4.00%,
12/16/28 837,123
3,213,351 GNMA, Series 2003-42, Class FW, VRN, 5.85%,
10/20/07, resets monthly off the 1-month
LIBOR plus 0.35% with a cap of 7.00% 3,188,554
22,759,369 GNMA, Series 2003-46, Class PA, 5.00%, 5/20/29 22,756,411
Principal Amount Value
$ 25,553,581 GNMA, Series 2003-55, Class PG, 5.00%, 6/20/29 $ 25,559,713
2,693,348 GNMA, Series 2003-85, Class BM SEQ, 5.00%,
2/20/24 2,692,572
2,693,348 GNMA, Series 2003-85, Class BX SEQ, 5.50%,
2/20/24 2,703,639
14,588,423 GNMA, Series 2003-105, Class A SEQ, 4.50%,
11/16/27 14,365,001
5,514,457 GNMA, Series 2003-110, Class HA SEQ, 5.00%,
5/20/29 5,496,182
3,917,490 GNMA, Series 2004-11, Class UC, 5.00%, 4/16/26 3,913,153
4,280,748 GNMA, Series 2004-39, Class XF SEQ, VRN,
6.00%, 10/16/07, resets monthly off the
1-month LIBOR plus 0.25% with a cap of 7.50% 4,291,904
286,959 GNMA, Series 2004-42, Class AB SEQ, 6.00%,
3/20/32 286,690
9,144,348 GNMA, Series 2004-46, Class BG SEQ, 5.00%,
5/20/25 9,188,067
173,089 GNMA, Series 2004-46, Class QH, 4.50%, 4/20/25 172,738
38,300,230 GNMA, Series 2004-53, Class FB SEQ, VRN, 6.15%, 10/16/07,
resets monthly off the 1-month LIBOR plus 0.40% with a cap of
7.50%(3) 38,495,675
15,490,669 GNMA, Series 2004-82, Class DM, 5.00%,
10/20/27 15,472,390
22,750,575 GNMA, Series 2004-87, Class LA, 3.63%,
12/20/28 22,385,132
14,593,232 GNMA, Series 2005-24, Class F, VRN, 5.95%,
10/16/07, resets monthly off the 1-month
LIBOR plus 0.20% with a cap of 7.00% 14,599,755
17,650,000 GNMA, Series 2003-66, Class EH, 5.00%, 5/20/32 16,897,616
--------------
TOTAL U.S. GOVERNMENT
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $275,134,840) 275,241,215
--------------
U.S. Government Agency Securities -- 4.8%
20,000,000 FFCB, VRN, 5.56%, 10/3/07, resets monthly off
the
1-month LIBOR minus 0.11% with no caps 20,000,000
- ------
8
Ginnie Mae
Principal Amount Value
$ 40,000,000 FHLB, VRN, 5.36%, 11/23/07, resets quarterly
off the 3-month LIBOR minus 0.14% with no
caps(3) $ 40,023,960
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(Cost $60,000,000) 60,023,960
--------------
Temporary Cash Investments -- 7.1%
Repurchase Agreement, Bank of America Securities, LLC, (collateralized by
various U.S. Treasury obligations, 0.875%, 4/15/10, valued at $70,791,819), in a
joint trading account at
3.80%, dated 9/28/07, due 10/1/07 (Delivery value $63,013,948)(3) 62,994,000
Principal Amount Value
Repurchase Agreement, Merrill Lynch & Co., Inc., (collateralized
by various U.S. Treasury obligations, 2.375%, 4/15/11, valued at
$27,115,454), in a joint trading account at 3.75%, dated
9/28/07, due 10/1/07 (Delivery value $26,539,291) $ 26,531,000
--------------
TOTAL TEMPORARY
CASH INVESTMENTS
(Cost $89,525,000) 89,525,000
--------------
TOTAL INVESTMENT
SECURITIES -- 129.0%
(Cost $1,645,508,222) 1,626,617,404
--------------
OTHER ASSETS AND
LIABILITIES -- (29.0)% (365,758,230)
--------------
TOTAL NET ASSETS -- 100.0% $1,260,859,174
==============
Futures Contracts
Underlying Face Unrealized Gain
Contracts Purchased Expiration Date Amount at Value (Loss)
1,177 U.S. Treasury
2-Year Notes December 2007 $243,694,172 $1,339,867
============== ==============
Underlying Face Unrealized
Contracts Sold Expiration Date Amount at Value Gain (Loss)
400 U.S. Treasury
5-Year Notes December 2007 $ 42,812,500 $ (494,650)
690 U.S. Treasury
10-Year Notes December 2007 75,404,062 (937,149)
-------------- --------------
$118,216,562 $(1,431,799)
============== ==============
Notes to Schedule of Investments
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
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 September 30, 2007.
(1) Final maturity indicated, unless otherwise noted.
(2) Forward commitment.
(3) Security, or a portion thereof, has been segregated for forward commitments
and/or futures contracts.
See Notes to Financial Statements.
- ------
9
PERFORMANCE
Government Bond
Total Returns as of September 30, 2007
Average Annual Returns
10 Since Inception
6 months(1) 1 year 5 years years Inception Date
INVESTOR CLASS 2.77% 5.33% 3.10% 5.42% 7.56% 5/16/80
CITIGROUP
TREASURY/
MORTGAGE INDEX 2.71% 5.51% 3.83% 5.89% --(2) --
Advisor Class 2.65% 5.07% 2.85% -- 5.15% 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) Total returns for periods less than one year are not annualized.
(2) Index data not available prior to 1982.
Growth of $10,000 Over 10 Years
$10,000 investment made September 30, 1997
One-Year Returns Over 10 Years
Periods ended September 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor Class 12.58% -1.92% 6.41% 13.70% 8.95% 2.66% 1.27% 2.93% 3.39% 5.33%
Citigroup
Treasury/
Mortgage Index 11.67% -0.07% 7.28% 12.80% 8.78% 3.55% 3.48% 2.91% 3.73% 5.51%
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.
- ------
10
PORTFOLIO COMMENTARY
Government Bond
Lead Portfolio Managers: Hando Aguilar, Brian Howell, Jim Platz, Seth
Plunkett, and Dan Shiffman
Macro Strategy Team Representative: Bob Gahagan
PERFORMANCE SUMMARY
Government Bond returned 2.77%* for the six months ended September 30, 2007.
That compares favorably with the 2.71% return of its benchmark, the Citigroup
Treasury/Mortgage Index. Portfolio returns reflect operating expenses, while the
index returns do not.
It's also worth pointing out that Government Bond outperformed the 2.18%**
average return of the 83 intermediate U.S. government funds tracked by Lipper
Inc. The portfolio's average annual returns were also ahead of its Lipper group
for the one-, five- and 10-year periods ended September 30, 2007.
The portfolio's absolute return reflected the challenging climate for taxable
bonds prevailing in recent months (see the Market Perspective on page 2).
Relative to the benchmark, Government Bond outperformed largely as a result of
our yield-curve positioning; sector allocation largely detracted.
CURVE POSITIONING WAS KEY
Our yield-curve positioning was the key factor explaining the portfolio's solid
performance relative to the benchmark, as we maintained a yield curve-steepening
bias during the period using two- and 10-year Treasury futures. This trade
helped relative results as the yield curve steepened overall, particularly in
August. For the six months, the yield difference between two- and 10-year
Treasurys went from seven to 60 basis points (a basis point equals 0.01%). This
curve-steepening bias is a strategy we expect to carry forward, given our view
of the economy, interest rates, and shape of the curve.
SECTOR ALLOCATION DETRACTED
Our sector allocations detracted from return relative to the benchmark, as we
held an underweight position in Treasury bonds in favor of higher-yielding
government agency and mortgage-backed securities (MBS). We view this positioning
as a long-term, strategic trade that we believe is likely to deliver
outperformance over time. Consider that there are two components to a bond
fund's total return -- income and price changes. Other things being equal,
higher-yielding MBS and agency debt should outperform Treasury bonds over time.
But for short periods, price changes
* All fund returns and yields referenced in this commentary are for Investor
Class shares. Total returns for periods less than one year are not annualized.
** The Lipper Intermediate U.S. Government Funds average returns for the one-,
five- and 10-year periods ended September 30, 2007, were 4.61%, 2.86% and 5.04%,
respectively.
Data provided by Lipper Inc. - A Reuters Company. ©2007 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.
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.
Portfolio at a Glance
As of As of
9/30/07 3/31/07
Average Duration (effective) 4.2 years 4.1 years
Average Life 6.0 years 6.2 years
Yields as of September 30, 2007
30-Day SEC Yield
Investor Class 4.61%
Advisor Class 4.37%
- ------
11
Government Bond
can overwhelm these bonds' income advantage, and that's exactly what happened in
recent months. Indeed, the third quarter of 2007 was the best period for
Treasury bonds in many years. As a result, this trade limited our results
relative to the benchmark.
However, we held an overweight position in government agency bonds relative to
MBS. Our agency holdings outperformed MBS, whose performance was limited by
volatility, credit, and liquidity concerns. It's also worth mentioning how we
derived our MBS exposure. We're careful about how we invest in this sector and
had essentially zero subprime exposure. In addition, the MBS we owned held up
relatively well because they were high-quality, easily bought-and-sold, or
"on-the-run" bonds, as opposed to less-liquid "off-the-run" securities, which
performed worst.
RELATIVE-VALUE APPROACH
"We continued to focus on identifying the best relative values among U.S.
government bonds," said Macro Strategy Team representative Bob Gahagan. "We
think our track record versus our competition validates this steady, long-term
approach to investing. Because of this relative-value approach, we saw the
sell-off during the liquidity crunch in July and August as a buying opportunity,
adding select high-quality MBS at what we believed were very attractive prices."
OUTLOOK
"We see a difficult path for the economy as a result of headwinds from housing,
the consumer, a slower job market, and higher energy prices," Gahagan continued.
"Given our expectation for slower economic growth and more Federal Reserve (Fed)
rate cuts, we think it makes sense to continue our curve-steepening trade. In
terms of sector allocations, we continue to like the risk/reward trade-off for
MBS over time, so we expect to maintain an overweight position in these
securities. In addition, we think the environment for Treasury inflation-indexed
securities could be positive going forward. On top of some positive
fundamentals, inflation-indexed bonds are benefiting from demand from investors
who think the Fed will err on the side of fighting recession, rather than
inflation."
Types of Investments in Portfolio
% of fund % of fund
investments investments
as of as of
9/30/07 3/31/07
U.S. Treasury Securities 23.0% 16.0%
U.S. Government Agency
Mortgage-Backed Securities 21.9% 24.7%
U.S. Government
Agency Collateralized
Mortgage Obligations 17.0% 18.3%
U.S. Government
Agency Securities 15.0% 16.6%
U.S. Government Agency
Asset-Backed Securities 1.5% 2.1%
Temporary Cash Investments 1.1% 4.0%
Temporary Cash Investments -
Securities Lending Collateral 20.5% 18.3%
- ------
12
SCHEDULE OF INVESTMENTS
Government Bond
SEPTEMBER 30, 2007 (UNAUDITED)
Principal Amount Value
U.S. Treasury Securities -- 30.3% $14,720,000 U.S. Treasury Bonds,
8.125%, 8/15/21(1)(2) $ 19,555,764
10,700,000 U.S. Treasury Bonds,
7.125%, 2/15/23(1)(2) 13,283,055
7,700,000 U.S. Treasury Bonds,
6.125%, 11/15/27(1)(2) 8,912,149
14,570,000 U.S. Treasury Notes,
3.50%, 8/15/09(1)(2) 14,453,906
19,572,000 U.S. Treasury Notes,
4.625%, 10/31/11(1)(2) 19,926,762
59,000,000 U.S. Treasury Notes,
4.50%, 4/30/12(1)(2) 59,742,161
16,065,000 U.S. Treasury Notes,
4.875%, 6/30/12(1)(2) 16,519,350
7,800,000 U.S. Treasury Notes,
4.25%, 8/15/14(1)(2) 7,747,600
8,130,000 U.S. Treasury Notes,
4.625%, 2/15/17(1)(2) 8,170,016
13,790,000 U.S. Treasury Notes,
4.50%, 5/15/17(1)(2) 13,716,748
--------------
TOTAL U.S. TREASURY SECURITIES
(Cost $178,668,552) 182,027,511
--------------
U.S. Government Agency Mortgage-Backed Securities(3) -- 28.9%
5,176,544 FHLMC, 4.50%, 1/1/19(1) 4,997,498
6,706,134 FHLMC, 5.50%, 10/1/34(1) 6,581,252
650,618 FHLMC, 6.50%, 7/1/47(1) 656,769
34,503,486 FNMA, 6.00%, settlement date 10/11/07(4) 34,551,997
18,960,312 FNMA, 4.50%, 5/1/19(1) 18,279,675
1,512,568 FNMA, 5.00%, 9/1/20(1) 1,483,271
801,183 FNMA, 6.50%, 3/1/32(1) 820,669
721,073 FNMA, 7.00%, 6/1/32(1) 750,496
1,053,656 FNMA, 6.50%, 8/1/32(1) 1,080,190
11,961,241 FNMA, 5.50%, 7/1/33(1) 11,751,214
12,311,045 FNMA, 5.00%, 11/1/33(1) 11,786,890
3,096,416 FNMA, 5.50%, 9/1/34(1) 3,039,597
18,325,690 FNMA, 5.50%, 10/1/34(1) 17,989,414
10,493,901 FNMA, 5.00%, 8/1/35(1) 10,027,930
4,820,404 FNMA, 5.00%, 2/1/36(1) 4,606,358
14,935,734 FNMA, 5.50%, 4/1/36(1) 14,649,416
8,583,858 FNMA, 6.50%, 8/1/37(1) 8,678,795
13,850,000 FNMA, 6.50%, 9/1/37(1) 14,104,895
316,462 FNMA, 6.50%, 6/1/47(1) 319,453
833,452 FNMA, 6.50%, 8/1/47(1) 841,331
1,171,636 FNMA, 6.50%, 8/1/47(1) 1,182,712
1,312,283 FNMA, 6.50%, 9/1/47(1) 1,324,688
Principal Amount Value
$ 1,056,580 FNMA, 6.50%, 9/1/47(1) $ 1,066,568
1,859,389 FNMA, 6.50%, 9/1/47(1) 1,876,966
147,288 FNMA, 6.50%, 9/1/47(1) 148,681
1,066,558 FNMA, 6.50%, 9/1/47(1) 1,076,641
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $176,068,041) 173,673,366
--------------
U.S. Government Agency Collateralized Mortgage Obligations(3) -- 22.4%
1,865,141 FHLMC, Series 2560,
Class FG SEQ, VRN, 6.25%, 10/15/07, resets monthly off the
1-month LIBOR plus 0.50% with
a cap of 8.50%(1) 1,876,826
4,139,054 FHLMC, Series 2625, Class FJ SEQ, VRN, 6.05%,
10/15/07, resets monthly off the 1-month LIBOR
plus 0.30% with a cap of 7.50%(1) 4,148,123
9,127,025 FHLMC, Series 2706,
Class EB, 5.00%, 9/15/20(1) 9,104,417
4,393,164 FHLMC, Series 2779,
Class FM SEQ, VRN, 6.10%, 10/15/07, resets monthly off the
1-month LIBOR plus 0.35% with
a cap of 7.50%(1) 4,422,976
9,281,408 FHLMC, Series 2780,
Class BD SEQ, 4.50%, 10/15/17(1) 9,213,831
10,130,972 FHLMC, Series 2812,
Class EF SEQ, VRN, 6.15%, 10/15/07, resets monthly off the
1-month LIBOR plus 0.40% with
a cap of 7.50%(1) 10,158,904
6,586,732 FHLMC, Series 2831,
Class AF, VRN, 6.05%, 10/15/07, resets monthly
off the 1-month LIBOR plus 0.30% with a cap of
7.50%(1) 6,627,023
4,704,497 FHLMC, Series 2836,
Class ND, 4.00%, 7/15/13(1) 4,679,850
11,463,426 FHLMC, Series 2855, Class FK SEQ, VRN, 6.10%,
10/15/07, resets monthly off the 1-month LIBOR
plus 0.35% with a cap of 7.50%(1) 11,476,814
5,257,121 FHLMC, Series 2892,
Class A, 5.00%, 5/15/21(1) 5,239,241
3,388,728 FHLMC, Series 2900,
Class PA, 4.50%, 3/15/14(1) 3,375,519
4,248,701 FNMA, Series 2002-5,
Class PJ, 6.00%, 10/25/21(1) 4,353,032
1,010,299 FNMA, Series 2002-89, Class CA SEQ, 5.00%,
4/25/16(1) 1,008,726
- ------
13
Government Bond
Principal Amount Value
$ 1,609,075 FNMA, Series 2003-14,
Class LA SEQ, 5.00%, 8/25/16(1) $ 1,603,374
4,109,056 FNMA, Series 2003-42,
Class FK, VRN, 5.53%, 10/25/07, resets monthly
off the 1-month LIBOR plus 0.40% with a cap of
7.50%(1) 4,146,905
7,614,548 FNMA, Series 2003-43,
Class LF, VRN, 5.48%, 10/25/07, resets monthly
off the 1-month LIBOR plus 0.35% with a cap of
8.00%(1) 7,661,811
6,701,000 FNMA, Series 2003-52, Class KF SEQ, VRN,
5.53%, 10/25/07, resets monthly off the
1-month LIBOR plus 0.40% with a cap of 7.50%(1) 6,749,160
4,830,008 FNMA, Series 2003-84,
Class AL, 4.00%, 4/25/13(1) 4,808,128
18,000,000 FNMA, Series 2003-92,
Class PD, 4.50%, 3/25/17(1) 17,658,433
1,711,305 FNMA, Series 2003-124, Class PB, 4.00%,
3/25/31(1) 1,706,599
6,063,623 FNMA, Series 2004 W5,
Class F1, VRN, 5.58%, 10/25/07, resets monthly
off the 1-month LIBOR plus 0.45% with a cap of
7.50%(1) 6,090,345
1,768,365 FNMA, Series 2005-47,
Class AN SEQ, 5.00%, 12/25/16(1) 1,763,788
7,041,654 FNMA, Series 2005-63,
Class HA SEQ, 5.00%, 4/25/23(1) 6,986,067
--------------
TOTAL U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $134,286,074) 134,859,892
--------------
U.S. Government Agency Securities -- 19.8%
42,800,000 FHLB, 5.00%, 10/13/11(2) 43,491,862
8,800,000 FHLMC, 5.00%, 6/11/09(1)(2) 8,884,489
10,400,000 FHLMC, 5.75%, 1/15/12(2) 10,872,732
9,595,000 FHLMC, 4.75%, 1/19/16(2) 9,512,205
Principal Amount Value
$10,000,000 FHLMC, 5.875%, 5/23/16(1) $ 10,307,700
14,800,000 FNMA, 6.625%, 9/15/09(1) 15,418,906
5,200,000 FNMA, 4.375%, 7/17/13(1) 5,101,091
15,600,000 FNMA, 5.80%, 2/9/26(1) 15,615,023
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(Cost $117,942,217) 119,204,008
--------------
U.S. Government Agency Asset-Backed Securities(3) -- 2.0%
709,595 FHLMC, Series T7,
Class A5 SEQ, 7.27%, 8/25/28 707,420
3,123,402 FHLMC, Series T20,
Class A7, VRN, 5.43%, 10/25/07, resets monthly
off the 1-month LIBOR plus 0.15% with no
caps(1) 3,124,476
6,532,322 FHLMC, Series T21,
Class A, VRN, 5.49%, 10/25/07, resets monthly off the 1-month
LIBOR plus 0.18% with no
caps(1) 6,533,804
975,240 FHLMC, Series T34,
Class A1V, VRN, 5.37%, 10/25/07, resets monthly off the
1-month LIBOR plus 0.12% with
no caps(1) 975,337
829,679 FHLMC, Series T35,
Class A, VRN, 5.41%, 10/25/07, resets monthly off the 1-month
LIBOR plus 0.14% with no
caps(1) 829,820
--------------
TOTAL U.S. GOVERNMENT AGENCY ASSET-BACKED SECURITIES
(Cost $12,176,983) 12,170,857
--------------
Temporary Cash Investments -- 1.4%
Repurchase Agreement, Merrill Lynch & Co., Inc., (collateralized
by various U.S. Treasury obligations, 2.375%, 4/15/11, valued at
$8,868,147), in a joint trading account at 3.75%, dated 9/28/07,
due 10/1/07 (Delivery value $8,679,712)(1)
(Cost $8,677,000) 8,677,000
- ------
14
Government Bond
Principal Amount Value
Temporary Cash Investments - Securities Lending Collateral(5) -- 27.0%
Repurchase Agreement, Citigroup Global Markets Inc.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 5.00%, dated 9/28/07,
due 10/1/07 (Delivery value $50,020,833) $ 50,000,000
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.15%, dated 9/28/07, due 10/1/07
(Delivery value $112,749,438) 112,701,070
--------------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $162,701,070) 162,701,070
--------------
TOTAL INVESTMENT
SECURITIES -- 131.8%
(Cost $790,519,937) 793,313,704
--------------
OTHER ASSETS AND
LIABILITIES -- (31.8)% (191,482,579)
--------------
TOTAL NET ASSETS -- 100.0% $ 601,831,125
==============
Futures Contracts
Underlying
Face Amount at
Contracts Purchased Expiration Date Value Unrealized Gain (Loss)
100 U.S. Long
Bond December 2007 $ 11,134,375 $ 201,338
1,598 U.S.
Treasury
2-Year Notes December 2007 330,860,906 1,509,014
158 U.S.
Treasury
5-Year Notes December 2007 16,910,938 199,613
-------------- --------------
$358,906,219 $1,909,965
============== ==============
Underlying Face Unrealized
Contracts Sold Expiration Date Amount at Value Gain (Loss)
1,039 U.S. Treasury
10-Year Notes December 2007 $113,543,219 $(1,734,387)
============== ==============
Notes to Schedule of Investments
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
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
LIBOR = London Interbank Offered Rate
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective September 30, 2007.
(1) Security, or a portion thereof, has been segregated for forward commitments
and/or futures contracts.
(2) Security, or a portion thereof, was on loan as of September 30, 2007.
(3) Final maturity indicated, unless otherwise noted.
(4) Forward commitment.
(5) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
15
PERFORMANCE
Inflation-Adjusted Bond
Total Returns as of September 30, 2007
Average Annual Returns
6 10 Since Inception
months(1) 1 year 5 years years Inception Date
INVESTOR CLASS 3.35% 4.27% 4.80% 6.35% 5.98% 2/10/97
CITIGROUP US
INFLATION-LINKED
SECURITIES INDEX 3.76% 4.91% 5.33% 7.05% 6.74%(2) --
Institutional Class 3.45% 4.47% -- -- 5.11% 10/1/02
Advisor Class 3.31% 4.02% 4.57% -- 6.32% 6/15/98
(1) Total returns for periods less than one year are not annualized.
(2) Since 2/28/97, the date nearest the Investor Class's inception for which
data are available.
Growth of $10,000 Over 10 Years
$10,000 investment made September 30, 1997
One-Year Returns Over 10 Years
Periods ended September 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor Class 4.70% 1.50% 8.29% 12.43% 13.18% 6.68% 6.68% 4.96% 1.53% 4.27%
Citigroup US
Inflation-Linked
Securities Index 5.71% 1.86% 9.11% 13.22% 14.54% 7.39% 7.23% 5.34% 1.88% 4.91%
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.
- ------
16
PORTFOLIO COMMENTARY
Inflation-Adjusted Bond
Lead Portfolio Managers: Brian Howell, Jim Platz, Seth Plunkett, and Bob
Gahagan
Macro Strategy Team Representatives: Brian Howell and Bob Gahagan
PERFORMANCE SUMMARY
Inflation-Adjusted Bond returned 3.35%* for the six months ended September 30,
2007. By comparison, the fund's benchmark, the Citigroup US Inflation-Linked
Securities Index, returned 3.76%. Portfolio returns reflect operating expenses,
while the index returns do not.
It's also worth pointing out that Inflation-Adjusted Bond outperformed the
3.04%** average return of the 134 Treasury inflation-protected securities funds
tracked by Lipper Inc. The portfolio's average annual returns were also ahead of
its Lipper group for the one-, five- and 10-year periods ended September 30,
2007.
The portfolio's absolute return reflected the solid performance of
inflation-indexed securities in an otherwise challenging environment for bonds
prevailing in recent months (see the Market Perspective on page 2). Relative to
the benchmark, our yield-curve positioning helped performance, while sector
allocation and duration position detracted slightly.
MANAGEMENT CHANGE
In September 2007, we announced changes in our liquid markets team, which is
responsible for security selection within the U.S. Treasury, agency, and
derivatives markets in which Inflation-Adjusted Bond invests. In the past, some
team members had primary responsibility for one or more of the portfolios the
group manages. Going forward, the entire team will be involved in collective
decision-making across all of these portfolios. As part of these changes,
portfolio manager Jeremy Fletcher left the company in September. The portfolios
he managed were team-managed prior to his departure and should continue to
benefit from the skills and experience of the present team.
CURVE POSITIONING HELPED
We helped performance by maintaining a yield curve-steepening bias during the
period using Treasury inflation-indexed securities (TIIS), as well as two- and
10-year Treasury futures. This trade helped relative results as the yield curve
steepened
* All fund returns and yields referenced in this commentary are for Investor
Class shares. Total returns for periods less than one year are not annualized.
** The Lipper Treasury Inflation-Protected Securities Funds average returns for
the one-, five- and 10-year periods ended September 30, 2007, were 3.98%, 4.53%
and 6.17%, respectively.
Data provided by Lipper Inc. - A Reuters Company. ©2007 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.
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.
Portfolio at a Glance
As of As of
9/30/07 3/31/07
Weighted Average Maturity 7.3 years 8.7 years
Average Duration (effective) 6.3 years 6.4 years
Yields as of September 30, 2007
30-Day SEC Yield
Investor Class 2.11%
Institutional Class 2.31%
Advisor Class 1.86%
- ------
17
Inflation-Adjusted Bond
overall, particularly in August. For the six months, the yield difference
between two- and 10-year Treasurys went from seven to 60 basis points (a basis
point equals 0.01%). This curve-steepening bias is a strategy we expect to carry
forward, given our view of the economy, inflation expectations, interest rates,
and the shape of the curve.
SECTOR ALLOCATION DETRACTED
Our sector allocations detracted from return relative to the benchmark, as we
held some attractively valued government agency and high-quality collateralized
mortgage-backed securities (CMBS) that trailed Treasury bonds. Other things
being equal, higher-yielding CMBS and agency debt should outperform Treasury
bonds over time. But for short periods, price changes can overwhelm these bonds'
income advantage, and that's exactly what happened in recent months. In
addition, we held a Sallie Mae inflation-linked bond that underperformed as a
result of credit concerns relating to the private equity buyout of the student
loan giant.
DURATION POSITION DETRACTED SLIGHTLY
Looking at the portfolio's duration, or interest rate sensitivity, we prefer to
keep it in a narrow band around that of the benchmark and make small, tactical
adjustments to duration. With rate volatility surging, we kept duration neutral
to slightly short of our benchmark. But because intermediate-term yields ended
the period a little lower than they started, our duration position had a slight
negative effect on returns compared with the benchmark.
OUTLOOK
"We continue to focus on the fund's repeatable, multi-layered approach to
investing in an effort to identify the best relative values in the U.S.
inflation-linked securities universe. We think our track record versus our
competition validates this steady, long-term approach to investing," says
portfolio manager Bob Gahagan. "We think the environment for TIIS could be
positive going forward, given that the Federal Reserve (the Fed) is at the
beginning of a cycle of interest rate cuts at a time when commodity prices are
in the neighborhood of record highs and the dollar's at an all-time low. TIIS
could benefit if investors think the Fed will err on the side of fighting
recession, rather than inflation. The economic, market, and interest rate
environment also argues for carrying forward our yield curve-steepening trade."
Portfolio Composition by Effective Maturity(1)
% of fund % of fund
investments investments
as of as of
9/30/07 3/31/07
0 - 5-Year Notes(2) 31.6% 30.1%
5 - 10-Year Notes 37.3% 40.6%
10 - 30-Year Bonds 31.1% 29.3%
(1) Excludes securities lending collateral.
(2) Includes temporary cash investments.
- ------
18
SCHEDULE OF INVESTMENTS
Inflation-Adjusted Bond
SEPTEMBER 30, 2007 (UNAUDITED)
Principal Amount Value
U.S. Treasury Securities -- 86.0%
$77,908,140 U.S. Treasury Inflation Indexed Bonds, 2.375%,
1/15/25(1) $ 78,620,481
59,507,217 U.S. Treasury Inflation Indexed Bonds, 2.00%,
1/15/26(1) 56,848,018
46,894,568 U.S. Treasury Inflation Indexed Bonds, 2.375%,
1/15/27(1) 47,480,797
53,061,480 U.S. Treasury Inflation Indexed Bonds, 3.625%,
4/15/28(1) 64,652,124
50,684,400 U.S. Treasury Inflation Indexed Bonds, 3.875%,
4/15/29(1) 64,377,145
22,336,177 U.S. Treasury Inflation Indexed Bonds, 3.375%,
4/15/32(1) 27,288,532
9,621,386 U.S. Treasury Inflation Indexed Notes, 3.875%,
1/15/09(2) 9,821,338
69,457,410 U.S. Treasury Inflation Indexed Notes, 4.25%,
1/15/10(2) 72,762,124
41,233,125 U.S. Treasury Inflation Indexed Notes, 0.875%,
4/15/10(1)(2) 39,876,968
19,747,860 U.S. Treasury Inflation Indexed Notes, 3.50%,
1/15/11(2) 20,614,929
7,713,531 U.S. Treasury Inflation Indexed Notes, 2.375%,
4/15/11(1) 7,765,960
25,749,984 U.S. Treasury Inflation Indexed Notes, 3.375%,
1/15/12(2) 27,085,790
4,619,385 U.S. Treasury Inflation Indexed Notes, 2.00%,
4/15/12(1) 4,587,266
14,568,515 U.S. Treasury Inflation Indexed Notes, 3.00%,
7/15/12(1) 15,167,193
35,272,376 U.S. Treasury Inflation Indexed Notes, 1.875%,
7/15/13(1) 34,721,280
71,023,050 U.S. Treasury Inflation Indexed Notes, 2.00%,
1/15/14(1) 70,024,324
74,813,916 U.S. Treasury Inflation Indexed Notes, 2.00%,
7/15/14(1)(2) 73,826,148
64,472,781 U.S. Treasury Inflation Indexed Notes, 1.625%,
1/15/15(2) 61,702,515
Principal Amount Value
$58,391,913 U.S. Treasury Inflation Indexed Notes, 1.875%,
7/15/15(1)(2) $ 56,863,738
33,689,271 U.S. Treasury Inflation Indexed Notes, 2.00%,
1/15/16(1)(2) 32,941,807
53,687,493 U.S. Treasury Inflation Indexed Notes, 2.50%,
7/15/16(1)(2) 54,702,562
11,351,791 U.S. Treasury Inflation Indexed Notes, 2.375%,
1/15/17(1) 11,436,941
9,648,576 U.S. Treasury Inflation Indexed Notes, 2.625%,
7/15/17(1) 9,948,589
--------------
TOTAL U.S. TREASURY SECURITIES
(Cost $928,391,472) 943,116,569
--------------
Corporate Bonds -- 6.4%
27,268,250 SLM Corporation, 1.32%, 1/25/10(2) 24,715,669
46,192,020 Toyota Motor Credit Corp. Inflation Indexed
Bonds, 1.22%, 10/1/09(2) 45,106,508
--------------
TOTAL CORPORATE BONDS
(Cost $73,458,930) 69,822,177
--------------
U.S. Government Agency Securities -- 4.0%
24,000,000 FHLB, 4.75%, 4/24/09(1) 24,118,968
12,000,000 FHLMC, 5.00%, 6/11/09(1) 12,115,212
8,000,000 FNMA, 5.125%, 7/13/09(1) 8,099,248
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(Cost $43,825,962) 44,333,428
--------------
Collateralized Mortgage Obligations(3) -- 2.2%
12,000,000 Credit Suisse Mortgage Capital Certificates,
Series 2007 TF2A, Class A1, VRN, 5.93%, 10/15/07, resets
monthly off the 1-month LIBOR plus 0.18% with no caps (Acquired
8/3/07, Cost
$12,000,000)(2)(4) 11,910,000
11,743,367 Lehman Brothers Floating Rate Commercial Mortgage Trust, Series
2007 LLFA, Class A1, VRN, 6.05%, 10/15/07, resets monthly off
the 1-month LIBOR plus 0.30% with no caps (Acquired
8/3/07, Cost $11,743,367)(2)(4) 11,714,009
--------------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(Cost $23,743,367) 23,624,009
--------------
- ------
19
Inflation-Adjusted Bond
Principal Amount Value
Temporary Cash Investments -- 0.8%
Repurchase Agreement, Bank of America Securities, LLC, (collateralized by
various U.S. Treasury obligations, 0.875%, 4/15/10, valued at $9,776,944), in a
joint trading account at 3.80%, dated 9/28/07, due 10/1/07 (Delivery value
$8,702,755)(2)
(Cost $8,700,000) $ 8,700,000
--------------
Temporary Cash Investments - Securities Lending Collateral(5) -- 31.5%
Repurchase Agreement, Citigroup Global Markets Inc.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 5.00%, dated 9/28/07,
due 10/1/07 (Delivery value $230,095,833) 230,000,000
Principal Amount Value
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.15%, dated 9/28/07, due 10/1/07
(Delivery value $115,924,504) $ 115,874,774
--------------
TOTAL TEMPORARY CASH INVESTMENTS - SECURITIES LENDING COLLATERAL
(Cost $345,874,774) 345,874,774
--------------
TOTAL INVESTMENT
SECURITIES -- 130.9%
(Cost $1,423,994,505) 1,435,470,957
--------------
OTHER ASSETS AND
LIABILITIES -- (30.9)% (338,560,996)
--------------
TOTAL NET ASSETS -- 100.0% $1,096,909,961
==============
Futures Contracts
Underlying Face Unrealized
Contracts Purchased Expiration Date Amount at Value Gain (Loss)
1,515 U.S. Treasury
2-Year Notes December 2007 $313,676,016 $ 963,607
440 U.S. Treasury
5-Year Notes December 2007 47,093,750 555,885
-------------- --------------
$360,769,766 $1,519,492
============== ==============
Underlying Face Unrealized
Contracts Sold Expiration Date Amount at Value Gain (Loss)
837 U.S. Treasury
10-Year Notes December 2007 $91,468,406 $(512,299)
============== ==============
Swap Agreements
Notional Unrealized
Amount Description of Agreement Expiration Date Gain (Loss)
TOTAL RETURN
$44,200,000 Pay a fixed rate equal to January 2012 $404,247
1.13% and receive the
return of the U.S. CPI Urban Consumers NSA Index upon the
termination date with Barclays Bank plc.
24,000,000 Pay a fixed rate equal to April 2017 221,215
1.31% and receive the
return of the U.S. CPI Urban Consumers NSA Index upon the
termination date with Barclays Bank plc.
--------------
$625,462
==============
- ------
20
Notes to Schedule of Investments
CPI = Consumer Price Index
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
LIBOR = London Interbank Offered Rate
NSA = Not Seasonally Adjusted
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.
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective September 30, 2007.
(1) Security, or a portion thereof, was on loan as of September 30, 2007.
(2) Security, or a portion thereof, has been segregated for futures contracts
and/or swap agreements.
(3) Final maturity indicated, unless otherwise noted.
(4) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 2007, was $23,624,009,
which represented 2.2% of total net assets.
(5) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
21
PERFORMANCE
Short-Term Government
Total Returns as of September 30, 2007
Average Annual Returns
5 10 Since Inception
6 months(1) 1 year years years Inception Date
INVESTOR CLASS 2.85% 5.27% 2.51% 4.12% 5.97% 12/15/82
CITIGROUP US
TREASURY/AGENCY
1- TO 3-YEAR INDEX 3.30% 5.76% 2.91% 4.78% 6.93%(2) --
Advisor Class 2.73% 5.00% 2.26% -- 3.71% 7/8/98
(1) Total returns for periods less than one year are not annualized.
(2) Since 12/31/82, the date nearest the Investor Class's inception for which
data are available.
Growth of $10,000 Over 10 Years
$10,000 investment made September 30, 1997
One-Year Returns Over 10 Years
Periods ended September 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investor Class 7.29% 1.67% 5.78% 9.50% 4.70% 1.90% 0.36% 1.40% 3.71% 5.27%
Citigroup US
Treasury/Agency
1- to 3-Year Index 7.92% 3.28% 5.92% 10.59% 5.87% 2.85% 1.13% 1.10% 3.81% 5.76%
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.
- ------
22
PORTFOLIO COMMENTARY
Short-Term Government
Lead Portfolio Managers: Hando Aguilar, Brian Howell, Jim Platz, Seth
Plunkett, and Dan Shiffman
Macro Strategy Team Representative: Bob Gahagan
PERFORMANCE SUMMARY
Short-Term Government returned 2.85%* for the six months ended September 30,
2007, compared with the 3.30% return of its benchmark, the Citigroup US
Treasury/Agency 1- to 3-year Index. Portfolio returns reflect operating
expenses, while the index returns do not.
It's also worth pointing out that Short-Term Government outperformed the 2.29%**
average return of the 87 short U.S. government funds tracked by Lipper Inc. The
portfolio's average annual returns were also ahead of its Lipper group for the
one- and five-year periods ended September 30, 2007.
The portfolio's absolute return reflected the challenging climate for taxable
bonds prevailing in recent months (see the Market Perspective on page 2).
Relative to the benchmark, Short-Term Government benefited from our yield-curve
positioning; sector allocation decisions detracted from relative results.
CURVE POSITIONING WAS KEY
Our yield-curve positioning was a key contributor to the portfolio's performance
relative to the benchmark, as we maintained a yield curve-steepening bias during
the period using two- and five-year Treasury futures. This trade helped relative
results as the yield curve steepened overall, particularly in August. For the
six months, the yield difference between two- and five-year Treasurys went from
- -4 (the yield curve was negatively sloped) to +26 (a more normal, positive
slope) basis points (a basis point equals 0.01%). This curve-steepening bias is
a strategy we expect to carry forward, given our view of the economy, interest
rates, and shape of the curve.
SECTOR ALLOCATION DETRACTED
Our sector allocations detracted from return relative to the benchmark, as we
held an underweight position in Treasury bonds in favor of higher-yielding
government agency and mortgage-backed securities (MBS). We view this positioning
as a long-term, strategic trade that we believe is likely to deliver
outperformance over time. Consider that there are two components to a bond
fund's total return -- income and price changes. Other things being equal,
higher-yielding MBS and agency debt should
* All fund returns and yields referenced in this commentary are for Investor
Class shares. Total returns for periods less than one year are not annualized.
** The Lipper Short U.S. Government Funds average returns for the one-, five-
and 10-year periods ended September 30, 2007, were 4.55%, 2.36% and 4.16%,
respectively.
Data provided by Lipper Inc. - A Reuters Company. ©2007 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.
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.
Portfolio at a Glance
As of As of
9/30/07 3/31/07
Average Duration (effective) 1.8 years 1.8 years
Average Life 2.0 years 2.2 years
Yields as of September 30, 2007
30-Day SEC Yield
Investor Class 4.47%
Advisor Class 4.23%
- ------
23
Short-Term Government
outperform Treasury bonds over time. But for short periods, price changes can
overwhelm these bonds' income advantage, and that's exactly what happened in
recent months, as MBS returns were limited by volatility, credit, and liquidity
concerns. At the same time, the third quarter of 2007 was the best period for
Treasury bonds in many years. As a result, this trade limited our results
relative to the benchmark.
It's also worth mentioning how we derived our MBS exposure. We're careful about
how we invest in this sector and had essentially zero subprime exposure. In
addition, the MBS we owned held up relatively well because they were
high-quality, easily bought-and-sold, or "on-the-run" bonds, as opposed to
less-liquid "off-the-run" securities, which performed worst.
RELATIVE-VALUE APPROACH
"We continued to focus on identifying the best relative values among short-term
U.S. government bonds," said Macro Strategy Team representative Bob Gahagan. "We
think our track record versus our competition validates this steady, long-term
approach to investing. Because of this relative-value approach, we saw the
sell-off during the liquidity crunch in July and August as a buying opportunity,
adding select high-quality MBS at what we believed were very attractive prices."
OUTLOOK
"We see a difficult path for the economy as a result of headwinds from housing,
the consumer, a slower job market, and higher energy prices," Gahagan continued.
"Given our expectation for slower economic growth and more Federal Reserve (Fed)
rate cuts, we think it makes sense to continue our curve-steepening trade. In
terms of sector allocations, we continue to like the risk/reward trade-off for
MBS over time, so we expect to maintain an overweight position in these
securities. In addition, we think the environment for Treasury inflation-indexed
securities could be positive going forward. On top of some positive
fundamentals, inflation-indexed bonds are benefiting from demand from investors
who think the Fed will err on the side of fighting recession, rather than
inflation."
Types of Investments in Portfolio
% of fund % of fund
investments investments
as of as of
9/30/07 3/31/07
Collateralized
Mortgage Obligations 38.0% 37.7%
U.S. Government
Agency Securities 22.0% 22.4%
U.S. Treasury Securities 9.2% 8.9%
U.S. Government Agency
Mortgage-Backed Securities 6.8% 10.6%
Asset-Backed Securities 3.3% 3.3%
Temporary Cash Investments 6.4% 2.5%
Temporary Cash Investments -
Securities Lending Collateral 14.3% 14.6%
- ------
24
SCHEDULE OF INVESTMENTS
Short-Term Government
SEPTEMBER 30, 2007 (UNAUDITED)
Principal Amount Value
Collateralized Mortgage
Obligations(1) -- 44.4%
$22,600,000 Banc of America Commercial Mortgage Inc.,
Series 2004-2, Class A3 SEQ, 4.05%, 11/10/38(2) $ 22,080,742
61,263,388 Bear Stearns Commercial Mortgage Securities
Trust STRIPS - COUPON, Series 2004 T16, Class
X2, VRN, 0.75%, 10/1/07 1,723,400
66,940,043 Commercial Mortgage Acceptance Corp. STRIPS -
COUPON, Series 1998 C2, Class X, VRN, 0.98%,
10/1/07 1,320,727
2,419,185 FHLMC, Series 2522,
Class XA SEQ, 5.00%, 8/15/16 2,417,881
818,506 FHLMC, Series 2552,
Class HA SEQ, 5.00%, 9/15/16 818,478
8,698,481 FHLMC, Series 2624,
Class FE SEQ, VRN, 6.05%, 10/15/07, resets
monthly off the 1-month LIBOR plus 0.30% with a
cap of 8.00%(2) 8,719,175
7,036,392 FHLMC, Series 2625, Class FJ SEQ, VRN, 6.05%, 10/15/07, resets
monthly off the 1-month LIBOR
plus 0.30% with a cap of 7.50% 7,051,809
25,000,000 FHLMC, Series 2631,
Class PC, 4.50%, 3/15/16(2) 24,719,150
1,072,333 FHLMC, Series 2632,
Class TE, 2.50%, 6/15/22 1,064,211
3,141,771 FHLMC, Series 2672,
Class QR, 4.00%, 9/15/10 3,128,811
6,662,362 FHLMC, Series 2688,
Class DE SEQ, 4.50%, 2/15/20 6,572,654
2,779,704 FHLMC, Series 2699,
Class TG, 4.00%, 5/15/17 2,711,210
12,835,500 FHLMC, Series 2709,
Class PC, 5.00%, 9/15/18(2) 12,850,851
11,277,570 FHLMC, Series 2718,
Class FW, VRN, 6.10%, 10/15/07, resets monthly off the 1-month
LIBOR plus 0.35% with a cap of
8.00%(2) 11,314,516
4,404,252 FHLMC, Series 2743,
Class OK, 4.00%, 4/15/21 4,384,001
6,787,544 FHLMC, Series 2763,
Class PB, 4.50%, 6/15/14 6,762,892
Principal Amount Value
$ 4,393,164 FHLMC, Series 2779,
Class FM SEQ, VRN, 6.10%, 10/15/07, resets
monthly off the 1-month LIBOR plus 0.35% with a
cap of 7.50% $ 4,422,976
15,469,014 FHLMC, Series 2780,
Class BD SEQ, 4.50%, 10/15/17(2) 15,356,384
9,062,496 FHLMC, Series 2827,
Class F, VRN, 6.10%, 10/15/07, resets monthly off the 1-month
LIBOR plus 0.35% with a cap of
7.50%(2) 9,093,744
6,477,675 FHLMC, Series 2831,
Class AF, VRN, 6.05%, 10/15/07, resets monthly off the 1-month
LIBOR plus 0.30% with a cap of
7.50% 6,517,299
2,430,419 FHLMC, Series 2888,
Class GA, 4.00%, 10/15/11 2,426,117
1,995,496 FHLMC, Series 2890,
Class AB SEQ, 3.75%, 12/15/11 1,963,225
6,554,514 FHLMC, Series 2900,
Class PA, 4.50%, 3/15/14 6,528,964
18,201,567 FHLMC, Series 2931,
Class QA, 4.50%, 4/15/15(2) 18,108,630
8,896,295 FHLMC, Series 2937,
Class KA, 4.50%, 12/15/14(2) 8,861,093
11,916,766 FHLMC, Series 2941,
Class XA, 5.00%, 2/15/25(2) 11,926,680
294,032 FHLMC, Series 2943,
Class HA, 5.00%, 9/15/19 293,908
1,449,452 FHLMC, Series 3108,
Class DA SEQ, 5.125%, 10/15/15 1,448,712
4,248,701 FNMA, Series 2002-5,
Class PJ, 6.00%, 10/25/21 4,353,032
1,465,550 FNMA, Series 2002-71,
Class UB, 5.00%, 11/25/15 1,463,570
7,971,469 FNMA, Series 2002-83,
Class GM, 5.00%, 5/25/16(2) 7,957,830
3,662,933 FNMA, Series 2002-86, Class KB SEQ, 5.00%,
5/25/16 3,655,966
1,814,890 FNMA, Series 2003-3,
Class HA, 5.00%, 9/25/16 1,809,633
13,927,553 FNMA, Series 2003-17,
Class FN, VRN, 5.43%, 10/25/07, resets monthly
off the 1-month LIBOR plus 0.30% with no caps(2) 14,005,603
6,790,201 FNMA, Series 2003-24,
Class BF, VRN, 5.48%, 10/25/07, resets monthly
off the 1-month LIBOR plus 0.35% with no caps 6,824,681
- ------
25
Short-Term Government
Principal Amount Value
$ 3,463,280 FNMA, Series 2003-29,
Class L SEQ, 5.00%, 9/25/30 $ 3,432,045
3,028,618 FNMA, Series 2003-35,
Class KC, 4.50%, 4/25/17 2,998,943
6,163,585 FNMA, Series 2003-42,
Class FK, VRN, 5.53%, 10/25/07, resets monthly off the 1-month
LIBOR plus 0.40% with a cap of
7.50% 6,220,357
7,614,547 FNMA, Series 2003-43,
Class LF, VRN, 5.48%, 10/25/07, resets monthly off the 1-month
LIBOR plus 0.35% with a cap of
8.00%(2) 7,661,811
6,063,623 FNMA, Series 2004 W5,
Class F1, VRN, 5.58%, 10/25/07, resets monthly off the 1-month
LIBOR plus 0.45% with a cap of
7.50% 6,090,345
4,571,475 FNMA, Series 2006-4, Class A SEQ, 6.00%,
11/25/22 4,665,963
25,158,225 GMAC Commercial Mortgage Securities, Inc.
STRIPS - COUPON, Series 2000 C3, Class X, VRN, 1.06%, 10/1/07
(Acquired 2/22/02, Cost
$1,730,611)(3) 775,200
20,000,000 GMAC Commercial Mortgage Securities, Inc.,
Series
2005 C1, Class A2 SEQ, 4.47%, 5/10/43(2) 19,761,661
15,971,487 GNMA, Series 2003-46,
Class PA, 5.00%, 5/20/29(2) 15,969,411
17,035,721 GNMA, Series 2003-55,
Class PG, 5.00%, 6/20/29(2) 17,039,810
13,155,000 Greenwich Capital Commercial Funding Corp.,
Series 2005 GG3, Class A2 SEQ, VRN, 4.31%,
10/1/07(2) 12,969,343
18,456,000 LB-UBS Commercial Mortgage Trust, Series
2003 C3, Class A3 SEQ, 3.85%, 5/11/27(2) 17,751,073
22,157,736 LB-UBS Commercial Mortgage Trust, Series
2005 C2, Class A2 SEQ, 4.82%, 4/15/30(2) 22,080,870
10,000,000 Merrill Lynch Mortgage Trust STRIPS - COUPON,
Series 2006 C1, Class A2, VRN, 5.61%, 10/1/07(2) 10,166,930
7,413,692 Washington Mutual Mortgage Pass-Through
Certificates, Series 2002 AR19, Class A6,
4.16%, 2/25/33(2) 7,415,560
10,000,000 Washington Mutual Mortgage Pass-Through
Certificates, Series 2003 AR10, Class A7,
4.06%, 7/5/16(2) 9,889,990
Principal Amount Value
$ 6,630,329 Wells Fargo Mortgage Backed Securities Trust,
Series
2007-11, Class A19 SEQ, 6.00%, 8/25/37 $ 6,659,476
--------------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(Cost $414,526,203) 416,207,343
--------------
U.S. Government Agency Securities -- 25.7%
29,890,000 FHLB, 4.625%, 2/1/08(2)(4) 29,859,841
25,000,000 FHLB, 5.125%, 6/13/08(2) 25,063,775
100,725,000 FHLMC, 5.00%, 6/11/09(2) 101,692,070
30,000,000 FNMA, 3.375%, 12/15/08(2)(4) 29,617,590
54,000,000 FNMA, 5.375%, 8/15/09(2)(4) 54,953,478
--------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES
(Cost $239,407,677) 241,186,754
--------------
U.S. Treasury Securities -- 10.8% 500,000 U.S. Treasury Notes,
4.375%, 12/31/07(4) 500,586
40,000,000 U.S. Treasury Notes,
5.125%, 6/30/08(2)(4) 40,296,880
25,270,000 U.S. Treasury Notes,
4.875%, 1/31/09(2)(4) 25,568,110
15,000,000 U.S. Treasury Notes,
3.50%, 8/15/09(2)(4) 14,880,480
5,870,000 U.S. Treasury Notes,
4.625%, 10/31/11(4) 5,976,400
13,510,000 U.S. Treasury Notes,
4.50%, 4/30/12(2)(4) 13,679,942
--------------
TOTAL U.S. TREASURY SECURITIES
(Cost $99,777,690) 100,902,398
--------------
Fixed-Rate U.S. Government Agency Mortgage-Backed Securities(1) -- 7.1%
2,854,266 FHLMC, 5.00%, 6/1/09 2,848,671
6,200,117 FHLMC, 5.00%, 7/1/09 6,187,965
162,884 FHLMC, 6.50%, 1/1/11 166,032
286,507 FHLMC, 6.50%, 5/1/11 293,651
301,211 FHLMC, 6.50%, 12/1/12 309,290
839,253 FHLMC, 6.00%, 2/1/13 854,246
44,939 FHLMC, 7.00%, 11/1/13 46,461
41,787 FHLMC, 7.00%, 12/1/14 43,277
1,602,577 FHLMC, 6.00%, 1/1/15 1,625,919
626,552 FHLMC, 7.50%, 5/1/16 651,743
1,614,745 FHLMC, 5.50%, 11/1/17 1,615,296
10,167,475 FHLMC, 5.50%, 11/1/18(2) 10,161,009
9,907,093 FHLMC, 4.50%, 6/1/19(2) 9,548,486
26,833 FNMA, 8.00%, 5/1/12 27,992
1,256,495 FNMA, 6.50%, 1/1/13 1,290,893
10,545 FNMA, 6.50%, 3/1/13 10,833
131,276 FNMA, 6.00%, 6/1/13 133,682
- ------
26
Short-Term Government
Principal Amount Value
$ 16,775 FNMA, 6.50%, 6/1/13 $17,240
39,902 FNMA, 6.00%, 1/1/14 40,503
331,575 FNMA, 6.00%, 7/1/14 336,618
478,934 FNMA, 5.50%, 4/1/16 479,804
9,260,040 FNMA, 4.50%, 5/1/19(2) 8,927,624
572,553 FNMA, 7.00%, 5/1/32 595,916
567,875 FNMA, 7.00%, 5/1/32 591,047
1,293,347 FNMA, 7.00%, 6/1/32 1,346,121
236,659 FNMA, 7.00%, 6/1/32 246,519
437,734 FNMA, 7.00%, 8/1/32 455,595
17,000,000 FNMA, 6.50%, 9/1/37(2) 17,312,868
4,174 GNMA, 5.50%, 1/20/09 4,183
25,289 GNMA, 9.00%, 12/20/16 27,044
24,894 GNMA, 9.00%, 8/20/17 26,697
19,921 GNMA, 9.50%, 11/20/19 21,717
--------------
TOTAL FIXED-RATE U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $67,261,744) 66,244,942
--------------
Asset-Backed Securities(1) -- 3.8%
243,027 Ameriquest Mortgage Securities Inc., Series
2003-8, Class AV2, VRN, 5.56%, 10/25/07, resets
monthly off the 1-month LIBOR plus 0.43% with
no caps 242,599
6,023,430 CNH Equipment Trust,
Series 2005 B, Class A3 SEQ, 4.27%, 1/15/10 5,998,945
30,000,000 Ford Credit Auto Owner Trust, Series 2005 A,
Class A4 SEQ, 3.72%, 10/15/09(2) 29,764,501
--------------
TOTAL ASSET-BACKED SECURITIES
(Cost $36,265,854) 36,006,045
--------------
Adjustable-Rate U.S. Government Agency Mortgage-Backed Securities(1) -- 0.8%
23,461 FHLMC, 6.97%, 8/1/18 23,861
62,431 FHLMC, 7.25%, 11/1/18 62,721
326,769 FHLMC, 6.95%, 9/1/20 334,967
56,774 FHLMC, 5.75%, 1/1/21 57,605
70,301 FHLMC, 7.63%, 3/1/24 70,683
15,477 FNMA, 7.49%, 8/1/14 15,738
48,440 FNMA, 6.875%, 4/1/16 48,531
38,273 FNMA, 7.32%, 1/1/17 38,529
243,889 FNMA, 6.98%, 5/1/17 245,523
121,229 FNMA, 6.53%, 7/1/17 121,692
54,480 FNMA, 6.87%, 7/1/17 55,398
Principal Amount Value
$ 91,767 FNMA, 6.84%, 2/1/18 $93,243
31,202 FNMA, 7.25%, 2/1/18 32,310
69,280 FNMA, 6.83%, 5/1/18 69,702
33,619 FNMA, 7.01%, 6/1/18 34,389
74,840 FNMA, 6.88%, 8/1/19 75,515
305,910 FNMA, 6.98%, 9/1/19 307,168
112,572 FNMA, 6.83%, 1/1/20 115,061
37,645 FNMA, 7.54%, 3/1/21 37,948
46,833 FNMA, 5.85%, 8/1/21 47,321
20,608 FNMA, 6.81%, 5/1/22 20,879
67,460 FNMA, 7.20%, 5/1/22 67,544
20,264 FNMA, 6.94%, 1/1/23 20,477
4,201 FNMA, 7.50%, 6/1/23 4,268
139,802 FNMA, 7.17%, 8/1/23 141,494
57,946 FNMA, 7.18%, 8/1/23 58,722
924,140 FNMA, 6.68%, 5/1/25 938,181
17,379 FNMA, 5.97%, 1/1/27 17,484
12,143 FNMA, 7.16%, 1/1/27 12,206
26,526 FNMA, 5.50%, 1/1/29 26,654
4,364,553 FNMA, 4.53%, 3/1/33 4,410,871
20,826 GNMA, 6.375%, 5/20/17 20,983
91,344 GNMA, 6.875%, 2/20/21 93,171
34,129 GNMA, 6.625%, 11/20/21 34,512
891 GNMA, 6.375%, 1/20/22 901
24,385 GNMA, 6.25%, 8/20/26 24,787
--------------
TOTAL ADJUSTABLE-RATE
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $7,935,287) 7,781,039
--------------
Temporary Cash Investments -- 7.5%
25,851,000 FHLB Discount Notes,
4.00%, 10/1/07(2)(5) 25,851,000
30,000,000 FNMA Discount Notes,
5.14%, 10/17/07(2)(4)(5) 29,939,940
15,000,000 FNMA Discount Notes,
4.75%, 12/28/07(2)(5) 14,836,650
--------------
TOTAL TEMPORARY
CASH INVESTMENTS
(Cost $70,608,300) 70,627,590
--------------
Temporary Cash Investments - Securities Lending Collateral(6) -- 16.7%
Repurchase Agreement, Citigroup Global Markets Inc.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 5.00%, dated 9/28/07,
due 10/1/07 (Delivery value $150,062,500) 150,000,000
- ------
27
Short-Term Government
Principal Amount Value
Repurchase Agreement, Lehman Brothers, Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.15%, dated 9/28/07, due 10/1/07
(Delivery value $6,675,946) $ 6,673,082
--------------
TOTAL TEMPORARY CASH INVESTMENTS - SECURITIES LENDING COLLATERAL
(Cost $156,673,082) 156,673,082
--------------
TOTAL INVESTMENT
SECURITIES -- 116.8%
(Cost $1,092,455,837) 1,095,629,193
--------------
OTHER ASSETS AND
LIABILITIES -- (16.8)% (157,947,438)
--------------
TOTAL NET ASSETS -- 100.0% $ 937,681,755
==============
Futures Contracts
Underlying Face Unrealized
Contracts Purchased Expiration Date Amount at Value Gain (Loss)
2,877 U.S. Treasury
2-Year Notes December 2007 $595,673,859 $3,073,683
============== ==============
Underlying Face Unrealized
Contracts Sold Expiration Date Amount at Value Gain (Loss)
771 U.S. Treasury
5-Year Notes December 2007 $ 82,521,094 $ (953,438)
671 U.S. Treasury
10-Year Notes December 2007 73,327,719 (1,120,090)
-------------- --------------
$155,848,813 $(2,073,528)
============== ==============
Notes to Schedule of Investments
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
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective September 30, 2007.
(1) Final maturity indicated, unless otherwise noted.
(2) Security, or a portion thereof, has been segregated for futures contracts.
(3) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 2007, was $775,200,
which represented 0.1% of total net assets.
(4) Security, or a portion thereof, was on loan as of September 30, 2007.
(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 Notes to Financial Statements.
- ------
28
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 April 1, 2007 to September 30, 2007.
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.
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.
- ------
29
Expenses Paid
Beginning During
Account Ending Period(1) Annualized
Value Account Value 4/1/07 - Expense
4/1/07 9/30/07 9/30/07 Ratio(1)
Ginnie Mae
ACTUAL
Investor Class
(after waiver)(2) $1,000 $1,019.40 $2.73 0.54%
Investor Class
(before waiver) $1,000 $1,019.40(3) $2.88 0.57%
Advisor Class
(after waiver)(2) $1,000 $1,018.10 $3.99 0.79%
Advisor Class
(before waiver) $1,000 $1,018.10(3) $4.14 0.82%
C Class (after
waiver)(2) $1,000 $1,014.30 $7.76 1.54%
C Class (before waiver) $1,000 $1,014.30(3) $7.91 1.57%
HYPOTHETICAL
Investor Class
(after waiver)(2) $1,000 $1,022.30 $2.73 0.54%
Investor Class
(before waiver) $1,000 $1,022.15 $2.88 0.57%
Institutional Class
(after waiver)(2)(4) $1,000 $1,023.30 $1.72 0.34%
Institutional Class
(before waiver)(4) $1,000 $1,023.15 $1.87 0.37%
Advisor Class
(after waiver)(2) $1,000 $1,021.05 $3.99 0.79%
Advisor Class
(before waiver) $1,000 $1,020.90 $4.14 0.82%
C Class
(after waiver)(2) $1,000 $1,017.30 $7.77 1.54%
C Class
(before waiver) $1,000 $1,017.15 $7.92 1.57%
R Class (after
waiver)(2)(4) $1,000 $1,019.80 $5.25 1.04%
R Class
(before waiver)(4) $1,000 $1,019.65 $5.40 1.07%
(1) 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 183, the number of days in the most recent fiscal half-year, divided by 366,
to reflect the one-half year period.
(2) During the six months ended September 30, 2007, the investment advisor
waived a portion of the class's management fee.
(3) Ending account value assumes the return earned after waiver. The return
would have been lower had fees not been waived and would have resulted in a
lower ending account value.
(4) The Institutional Class and R Class commenced on September 28, 2007, the
last business day in the period. No expenses were paid by the share classes
during the most recent fiscal half-year. Therefore, the actual expense is not
presented.
- ------
30
Expenses Paid
Beginning During
Account Ending Period(1) Annualized
Value Account Value 4/1/07 - Expense
4/1/07 9/30/07 9/30/07 Ratio(1)
Government Bond
ACTUAL
Investor Class $1,000 $1,027.70 $2.48 0.49%
Advisor Class $1,000 $1,026.50 $3.75 0.74%
HYPOTHETICAL
Investor Class $1,000 $1,022.55 $2.48 0.49%
Advisor Class $1,000 $1,021.30 $3.74 0.74%
Inflation-Adjusted Bond
ACTUAL
Investor Class $1,000 $1,033.50 $2.49 0.49%
Institutional Class $1,000 $1,034.50 $1.48 0.29%
Advisor Class $1,000 $1,033.10 $3.76 0.74%
HYPOTHETICAL
Investor Class $1,000 $1,022.55 $2.48 0.49%
Institutional Class $1,000 $1,023.55 $1.47 0.29%
Advisor Class $1,000 $1,021.30 $3.74 0.74%
Short-Term Government
ACTUAL
Investor Class $1,000 $1,028.50 $2.89 0.57%
Advisor Class $1,000 $1,027.30 $4.16 0.82%
HYPOTHETICAL
Investor Class $1,000 $1,022.15 $2.88 0.57%
Advisor Class $1,000 $1,020.90 $4.14 0.82%
(1) 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 183, the number of days in the most recent fiscal half-year, divided by 366,
to reflect the one-half year period.
- ------
31
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2007 (UNAUDITED)
Government Inflation-Adjusted Short-Term
Ginnie Mae Bond Bond Government
ASSETS
Investment
securities, at value
(cost of
$1,645,508,222,
$627,818,867,
$1,078,119,731, and
$935,782,755,
respectively) --
including $--,
$188,780,510,
$339,407,698, and
$162,613,353
of securities
on loan, respectively $1,626,617,404 $630,612,634 $1,089,596,183 $ 938,956,111
Investments made
with cash collateral
received for
securities on loan,
at value
(cost of $--,
$162,701,070,
$345,874,774,
and $156,673,082,
respectively) -- 162,701,070 345,874,774 156,673,082
-------------- ------------ -------------- -------------
Total investment
securities,
at value
(cost of
$1,645,508,222,
$790,519,937,
$1,423,994,505, and
$1,092,455,837,
respectively) 1,626,617,404 793,313,704 1,435,470,957 1,095,629,193
Cash 59,019 810,180 44,238 --
Receivable for
investments sold -- -- -- 3,388
Receivable for
variation margin
on futures contracts 9,516 22,498 862,322 --
Unrealized
appreciation
on swap agreements -- -- 625,462 --
Interest receivable 6,346,544 5,436,954 6,543,819 6,075,428
-------------- ------------ -------------- -------------
1,633,032,483 799,583,336 1,443,546,798 1,101,708,009
-------------- ------------ -------------- -------------
LIABILITIES
Disbursements
in excess
of demand
deposit cash -- -- -- 134,614
Payable for
collateral received
for securities
on loan -- 162,701,070 345,874,774 156,673,082
Payable for
investments purchased 370,901,838 34,625,601 -- 6,628,226
Payable for
variation margin
on futures contracts -- -- -- 71,954
Accrued management
fees 504,727 230,704 406,970 431,732
Distribution
fees payable 24,650 9,807 73,637 5,506
Service fees payable 4,230 9,807 7,315 5,506
Dividends payable 737,864 175,222 274,141 75,634
-------------- ------------ -------------- -------------
372,173,309 197,752,211 346,636,837 164,026,254
-------------- ------------ -------------- -------------
NET ASSETS $1,260,859,174 $601,831,125 $1,096,909,961 $ 937,681,755
============== ============ ============== =============
See Notes to Financial Statements.
- ------
32
SEPTEMBER 30, 2007 (UNAUDITED)
Government Inflation-Adjusted Short-Term
Ginnie Mae Bond Bond Government
NET ASSETS CONSIST OF:
Capital paid in $1,343,882,088 $610,478,088 $1,111,830,682 $977,515,251
Accumulated net
realized loss
on investment
transactions (64,040,164) (11,616,308) (28,029,828) (44,007,007)
Net unrealized
appreciation
(depreciation)
on investments (18,982,750) 2,969,345 13,109,107 4,173,511
-------------- ------------ -------------- ------------
$1,260,859,174 $601,831,125 $1,096,909,961 $937,681,755
============== ============ ============== ============
INVESTOR CLASS
Net assets $1,166,720,484 $552,228,577 $604,007,354 $910,627,922
Shares outstanding 115,460,221 52,656,013 55,958,856 96,703,248
Net asset value per
share $10.10 $10.49 $10.79 $9.42
INSTITUTIONAL CLASS
Net assets $25,000 N/A $135,349,615 N/A
Shares outstanding 2,473 N/A 12,551,947 N/A
Net asset value per
share $10.11 N/A $10.78 N/A
ADVISOR CLASS
Net assets $82,917,300 $49,602,548 $357,552,992 $27,053,833
Shares outstanding 8,205,606 4,729,714 33,180,570 2,872,954
Net asset value per
share $10.10 $10.49 $10.78 $9.42
C CLASS
Net assets $11,171,390 N/A N/A N/A
Shares outstanding 1,105,536 N/A N/A N/A
Net asset value per
share $10.10 N/A N/A N/A
R CLASS
Net assets $25,000 N/A N/A N/A
Shares outstanding 2,473 N/A N/A N/A
Net asset value per
share $10.11 N/A N/A N/A
See Notes to Financial Statements.
- ------
33
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
Government Inflation-Adjusted Short-Term
Ginnie Mae Bond Bond Government
INVESTMENT INCOME (LOSS)
INCOME:
Interest $34,448,813 $14,497,200 $42,610,318 $23,938,660
Securities lending -- 207,783 243,842 208,453
------------ ----------- ------------ -----------
34,448,813 14,704,983 42,854,160 24,147,113
------------ ----------- ------------ -----------
EXPENSES:
Management fees 3,539,361 1,324,762 2,120,185 2,639,809
Distribution fees:
Advisor Class 84,741 53,050 395,386 33,584
C Class 58,902 -- -- --
Service fees:
Advisor Class 84,741 53,050 395,386 33,584
C Class 19,634 -- -- --
Distribution and
service fees:
Advisor Class 18,686 -- 80,953 --
Trustees' fees and
expenses 34,078 12,724 25,190 25,096
Other expenses 465 197 396 342
------------ ----------- ------------ -----------
3,840,608 1,443,783 3,017,496 2,732,415
------------ ----------- ------------ -----------
Amount waived (166,818) -- -- --
------------ ----------- ------------ -----------
3,673,790 1,443,783 3,017,496 2,732,415
------------ ----------- ------------ -----------
NET INVESTMENT
INCOME (LOSS) 30,775,023 13,261,200 39,836,664 21,414,698
------------ ----------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN
(LOSS) ON:
Investment
transactions (1,351,514) (1,399,616) (3,160,704) (998,410)
Futures and swaps
transactions 303,161 766,866 1,799,577 1,975,307
------------ ----------- ------------ -----------
(1,048,353) (632,750) (1,361,127) 976,897
------------ ----------- ------------ -----------
CHANGE IN NET
UNREALIZED
APPRECIATION
(DEPRECIATION) ON:
Investments (5,546,334) 3,337,538 (3,458,626) 3,321,673
Futures and swaps (443,347) (158,503) 782,884 235,550
------------ ----------- ------------ -----------
(5,989,681) 3,179,035 (2,675,742) 3,557,223
------------ ----------- ------------ -----------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) (7,038,034) 2,546,285 (4,036,869) 4,534,120
------------ ----------- ------------ -----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS $23,736,989 $15,807,485 $35,799,795 $25,948,818
============ =========== ============ ===========
See Notes to Financial Statements.
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34
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED) AND YEAR ENDED MARCH 31, 2007
Ginnie Mae Government Bond
Increase
(Decrease) in Net
Assets Sept. 30, 2007 March 31, 2007 Sept. 30, 2007 March 31, 2007
OPERATIONS
Net investment
income (loss) $ 30,775,023 $ 63,629,308 $ 13,261,200 $ 24,339,194
Net realized gain
(loss) (1,048,353) (639,909) (632,750) (2,450,302)
Change in net
unrealized
appreciation
(depreciation) (5,989,681) 9,443,469 3,179,035 8,779,855
-------------- -------------- -------------- --------------
Net increase
(decrease) in net assets resulting from
operations 23,736,989 72,432,868 15,807,485 30,668,747
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net
investment income:
Investor Class (29,767,933) (62,687,520) (12,386,771) (22,829,044)
Advisor Class (1,941,944) (3,498,765) (950,174) (1,723,161)
C Class (314,071) (666,093) -- --
-------------- -------------- -------------- --------------
Decrease in net
assets from
distributions (32,023,948) (66,852,378) (13,336,945) (24,552,205)
-------------- -------------- -------------- --------------
CAPITAL SHARE TRANSACTIONS
Net increase
(decrease) in net assets from capital share
transactions (53,942,342) (154,481,199) 58,358,102 (31,006,816)
-------------- -------------- -------------- --------------
NET INCREASE
(DECREASE) IN NET
ASSETS (62,229,301) (148,900,709) 60,828,642 (24,890,274)
NET ASSETS
Beginning of period 1,323,088,475 1,471,989,184 541,002,483 565,892,757
-------------- -------------- -------------- --------------
End of period $1,260,859,174 $1,323,088,475 $601,831,125 $541,002,483
============== ============== ============== ==============
See Notes to Financial Statements.
- ------
35
SIX MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED) AND YEAR ENDED MARCH 31, 2007
Inflation-Adjusted Bond Short-Term Government
Increase
(Decrease) in Net
Assets Sept. 30, 2007 March 31, 2007 Sept. 30, 2007 March 31, 2007
OPERATIONS
Net investment
income (loss) $ 39,836,664 $ 46,570,855 $ 21,414,698 $ 40,810,178
Net realized gain
(loss) (1,361,127) (20,816,240) 976,897 (3,693,964)
Change in net
unrealized
appreciation
(depreciation) (2,675,742) 29,746,690 3,557,223 9,028,972
-------------- -------------- --------------- --------------
Net increase
(decrease) in net assets resulting from
operations 35,799,795 55,501,305 25,948,818 46,145,186
-------------- -------------- --------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net
investment income:
Investor Class (21,573,258) (24,434,292) (20,972,138) (39,977,283)
Institutional
Class (4,799,576) (3,566,060) -- --
Advisor Class (13,463,830) (18,570,503) (579,493) (1,211,741)
From return of
capital:
Investor Class -- (413,462) -- --
Advisor Class -- (961,991) -- --
-------------- -------------- --------------- --------------
Decrease in net
assets from
distributions (39,836,664) (47,946,308) (21,551,631) (41,189,024)
-------------- -------------- --------------- --------------
CAPITAL SHARE TRANSACTIONS
Net increase
(decrease) in net assets from capital share
transactions (27,309,531) (254,482,568) (31,285,307) 11,152,711
-------------- -------------- --------------- --------------
NET INCREASE
(DECREASE) IN NET
ASSETS (31,346,400) (246,927,571) (26,888,120) 16,108,873
NET ASSETS
Beginning of period 1,128,256,361 1,375,183,932 964,569,875 948,461,002
-------------- -------------- --------------- --------------
End of period $1,096,909,961 $1,128,256,361 $937,681,755 $964,569,875
============== ============== =============== ==============
See Notes to Financial Statements.
- ------
36
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Ginnie Mae Fund (Ginnie Mae), Government
Bond Fund (Government Bond), Inflation-Adjusted Bond Fund (Inflation-Adjusted),
and Short-Term Government Fund (Short-Term Government) (collectively, the funds)
are four funds in a series issued by the trust. The funds are diversified under
the 1940 Act.
Ginnie Mae seeks 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 pursues 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 pursues 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
Institutional Class, the Advisor Class, the C Class and the R 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 distribution and shareholder servicing 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. Sale of Ginnie Mae's Institutional
Class and R Class commenced on September 28, 2007, the last business day in the
period. Financial Highlights are not presented for Ginnie Mae's Institutional
Class and R Class, as the classes had no operating results since their
commencement of sale.
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 as determined by, or
in accordance with procedures adopted by, the Board of Trustees or its designee
if such determination would materially impact a fund's net asset value. Certain
other circumstances may cause the funds to use alternative procedures to value a
security such as: 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; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading will
commence.
SECURITY TRANSACTIONS -- For financial reporting, 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.
- ------
37
SECURITIES ON LOAN -- The funds may lend portfolio securities through their
lending agent to certain approved borrowers in order to earn additional income.
The funds continue to recognize any gain or loss in the market price of the
securities loaned and record any interest earned or dividends declared.
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 swap agreements 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 basic 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.
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. The funds are no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax
- ------
38
positions that would materially impact the financial statements. Accordingly, no
provision has been made for federal or state income taxes. Interest and
penalties associated with any federal or state income tax obligations, if any,
are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income for
the funds are declared daily and paid monthly. Effective October 1, 2007,
Inflation-Adjusted Bond will pay distributions from net investment income
quarterly. 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
On July 27, 2007, the Advisor Class shareholders of Ginnie Mae and
Inflation-Adjusted approved a change to the class's fee structure. The change
was approved by the Board of Trustees on December 8, 2006. Effective September
4, 2007, the fee structure change resulted in an increase of 0.25% in the
unified management fee and a simultaneous decrease of 0.25% in the total
distribution and service fee, resulting in no change to the total operating
expense ratio of the class.
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 Class, C Class and R Class) for the funds
range from 0.2500% to 0.3100%. The Institutional Class is 0.2000% less at each
point within the Complex Fee range. The Advisor Class is 0.2500% less at each
point within the Complex Fee range for Government Bond and Short-Term
Government. The Advisor Class is the same as Investor Class for Ginnie Mae and
Inflation-Adjusted. Prior to September 4, 2007, the Advisor Class was 0.2500%
less at each point within the Complex Fee range for Ginnie Mae and
Inflation-Adjusted. Effective August 1, 2007, the investment advisor voluntarily
agreed to waive 0.079% of its management fee for Ginnie Mae. The total amount of
the waiver for the six months ended September 30, 2007, was $154,195, $10,825
and $1,798 for the Investor Class, Advisor Class and C Class, respectively. The
effective annual management fee for each class of each fund for the six months
ended September 30, 2007, was as follows:
Investor Institutional Advisor C R
Ginnie Mae
(before waiver) 0.57% 0.37% 0.36% 0.57% 0.57%
Ginnie Mae
(after waiver) 0.54% 0.34% 0.33% 0.54% 0.54%
Government Bond 0.49% N/A 0.24% N/A N/A
Inflation-Adjusted 0.49% 0.29% 0.28% N/A N/A
Short-Term Government 0.57% N/A 0.32% N/A N/A
- ------
39
DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a Master
Distribution and Shareholder Services Plan for the Advisor Class of Government
Bond and Short-Term Government and a separate Master Distribution and Individual
Shareholder Services Plan for the Advisor Class of Ginnie Mae and
Inflation-Adjusted, C Class and R Class (collectively, the plans), pursuant to
Rule 12b-1 of the 1940 Act. The plans provide that the Advisor Class of Ginnie
Mae and Inflation-Adjusted will pay American Century Investment Services, Inc.
(ACIS) an annual distribution and service fee of 0.25%. Prior to September 4,
2007, the Board of Trustees had adopted a Master Distribution and Shareholder
Services Plan for the Advisor Class of Ginnie Mae and Inflation-Adjusted which
provided that the Advisor Class of Ginnie Mae and Inflation-Adjusted would pay
ACIS an annual distribution fee of 0.25% and service fee of 0.25%. The plans
provide that the Advisor Class will pay ACIS an annual distribution fee of 0.25%
and service fee of 0.25% for Government Bond and Short-Term Government. The
plans provide that the C Class will pay ACIS an annual distribution fee of 0.75%
and service fee of 0.25%. The plans provide that the R Class will pay ACIS an
annual distribution and service fee of 0.50%. 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 and R
Class shares. Fees incurred under the plans during the six months ended
September 30, 2007, 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
56% of the shares of Short-Term Government.
The funds have a bank line of credit agreement and securities lending agreement
with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the funds and a wholly
owned subsidiary of JP Morgan Chase & Co. (JPM). JPM is an equity investor in
ACC.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended September 30, 2007, were as follows:
Government ted Short-Term
Ginnie Mae Bond Inflation-Adjus Government
PURCHASES
U.S. Treasury & Government
Agency Obligations $2,488,999,688 $684,403,495 $194,946,595 $502,633,262
Investment
securities other
than
U.S. Treasury &
Government
Agency Obligations -- $748,014 $14,070,298 $32,778,226
PROCEEDS FROM SALES
U.S. Treasury & Government
Agency Obligations $2,527,860,889 $648,087,567 $236,333,060 $602,938,825
Investment
securities other
than
U.S. Treasury &
Government
Agency Obligations -- $40,235 $57,842,441 $10,540,690
- ------
40
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows (unlimited number of shares
authorized):
Six months ended September Year ended March 31, 2007
30, 2007(1)
Shares Amount Shares Amount
Ginnie Mae
INVESTOR CLASS
Sold 5,491,266 $ 55,279,203 12,154,179 $ 122,839,152
Issued in
reinvestment of
distributions 2,499,820 25,151,659 5,206,146 52,577,926
Redeemed (12,504,709) (125,748,731) (34,023,092) (342,841,001)
------------ ------------- ------------ --------------
(4,513,623) (45,317,869) (16,662,767) (167,423,923)
------------ ------------- ------------ --------------
INSTITUTIONAL CLASS
Sold 2,473 25,000 -- --
------------ ------------- ------------ --------------
ADVISOR CLASS
Sold 1,636,354 16,495,699 3,986,459 40,301,084
Issued in
reinvestment of
distributions 136,149 1,370,103 267,582 2,703,588
Redeemed (2,024,251) (20,481,148) (3,112,632) (31,356,322)
------------ ------------- ------------ --------------
(251,748) (2,615,346) 1,141,409 11,648,350
------------ ------------- ------------ --------------
C CLASS
Sold 36,958 375,141 357,152 3,602,504
Issued in
reinvestment of
distributions 29,036 292,104 63,045 637,067
Redeemed (668,164) (6,726,372) (291,382) (2,945,197)
------------ ------------- ------------ --------------
(602,170) (6,059,127) 128,815 1,294,374
------------ ------------- ------------ --------------
R CLASS
Sold 2,473 25,000 -- --
------------ ------------- ------------ --------------
Net increase
(decrease) (5,362,595) $(53,942,342) (15,392,543) $(154,481,199)
============ ============= ============ ==============
Government Bond
INVESTOR CLASS
Sold 10,914,998 $113,363,280 9,691,407 $ 100,632,759
Issued in
reinvestment of
distributions 1,084,778 11,267,348 1,972,482 20,457,036
Redeemed (7,215,307) (74,906,376) (14,583,174) (150,993,559)
------------ ------------- ------------ --------------
4,784,469 49,724,252 (2,919,285) (29,903,764)
------------ ------------- ------------ --------------
ADVISOR CLASS
Sold 1,786,982 18,519,345 1,345,067 13,970,111
Issued in
reinvestment of
distributions 82,817 860,392 157,771 1,636,301
Redeemed (1,031,507) (10,745,887) (1,613,827) (16,709,464)
------------ ------------- ------------ --------------
838,292 8,633,850 (110,989) (1,103,052)
------------ ------------- ------------ --------------
Net increase
(decrease) 5,622,761 $ 58,358,102 (3,030,274) $ (31,006,816)
============ ============= ============ ==============
(1) September 28, 2007 (commencement of sale) through September 30, 2007 for the
Institutional Class and the R Class for Ginnie Mae.
- ------
41
Six months ended September
30, 2007 Year ended March 31, 2007
Shares Amount Shares Amount
Inflation-Adjusted Bond
INVESTOR CLASS
Sold 13,523,212 $ 144,489,606 16,741,880 $ 178,571,390
Issued in
reinvestment of
distributions 1,480,390 15,718,496 1,696,384 18,087,720
Redeemed (13,595,111) (144,954,249) (29,525,746) (314,817,958)
------------ ------------- ------------ --------------
1,408,491 15,253,853 (11,087,482) (118,158,848)
------------ ------------- ------------ --------------
INSTITUTIONAL CLASS
Sold 2,733,180 28,924,832 6,097,729 65,039,321
Issued in
reinvestment of
distributions 319,839 3,392,133 243,437 2,598,155
Redeemed (1,433,683) (15,183,528) (3,036,972) (32,459,122)
------------ ------------- ------------ --------------
1,619,336 17,133,437 3,304,194 35,178,354
------------ ------------- ------------ --------------
ADVISOR CLASS
Sold 4,861,930 51,589,808 12,000,398 127,989,156
Issued in
reinvestment of
distributions 1,214,866 12,876,499 1,735,480 18,484,497
Redeemed (11,709,254) (124,163,128) (29,825,709) (317,975,727)
------------ ------------- ------------ --------------
(5,632,458) (59,696,821) (16,089,831) (171,502,074)
------------ ------------- ------------ --------------
Net increase
(decrease) (2,604,631) $(27,309,531) (23,873,119) $(254,482,568)
============ ============= ============ ==============
Short-Term Government
INVESTOR CLASS
Sold 3,028,271 $ 28,318,230 21,123,470 $ 197,185,357
Issued in
reinvestment of
distributions 2,170,141 20,298,554 4,137,005 38,631,531
Redeemed (8,483,103) (79,293,369) (23,884,477) (222,896,608)
------------ ------------- ------------ --------------
(3,284,691) (30,676,585) 1,375,998 12,920,280
------------ ------------- ------------ --------------
ADVISOR CLASS
Sold 365,365 3,419,588 1,086,892 10,145,937
Issued in
reinvestment of
distributions 61,580 575,999 129,215 1,206,560
Redeemed (492,812) (4,604,309) (1,405,842) (13,120,066)
------------ ------------- ------------ --------------
(65,867) (608,722) (189,735) (1,767,569)
------------ ------------- ------------ --------------
Net increase
(decrease) (3,350,558) $(31,285,307) 1,186,263 $ 11,152,711
============ ============= ============ ==============
5. SECURITIES LENDING
As of September 30, 2007, securities in Government Bond, Inflation-Adjusted and
Short-Term Government, valued at $188,780,510, $339,407,698 and $162,613,353,
respectively, were on loan through the lending agent, JPMCB, to certain approved
borrowers. As of September 30, 2007, Ginnie Mae did not have any securities on
loan. 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 $191,371,573, $345,874,774 and $163,979,587, respectively. The
funds' risks in securities lending are that the borrower may not provide
additional collateral when required or return the securities when due. If the
borrower defaults, receipt of the collateral by the funds may be delayed or
limited.
- ------
42
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. 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 0.40%. The funds did not borrow from the line during the six months
ended September 30, 2007.
7. 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 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.
As of September 30, 2007, the components of investments for federal income tax
purposes were as follows:
Government ed Short-Term
Ginnie Mae Bond Inflation-Adjust Government
Federal tax cost
of investments $1,645,758,222 $790,589,823 $1,428,557,765 $1,092,455,837
============== ============ ============== ==============
Gross tax
appreciation
of investments $ 4,444,709 $ 5,440,820 $ 18,906,515 $ 5,339,521
Gross tax
depreciation
of investments (23,585,527) (2,716,939) (11,993,323) (2,166,165)
-------------- ------------ -------------- --------------
Net tax
appreciation
(depreciation)
of investments $(19,140,818) $ 2,723,881 $ 6,913,192 $ 3,173,356
============== ============ ============== ==============
The difference between book-basis and tax-basis cost and unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales.
Following are the capital loss carryovers and capital loss deferral amounts as
of March 31, 2007:
Government ed Short-Term
Ginnie Mae Bond Inflation-Adjust Government
Accumulated
capital losses $(59,939,339) $(10,345,766) $(14,042,196) $(42,795,213)
Capital loss
deferrals $(1,116,209) $(383,149) $(6,728,357) $(996,080)
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:
2008 2009 2011 2012 2013 2014 2015
Ginnie Mae $(7,179,913) $(255,936) $(285,414) $(22,063,924) $(11,922,927) $(10,878,793) $(7,352,432)
Government
Bond -- -- -- -- $(3,509,402) -- $(6,836,364)
Inflation-
Adjusted -- -- -- -- -- $(841,021) $(13,201,175)
Short-Term
Government $(15,891,898) $(3,678,384) -- -- $(8,188,381) $(7,433,320) $(7,603,230)
The capital loss deferrals listed above represent net capital losses incurred in
the five-month period ended March 31, 2007. The funds have elected to treat such
losses as having been incurred in the following fiscal year for federal income
tax purposes.
- ------
43
8. CORPORATE EVENT
On August 24, 2007, the Advisor Class shareholders of Government Bond and
Short-Term Government approved a change to the class's fee structure. The change
was approved by the Board of Trustees on December 8, 2006. The change is
expected to be effective December 3, 2007.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a minimum
threshold for financial statement recognition of the benefit of positions taken
in filing tax returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. FIN 48 is
effective for fiscal years beginning after December 15, 2006, and is to be
applied to all open tax years as of the date of effectiveness. Management has
concluded that the adoption of FIN 48 will not materially impact the financial
statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" (FAS 157), in September 2006, which is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands the required financial statement
disclosures about fair value measurements. Management is currently evaluating
the impact that adopting FAS 157 will have on the financial statement
disclosures.
- ------
44
FINANCIAL HIGHLIGHTS
Ginnie Mae
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.17 $10.11 $10.34 $10.61 $10.85 $10.58
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.24 0.48 0.43 0.37 0.29 0.48
Net
Realized and
Unrealized
Gain (Loss) (0.06) 0.08 (0.18) (0.15) (0.04) 0.35
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.18 0.56 0.25 0.22 0.25 0.83
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.25) (0.50) (0.48) (0.49) (0.49) (0.56)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.10 $10.17 $10.11 $10.34 $10.61 $10.85
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 1.94% 5.69% 2.47% 2.11% 2.43% 8.03%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses
to Average
Net Assets 0.54%(4)(5) 0.57% 0.57% 0.58% 0.59% 0.59%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 4.84%(4)(5) 4.71% 4.15% 3.58% 2.77% 4.46%
Portfolio
Turnover Rate 177% 410% 315% 315% 356% 356%
Net Assets, End
of Period (in
thousands) $1,166,720 $1,219,743 $1,382,022 $1,482,999 $1,676,815 $2,100,358
(1) Six months ended September 30, 2007 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(4) Annualized.
(5) Effective August 1, 2007, the investment advisor voluntarily agreed to waive
a portion of its management fee. Had fees not been waived, the annualized ratio
of operating expenses to average net assets and the annualized ratio of net
investment income (loss) to average net assets would have been 0.57% and 4.81%,
respectively.
See Notes to Financial Statements.
- ------
45
Ginnie Mae
Advisor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.17 $10.11 $10.34 $10.61 $10.85 $10.58
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.24 0.45 0.40 0.35 0.27 0.46
Net
Realized and
Unrealized
Gain (Loss) (0.07) 0.08 (0.17) (0.16) (0.04) 0.35
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.17 0.53 0.23 0.19 0.23 0.81
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.24) (0.47) (0.46) (0.46) (0.47) (0.54)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.10 $10.17 $10.11 $10.34 $10.61 $10.85
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 1.81% 5.42% 2.22% 1.85% 2.18% 7.76%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.79%(4)(5) 0.82% 0.82% 0.83% 0.84% 0.84%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 4.59%(4)(5) 4.46% 3.90% 3.33% 2.52% 4.21%
Portfolio
Turnover Rate 177% 410% 315% 315% 356% 356%
Net Assets, End
of Period (in
thousands) $82,917 $85,984 $73,998 $72,571 $61,288 $75,999
(1) Six months ended September 30, 2007 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(4) Annualized.
(5) Effective August 1, 2007, the investment advisor voluntarily agreed to waive
a portion of its management fee. Had fees not been waived, the annualized ratio
of operating expenses to average net assets and the annualized ratio of net
investment income (loss) to average net assets would have been 0.82% and 4.56%,
respectively.
See Notes to Financial Statements.
- ------
46
Ginnie Mae
C Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.17 $10.11 $10.34 $10.61 $10.85 $10.57
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.20 0.37 0.33 0.28 0.22 0.40
Net
Realized and
Unrealized
Gain (Loss) (0.07) 0.09 (0.18) (0.17) (0.05) 0.36
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.13 0.46 0.15 0.11 0.17 0.76
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.20) (0.40) (0.38) (0.38) (0.41) (0.48)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.10 $10.17 $10.11 $10.34 $10.61 $10.85
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 1.43% 4.64% 1.45% 1.10% 1.60% 7.23%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 1.54%(4)(5) 1.57% 1.57% 1.58% 1.42% 1.33%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 3.84%(4)(5) 3.71% 3.15% 2.58% 1.94% 3.72%
Portfolio
Turnover Rate 177% 410% 315% 315% 356% 356%
Net Assets, End
of Period (in
thousands) $11,171 $17,362 $15,970 $13,795 $8,257 $5,078
(1) Six months ended September 30, 2007 (unaudited).
(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) Effective August 1, 2007, the investment advisor voluntarily agreed to waive
a portion of its management fee. Had fees not been waived, the annualized ratio
of operating expenses to average net assets and the annualized ratio of net
investment income (loss) to average net assets would have been 1.57% and 3.81%,
respectively.
See Notes to Financial Statements.
- ------
47
Government Bond
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.45 $10.33 $10.52 $10.93 $11.25 $10.60
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss) 0.24(2) 0.48(2) 0.42(2) 0.29(2) 0.28(2) 0.38
Net
Realized and
Unrealized
Gain (Loss) 0.04 0.12 (0.19) (0.24) (0.02) 0.99
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.28 0.60 0.23 0.05 0.26 1.37
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.24) (0.48) (0.42) (0.30) (0.29) (0.38)
From Net
Realized
Gains -- -- -- (0.16) (0.29) (0.34)
-------- -------- -------- -------- -------- --------
Total
Distributions (0.24) (0.48) (0.42) (0.46) (0.58) (0.72)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.49 $10.45 $10.33 $10.52 $10.93 $11.25
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 2.77% 5.95% 2.17% 0.50% 2.42% 13.17%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.49%(4) 0.49% 0.49% 0.50% 0.51% 0.51%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 4.70%(4) 4.60% 3.94% 2.70% 2.56% 3.34%
Portfolio
Turnover Rate 123% 319% 416% 553% 376% 229%
Net Assets, End
of Period
(in thousands) $552,229 $500,331 $524,557 $438,997 $468,052 $590,433
(1) Six months ended September 30, 2007 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
48
Government Bond
Advisor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.45 $10.33 $10.52 $10.93 $11.25 $10.60
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income (Loss) 0.23(2) 0.45(2) 0.39(2) 0.26(2) 0.25(2) 0.35
Net
Realized and
Unrealized
Gain (Loss) 0.04 0.12 (0.19) (0.24) (0.02) 0.99
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.27 0.57 0.20 0.02 0.23 1.34
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.23) (0.45) (0.39) (0.27) (0.26) (0.35)
From Net
Realized
Gains -- -- -- (0.16) (0.29) (0.34)
-------- -------- -------- -------- -------- --------
Total
Distributions (0.23) (0.45) (0.39) (0.43) (0.55) (0.69)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.49 $10.45 $10.33 $10.52 $10.93 $11.25
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 2.65% 5.69% 1.91% 0.25% 2.16% 12.89%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.74%(4) 0.74% 0.74% 0.75% 0.76% 0.76%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 4.45%(4) 4.35% 3.69% 2.45% 2.31% 3.09%
Portfolio
Turnover Rate 123% 319% 416% 553% 376% 229%
Net Assets, End
of Period
(in thousands) $49,603 $40,671 $41,336 $48,674 $45,136 $44,456
(1) Six months ended September 30, 2007 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
49
Inflation-Adjusted Bond
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.83 $10.73 $11.25 $11.45 $10.86 $9.89
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss) 0.39 0.38 0.56 0.45 0.39 0.48
Net
Realized and
Unrealized
Gain (Loss) (0.04) 0.11 (0.49) (0.17) 0.67 1.12
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.35 0.49 0.07 0.28 1.06 1.60
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.39) (0.38) (0.56) (0.45) (0.39) (0.48)
From Net
Realized
Gains -- -- (0.03) (0.03) (0.08) (0.15)
From Return
of Capital -- (0.01) -- -- -- --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.39) (0.39) (0.59) (0.48) (0.47) (0.63)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.79 $10.83 $10.73 $11.25 $11.45 $10.86
======== ======== ======== ======== ======== ========
TOTAL RETURN(2) 3.35% 4.71% 0.56% 2.57% 10.04% 16.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.49%(3) 0.49% 0.49% 0.50% 0.50% 0.51%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 7.37%(3) 3.79% 4.85% 3.77% 3.50% 4.20%
Portfolio
Turnover Rate 19% 32% 27% 68% 54% 136%
Net Assets, End
of Period
(in thousands) $604,007 $590,530 $704,447 $646,214 $483,353 $352,315
(1) Six months ended September 30, 2007 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(3) Annualized.
See Notes to Financial Statements.
- ------
50
Inflation-Adjusted Bond
Institutional Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003(2)
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.82 $10.73 $11.25 $11.45 $10.86 $10.84
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income (Loss) 0.40 0.42 0.58 0.47 0.41 0.20
Net
Realized and
Unrealized
Gain (Loss) (0.04) 0.09 (0.49) (0.17) 0.67 0.17
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.36 0.51 0.09 0.30 1.08 0.37
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.40) (0.42) (0.58) (0.47) (0.41) (0.20)
From Net
Realized
Gains -- -- (0.03) (0.03) (0.08) (0.15)
-------- -------- -------- -------- -------- --------
Total
Distributions (0.40) (0.42) (0.61) (0.50) (0.49) (0.35)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.78 $10.82 $10.73 $11.25 $11.45 $10.86
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 3.45% 4.92% 0.77% 2.77% 10.24% 3.53%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.29%(4) 0.29% 0.29% 0.30% 0.30% 0.31%(4)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 7.57%(4) 3.99% 5.05% 3.97% 3.70% 3.80%(4)
Portfolio
Turnover Rate 19% 32% 27% 68% 54% 136%(5)
Net Assets, End
of Period
(in thousands) $135,350 $118,250 $81,860 $65,058 $56,103 $34,196
(1) Six months ended September 30, 2007 (unaudited).
(2) October 1, 2002 (commencement of sale) through March 31, 2003.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated was
calculated for the year ended March 31, 2003.
See Notes to Financial Statements.
- ------
51
Inflation-Adjusted Bond
Advisor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.81 $10.73 $11.25 $11.45 $10.86 $9.89
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income (Loss) 0.38 0.36 0.54 0.42 0.36 0.45
Net
Realized and
Unrealized
Gain (Loss) (0.03) 0.10 (0.49) (0.17) 0.67 1.12
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.35 0.46 0.05 0.25 1.03 1.57
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.38) (0.36) (0.54) (0.42) (0.36) (0.45)
From Net
Realized
Gains -- -- (0.03) (0.03) (0.08) (0.15)
From Return
of Capital -- (0.02) -- -- -- --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.38) (0.38) (0.57) (0.45) (0.44) (0.60)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.78 $10.81 $10.73 $11.25 $11.45 $10.86
======== ======== ======== ======== ======== ========
TOTAL RETURN(2) 3.31% 4.37% 0.37% 2.33% 9.78% 16.13%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.74%(3) 0.74% 0.74% 0.75% 0.75% 0.76%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 7.12%(3) 3.54% 4.60% 3.52% 3.25% 3.95%
Portfolio
Turnover Rate 19% 32% 27% 68% 54% 136%
Net Assets, End
of Period
(in thousands) $357,553 $419,477 $588,877 $295,129 $109,053 $41,673
(1) Six months ended September 30, 2007 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(3) Annualized.
See Notes to Financial Statements.
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52
Short-Term Government
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $9.37 $9.32 $9.44 $9.66 $9.69 $9.46
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss) 0.21(2) 0.40(2) 0.32(2) 0.19(2) 0.15(2) 0.29
Net
Realized and
Unrealized
Gain (Loss) 0.05 0.06 (0.11) (0.21) (0.02) 0.23
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.26 0.46 0.21 (0.02) 0.13 0.52
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.21) (0.41) (0.33) (0.20) (0.16) (0.29)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $9.42 $9.37 $9.32 $9.44 $9.66 $9.69
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 2.85% 5.02% 2.22% (0.16)% 1.40% 5.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.57%(4) 0.57% 0.57% 0.58% 0.59% 0.59%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 4.55%(4) 4.34% 3.41% 2.04% 1.54% 2.96%
Portfolio
Turnover Rate 71% 210% 292% 283% 232% 185%
Net Assets, End
of Period
(in thousands) $910,628 $937,029 $919,295 $928,460 $996,677 $957,413
(1) Six months ended September 30, 2007 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
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53
Short-Term Government
Advisor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $9.37 $9.32 $9.44 $9.66 $9.69 $9.46
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income (Loss) 0.20(2) 0.38(2) 0.29(2) 0.17(2) 0.13(2) 0.26
Net
Realized and
Unrealized
Gain (Loss) 0.05 0.05 (0.11) (0.21) (0.02) 0.23
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.25 0.43 0.18 (0.04) 0.11 0.49
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.20) (0.38) (0.30) (0.18) (0.14) (0.26)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $9.42 $9.37 $9.32 $9.44 $9.66 $9.69
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 2.73% 4.76% 1.96% (0.41)% 1.15% 5.26%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.82%(4) 0.82% 0.82% 0.83% 0.84% 0.84%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 4.30%(4) 4.09% 3.16% 1.79% 1.29% 2.71%
Portfolio
Turnover Rate 71% 210% 292% 283% 232% 185%
Net Assets, End
of Period
(in thousands) $27,054 $27,541 $29,166 $43,431 $47,135 $68,102
(1) Six months ended September 30, 2007 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
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54
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007 and August 24, 2007,
to vote on the following proposals. The proposals received the required number
of votes of the American Century Government Income Trust or the applicable fund,
depending on the proposal, and were adopted. A summary of voting results is
listed below each proposal.
PROPOSAL 1:
To elect eight Trustees to the Board of Trustees of American Century Government
Income Trust (the proposal was voted on by all shareholders of funds issued by
American Century Government Income Trust).
Jonathan S. Thomas For: 4,467,619,148
Withhold: 90,544,597
Abstain: 0
Broker Non-Vote: 0
John Freidenrich For: 4,463,121,891
Withhold: 95,041,854
Abstain: 0
Broker Non-Vote: 0
Ronald J. Gilson For: 4,465,283,403
Withhold: 92,880,342
Abstain: 0
Broker Non-Vote: 0
Kathryn A. Hall For: 4,465,340,375
Withhold: 92,823,370
Abstain: 0
Broker Non-Vote: 0
Peter F. Pervere For: 4,465,230,900
Withhold: 92,932,845
Abstain: 0
Broker Non-Vote: 0
Myron S. Scholes For: 4,464,439,279
Withhold: 93,724,466
Abstain: 0
Broker Non-Vote: 0
John B. Shoven For: 4,464,072,556
Withhold: 94,091,189
Abstain: 0
Broker Non-Vote: 0
Jeanne D. Wohlers For: 4,465,684,896
Withhold: 92,478,849
Abstain: 0
Broker Non-Vote: 0
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55
PROPOSAL 2:
To approve a change in the fee structure of the Advisor Class. This proposal was
voted on by the Advisor Class shareholders of the following funds:
Government Inflation-Adjusted Short-Term
Ginnie Mae Bond Bond Government
For: 47,294,544 18,360,072 151,757,502 17,340,433
Against: 3,114,423 678,639 10,219,172 216,808
Abstain: 1,014,588 650,478 7,835,232 2,163,400
Broker Non-Vote: 16,123,898 7,522,944 47,286,570 262,987
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56
APPROVAL OF MANAGEMENT AGREEMENTS
Ginne Mae, Government Bond, Inflation-Adjusted Bond and Short-Term Government
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports from
the advisor concerning fund operations. In addition to this annual review, the
board of directors oversees and evaluates on a continuous basis at its quarterly
meetings the nature and quality of significant services performed by the
advisor, fund performance, audit and compliance information, and a variety of
other reports relating to fund operations. The board, or committees of the
board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information compiled
by the advisor and certain independent providers of evaluative data (the "15(c)
Providers") concerning Ginnie Mae, Government Bond, Inflation-Adjusted Bond and
Short-Term Government (the "funds") and the services provided to the funds under
the management agreements. The information considered and the discussions held
at the meetings included, but were not limited to:
* the nature, extent and quality of investment management, shareholder services
and other services provided to the funds under the management agreements;
* reports on the advisor's activities relating to the wide range of programs and
services the advisor provides to the funds and their shareholders on a routine
and non-routine basis;
* data comparing the cost of owning the funds to the cost of owning similar
funds;
* data comparing the funds' performance to appropriate benchmarks and/or a peer
group of other mutual funds with similar investment objectives and strategies;
* financial data showing the profitability of the funds to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the funds' board of directors held two regularly
scheduled meetings to review and discuss the information provided by the advisor
and to complete its negotiations with the advisor regarding the renewal of the
management agreements, including the setting of the applicable advisory fee. The
board also had the benefit of the advice of its independent counsel throughout
the period.
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57
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreements, the advisor is responsible for providing or arranging for all
services necessary for the operation of the funds. The board noted that under
the management agreements, the advisor provides or arranges at its own expense a
wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the funds' portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the funds in accordance with their investment objectives and approved
strategies. In providing these services, the advisor utilizes teams of
investment professionals (portfolio managers, analysts, research assistants, and
securities traders) who require extensive information technology, research,
training, compliance and other systems to conduct
- ------
58
their business. At each quarterly meeting the Directors review investment
performance information for the funds, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the funds.
The Directors also review detailed performance information during the 15(c)
Process. If performance concerns are identified, the Directors discuss with the
advisor the reasons for such results (e.g., market conditions, security
selection) and any efforts being undertaken to improve performance. Ginne Mae's
and Government Bond's performance was above the median for the one-year period
and below the median for the three-year periods. The performance information
presented to the Directors showed that Inflation-Adjusted Bond's performance was
above its benchmark for both the one- and three-year periods. Short-Term
Government's performance fell below the median of its peer group for both the
one- and three-year periods during part of the past year. The board discussed
the funds' performance with the advisor and was satisfied with the efforts being
undertaken by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review, and
reports to the board. These reports include, but are not limited to, information
regarding the operational efficiency and accuracy of the shareholder and
transfer agency services provided, staffing levels, shareholder satisfaction (as
measured by external as well as internal sources), technology support, new
products and services offered to fund shareholders, securities trading
activities, portfolio valuation services, auditing services, and legal and
operational compliance activities. Certain aspects of shareholder and transfer
agency service level efficiency and the quality of securities trading activities
are measured by independent third party providers and are presented in
comparison to other fund groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the funds, its profitability in managing the funds, its overall
profitability, and its financial condition. The Directors have reviewed with the
advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreements, and the reasonableness of the current
management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment
to providing quality services to shareholders and to conducting its business
ethically. They noted that the advisor's practices generally meet or exceed
industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional services
and content provided by the advisor and its reinvestment in its ability to
provide and expand those services. Accordingly, the Directors also seek to
evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of its
management of the funds specifically, the expenses incurred by the advisor in
providing various functions to the funds, and the breakpoint fees of competitive
funds not managed by the advisor. The Directors believe the advisor is
appropriately sharing economies of scale through its competitive fee structure,
fee breakpoints as the fund
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59
complex and the funds increase in size, and through reinvestment in its business
to provide shareholders additional content and services. In particular, separate
breakpoint schedules based on the size of the entire fund complex and on the
size of the funds reflect the complexity of assessing economies of scale.
COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the funds, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the funds'
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other funds are charged a variety of fees,
including an investment advisory fee, a transfer agency fee, an administrative
fee, distribution charges and other expenses. Other than their investment
advisory fees and Rule 12b-1 distribution fees, all other components of the
total fees charged by these other funds may be increased without shareholder
approval. The board believes the unified fee structure is a benefit to fund
shareholders because it clearly discloses to shareholders the cost of owning
fund shares, and, since the unified fee cannot be increased without a vote of
fund shareholders, it shifts to the advisor the risk of increased costs of
operating the funds and provides a direct incentive to minimize administrative
inefficiencies. Part of the Directors' analysis of fee levels involves reviewing
certain evaluative data compiled by an independent provider and comparing the
funds' unified fee to the total expense ratio of other funds in the funds' peer
group. The unified fee charged to shareholders of Ginnie Mae was below the
median of the total expense ratios of its peer group. The unified fee charged to
shareholders of Government Bond, Short-Term Government and Inflation-Adjusted
Bond were in the lowest quartile of the total expense ratios of each fund's
respective peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the funds. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the funds. The Directors analyzed
this information and concluded that the fees charged and services provided to
the funds were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the funds. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that execute
fund portfolio transactions and concluded that this research is likely to
benefit fund shareholders. The Directors also determined that the advisor is
able to provide investment management services to certain clients other than the
funds, at least in part, due to its existing infrastructure built to serve the
fund complex. The Directors concluded, however, that the assets of those other
clients are not material to the analysis and, in any event, are included with
the assets of the funds to determine breakpoints in the funds' fee schedule,
provided they are managed using the same investment team and strategy.
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60
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the Directors, in the absence of particular
circumstances and assisted by the advice of legal counsel that is independent of
the advisor, taking into account all of the factors discussed above and the
information provided by the advisor concluded that the investment management
agreements between each of Government Bond, Inflation-Adjusted Bond and
Short-Term Government and the advisor is fair and reasonable in light of the
services provided and should be renewed.
The Directors negotiated a one-year waiver by the advisor of a portion of the
management fee on behalf of Ginnie Mae. These changes were proposed by the
Directors based on their review of the fund's percentile rank in its peer group
universe and the fact that the Directors seek as a general rule to have total
expense ratios of fixed income and money market funds in the lowest 25th
percentile of the fees of comparable funds. The advisor accepted the principle
of the fee waiver based on the fact that the lower fee will result in increased
competitiveness of the fund within its peer group universe. The fee waiver,
effective August 1, 2007, will result in a lowering of the management fee of the
fund by 0.079 percentage points below the current management fee. Following
these negotiations with the advisor, the Directors concluded that the investment
management agreement between the fund and the advisor is fair and reasonable in
light of the services provided and should be renewed.
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61
SHARE CLASS INFORMATION
Five classes of shares are authorized for sale by Ginnie Mae: Investor Class,
Institutional Class, Advisor Class, C Class and R 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 Class, C Class and R
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; and/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. The funds' prospectuses contain additional
information regarding eligibility for investor class shares.
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.
Prior to September 4, 2007, Advisor Class shares of the funds were subject to a
0.50% annual Rule 12b-1 distribution and service fee. Effective September 4,
2007 for Ginnie Mae and Inflation-Adjusted Bond, and effective December 3, 2007
for Government Bond and Short-Term Government, Advisor Class shares are subject
to a 0.25% annual Rule 12b-1 distribution and service fee. Upon the effective
date of the fee change, the unified management fee for Advisor Class shares is
the same as for 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 distribution and service
fee of 1.00%.
R CLASS shares are sold primarily through employer-sponsored retirement plans
and through institutions such as investment advisors, banks, broker-dealers, and
insurance companies. The unified management fee for R Class shares is the same
as for Investor Class shares. R Class shares are subject to a 0.50% annual Rule
12b-1 distribution and service fee.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
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62
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 website at americancentury.com and on the Securities and Exchange
Commission's website 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 website 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 website at americancentury.com and, upon request, by calling
1-800-345-2021.
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63
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 AGENCY INDEX is a market-capitalization-weighted index that
includes U.S. government sponsored agencies with a remaining maturity of at
least one year.
The CITIGROUP CREDIT INDEX includes US and non-US corporate securities and
non-US sovereign and provincial securities.
The CITIGROUP MORTGAGE INDEX measures the mortgage component of the US BIG
Index, comprising 30- and 15-year GNMA, FNMA, and FHLMC pass-throughs and FNMA
and FHLMC balloon mortgages.
The CITIGROUP GNMA INDEX is a market-capitalization-weighted index of 15- and
30-year fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association (GNMA).
The CITIGROUP TREASURY INDEX is comprised of U.S. Treasury securities with an
amount outstanding of at least $5 billion 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 US BROAD INVESTMENT-GRADE (BIG) BOND INDEX is a market-
capitalization-weighted index that includes fixed-rate Treasury, government-
sponsored, mortgage, asset-backed, and investment-grade issues with a maturity
of one year or longer.
The CITIGROUP US HIGH-YIELD MARKET INDEX captures the performance of
below-investment-grade debt issued by corporations domiciled in the United
States or Canada. This index includes cash-pay and deferred-interest securities
that are publicly placed, have a fixed coupon, and are nonconvertible.
The CITIGROUP US INFLATION-LINKED SECURITIES INDEX (ILSI) measures the return of
bonds with fixed-rate coupon payments that adjust for inflation as measured by
the Consumer Price Index (CPI).
The CITIGROUP US 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.
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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
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AMERICAN CENTURY
COMPANIES
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0711
SH-SAN-56799S
[front cover]
AMERICAN CENTURY INVESTMENTS
Semiannual Report September 30, 2007
[photo of fall]
Capital Preservation Fund
[american century investments logo and text logo]
OUR MESSAGE TO YOU
To help you monitor your investment, my colleagues and I take pride in providing
you with the semiannual report for the American Century(R) Capital Preservation
Fund for the six months ended September 30, 2007. This has been an eventful and
exciting period for us. We've been working diligently to secure a smooth
executive leadership transition.
I'm honored to be addressing you in the "Our Message" space long devoted to
company founder Jim Stowers, Jr. and his son Jim Stowers III. The Stowers family
remains an integral part of our heritage, leadership, and financial structure.
Jim Jr. continues as co-chair of the American Century Companies, Inc. (ACC)
board of directors with Richard Brown, who has been on the board since 1998 and
co-chairs the Stowers Institute for Medical Research board.
But times and opportunities change. As the latest step in a career transition
that began when he relinquished his executive leadership and investment
management responsibilities in early 2005, Jim III stepped down from the ACC
board in July 2007 to focus on new business ventures. Jim III's move reflects
his family's comfort with our direction and leadership, and gives the Stowers
more leeway to devote time and energy to other important priorities, such as the
Stowers Institute for Medical Research.
Meanwhile, American Century Investments, our clients, and our employees have
been my top priority since I became company president and CEO in March. We've
also added the executive talents of overall chief investment officer Enrique
Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito,
and chief operating officer Barry Fink.
This skilled group, combined with our existing senior management team, has
already had a positive impact on the development and management of the products
and services we take pride in delivering to you.
/s/Jonathan Thomas
Jonathan Thomas
[photo of Jonathan Thomas]
Jonathan Thomas
PRESIDENT
AMERICAN CENTURY COMPANIES, INC.
[photo of James E. Stowers, Jr.]
James E. Stowers, Jr.
FOUNDER AND CO-CHAIRMAN OF THE BOARD
AMERICAN CENTURY COMPANIES, INC.
[photo of Richard Brown]
Richard Brown
CO-CHAIRMAN OF THE BOARD
AMERICAN CENTURY COMPANIES, INC.
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Fixed-Income Total Returns. . . . . . . . . . . . . . . . . . . 2
CAPITAL PRESERVATION
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 4
Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 9
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 10
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 11
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 12
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 15
OTHER INFORMATION
Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . . . 16
Approval of Management Agreement for Capital Preservation . . . . . . 17
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 21
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report, and
do not necessarily represent the opinions of American Century or any other
person in the American Century organization. Any such opinions are subject to
change at any time based upon market or other conditions and American Century
disclaims any responsibility to update such opinions. These opinions may not be
relied upon as investment advice and, because investment decisions made by
American Century funds are based on numerous factors, may not be relied upon as
an indication of trading intent on behalf of any American Century fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century by third
party vendors. To the best of American Century's knowledge, such information is
accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By David MacEwen, Chief Investment Officer, Fixed Income
MODEST GROWTH, INFLATION, BOND RETURNS
U.S. bonds managed positive returns during the six months ended September 30,
2007. But the ride was bumpy -- bond market volatility surged to the highest
level in years as waves from the bursting housing and subprime mortgage bubbles
spread to the broader economy and financial markets.
U.S. economic growth was moderate over the last four complete calendar quarters,
running at an approximately 2-3% average annual rate. Many economists are
calling for sub-2% growth going forward. Inflation slowed, as the trailing
12-month percentage change in core consumer prices (without volatile food and
energy prices) finished September at 2.1%. That's down from 2.9% as recently as
September 2006.
To help alleviate some of the market and economic concerns, the Federal Reserve
(the Fed) lowered its benchmark federal funds rate target in September. This
came on top of cuts to its discount rate in both August and September -- the
Fed's first rate cuts since June 2003.
RATES FELL, CURVE STEEPENED
Against that backdrop, Treasury yields generally declined. The yield on the
two-year Treasury note fell from 4.58% to 3.99%; however, yields on longer-term
notes and bonds fell less. That's because investors worried about the potential
long-term inflation effects of Fed rate cuts, high energy and commodity prices,
and a weaker dollar. As a result, the yield curve (a graphic representation of
bond yields at different maturities) fell and steepened -- the difference in
yield between two- and 10-year Treasury securities increased sharply from seven
to 60 basis points (a basis point equals 0.01%).
HIGH-QUALITY BONDS DID BEST
The volatility, credit, and liquidity concerns in the market all favored
Treasury securities over higher-yielding, lower-quality alternatives (see the
returns table above). So, for example, while the Treasury market enjoyed its
best quarter in five years from July to September, July was one of the worst
months on record for high-yield bonds. Treasury inflation-indexed securities
performed best because of their combination of high credit quality and inflation
protection.
U.S. Fixed-Income Total Returns For the six months ended September 30, 2007*
TREASURY SECURITIES
3-Month Bill 2.69%
2-Year Note 3.25%
5-Year Note 3.60%
10-Year Note 2.72%
30-Year Bond 2.57%
CITIGROUP U.S. BOND MARKET INDICES
High-Yield (corporate) 0.65%
Credit (investment-grade corporate) 1.50%
Mortgage 2.16%
Broad Investment-Grade (multi-sector) 2.42%
Agency 3.04%
Treasury 3.38%
Inflation-Linked Securities 3.76%
*Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
Capital Preservation
Total Returns as of September 30, 2007
Average Annual Returns
6 Since Inception
months(1) 1 year 5 years 10 years Inception Date
INVESTOR CLASS 2.23% 4.62% 2.41% 3.31% 4.74% 10/13/72
90-DAY U.S.
TREASURY BILL
INDEX(2) 2.24% 4.73% 2.79% 3.55% 6.17%(3) --
LIPPER U.S.
TREASURY MONEY
MARKET FUNDS
AVERAGE RETURN(2) 2.11% 4.37% 2.18% 3.10% 5.78%(4) --
Fund's Lipper
Ranking Among
U.S. Treasury
Money Market
Funds(2) 17 of 87 17 of 83 10 of 70 8 of 49 1 of 1(4) --
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 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 9/30/72, the date nearest the Investor Class's inception for which
data are available.
(4) Since 10/31/72, 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.
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3
PORTFOLIO COMMENTARY
Capital Preservation
Lead Portfolio Manager: Lynn Paschen Macro Strategy Team Representative:
Steven Permut
PERFORMANCE SUMMARY
Capital Preservation returned 2.23%* for the six months ended September 30,
2007, surpassing the 2.11% average return of the 87 funds in Lipper Inc.'s U.S.
Treasury Money Market Funds category. The portfolio's return for the reporting
period ranked in the top 20% of the Lipper category, and its five- and 10-year
returns were in the top 16% of the Lipper group (see the previous page).
CREDIT CRUNCH PROMPTED FED RATE CUTS
For much of the reporting period, a lingering threat of inflation kept the
Federal Reserve (the Fed) on hold, and the federal (fed) funds rate target at
5.25%. Despite increasing burdens on economic growth from the housing market
slump and high energy prices, the Fed continued to view inflation as a bigger
concern than recession. Money market rates declined slightly during this period
of Fed inactivity. This was due to reduced Treasury bill issuance stemming from
surprisingly strong federal tax receipts in April.
In late July, credit and liquidity concerns took hold of the financial markets.
The bulk of the problems were confined to the bond market, but the panic
eventually filtered through to the asset-backed segment of the money market.
Many organizations regularly use asset-backed commercial paper. They issue this
short-term debt to purchase higher-yielding, longer-term securities, such as
those backed by credit card debt, student loans and mortgage loans. But what was
unclear and worrisome to many investors was the extent of subprime mortgage
exposure within these asset-backed and structured finance securities.
The mounting credit crisis sent investors fleeing to the safety of U.S. Treasury
securities. It also sent U.S. economic growth prospects tumbling. The Fed took
action, first cutting the discount rate in August and later, on September 18,
reducing the fed funds rate target to 4.75% as it cut the discount rate again.
These represented the Fed's first rate cuts since June 25, 2003.
The Fed's actions further fueled a rally in the Treasury bill market. The yield
on the benchmark three-month Treasury bill fell 123 basis points during the
reporting period, from 5.04% to 3.81% (a basis point equals 0.01%). The bulk of
the decline occurred during the third quarter of 2007, when the yield dropped
100 basis points.
*Total returns for periods less than one year are not annualized.
- ------
4
Capital Preservation
PORTFOLIO STRATEGY
The financial markets' flight to quality triggered strong demand for Treasury
bills, which pushed prices up and yields down. Capital Preservation's 7-day
current yield declined from 4.67% to 4.01% during the reporting period.
Early in the period we extended the portfolio's average maturity to more than 75
days, which helped lock in higher yields in a declining-yield environment. But
the portfolio's average maturity began drifting downward as the demand for
Treasury bills skyrocketed. The heightened demand meant there were fewer bills
available and, consequently, little opportunity to maintain a longer average
maturity. When it became clear the Fed would likely cut rates, we once again
attempted to extend the portfolio's average maturity. Extending was not easy,
though, as longer-term paper remained in limited supply. At the end of August,
the American Century Government Agency Money Market Fund closed, and its
Investor Class assets were rolled into Capital Preservation. This action helped
to extend the portfolio's average maturity, which ended the reporting period at
68 days.
OUTLOOK
Based on futures prices at the end of the reporting period, the bond market
expected the Fed to cut the fed funds rate target at least one more time by the
end of 2007. We agree with that market assessment. We also believe the Fed still
faces a major challenge in shoring up confidence in the financial markets
without igniting inflation or re-inflating the speculative bubbles that
developed in the credit, real estate and leveraged-buyout markets. Going forward
we think the Fed will proceed more cautiously in cutting rates than it did in
September, to further assess economic conditions and the impact of its
unexpectedly large rate cut.
Yields
As of
9/30/07
7-Day Current Yield 4.01%
7-Day Effective Yield 4.09%
Portfolio Composition by Maturity
% of fund % of fund
investments investments
as of as of
9/30/07 3/31/07
1-30 days 29% 55%
31-90 days 36% 30%
91-180 days 32% 12%
More than 180 days 3% 3%
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5
SHAREHOLDER FEE EXAMPLE (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 April 1, 2007 to September 30, 2007.
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.
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6
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.
Ending
Beginning Account Expenses Paid Annualized
Account Value Value During Period* Expense
4/1/07 9/30/07 4/1/07 - 9/30/07 Ratio*
Actual $1,000 $1,022.30 $2.43 0.48%
Hypothetical $1,000 $1,022.60 $2.43 0.48%
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
183, the number of days in the most recent fiscal half-year, divided by 366, to
reflect the one-half year period.
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7
SCHEDULE OF INVESTMENTS
Capital Preservation
SEPTEMBER 30, 2007 (UNAUDITED)
Principal Amount Value
U.S. Treasury Bills(1) -- 67.6% $125,000,000 U.S. Treasury Bills,
4.89%, 10/4/07 $ 124,949,115
269,000,000 U.S. Treasury Bills,
4.81%, 10/11/07 268,640,834
288,000,000 U.S. Treasury Bills,
4.23%, 10/18/07 287,424,719
105,500,000 U.S. Treasury Bills,
4.07%, 10/25/07 105,214,072
167,000,000 U.S. Treasury Bills,
3.64%, 11/1/07 166,548,270
100,000,000 U.S. Treasury Bills,
4.78%, 11/8/07 99,495,180
3,000,000 U.S. Treasury Bills,
4.51%, 11/15/07 2,983,087
150,000,000 U.S. Treasury Bills,
4.42%, 11/23/07 149,081,334
100,000,000 U.S. Treasury Bills,
3.53%, 12/6/07 99,352,650
100,000,000 U.S. Treasury Bills,
4.33%, 12/13/07 99,206,125
100,000,000 U.S. Treasury Bills,
4.26%, 12/20/07 99,102,222
18,000,000 U.S. Treasury Bills,
3.89%, 1/3/08 17,817,274
40,000,000 U.S. Treasury Bills,
4.82%, 2/7/08 39,309,707
100,000,000 U.S. Treasury Bills,
4.07%, 2/14/08 98,462,445
100,000,000 U.S. Treasury Bills,
4.18%, 2/21/08 98,341,597
100,000,000 U.S. Treasury Bills,
4.26%, 3/6/08 98,142,167
50,000,000 U.S. Treasury Bills,
4.08%, 3/13/08 49,071,806
275,000,000 U.S. Treasury Bills,
4.13%, 3/20/08 269,610,530
--------------
TOTAL U.S. TREASURY BILLS 2,172,753,134
--------------
Principal Amount Value
U.S. Treasury Notes(1) -- 13.7% $165,000,000 U.S. Treasury Notes,
3.00%, 11/15/07 $ 164,595,563
75,000,000 U.S. Treasury Notes, 10.375%, 11/15/07 75,585,138
75,000,000 U.S. Treasury Notes,
4.375%, 12/31/07 74,883,665
50,000,000 U.S. Treasury Notes,
3.00%, 2/15/08 49,628,732
25,000,000 U.S. Treasury Notes,
3.375%, 2/15/08 24,849,872
50,000,000 U.S. Treasury Notes,
5.625%, 5/15/08 50,376,590
--------------
TOTAL U.S. TREASURY NOTES 439,919,560
--------------
Zero-Coupon U.S. Treasury
Securities(2) -- 4.2% 20,000,000 STRIPS - COUPON,
3.78%, 11/15/07 19,909,037
30,000,000 STRIPS - PRINCIPAL, 3.625%, 11/15/07 29,869,018
50,000,000 STRIPS - PRINCIPAL, 5.05%, 2/15/08 49,082,706
37,000,000 STRIPS - PRINCIPAL, 4.55%, 5/15/08 35,978,419
--------------
TOTAL ZERO-COUPON
U.S. TREASURY SECURITIES 134,839,180
--------------
TOTAL INVESTMENT
SECURITIES -- 85.5% 2,747,511,874
--------------
OTHER ASSETS AND
LIABILITIES -- 14.5% 466,506,958
--------------
TOTAL NET ASSETS -- 100.0% $3,214,018,832
==============
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.
- ------
8
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (amortized cost
and cost for federal income tax purposes) $2,747,511,874
Cash 5,081,149
Receivable for investments sold 461,052,745
Interest receivable 11,766,446
--------------
3,225,412,214
--------------
LIABILITIES
Payable for investments purchased 9,902,083
Accrued management fees 1,215,224
Dividends payable 276,075
--------------
11,393,382
--------------
NET ASSETS $3,214,018,832
==============
INVESTOR CLASS CAPITAL SHARES
Outstanding (unlimited number of shares authorized) 3,214,140,346
==============
NET ASSET VALUE PER SHARE $1.00
==============
NET ASSETS CONSIST OF:
Capital paid in $3,214,141,242
Accumulated net realized loss on investment transactions (122,410)
--------------
$3,214,018,832
==============
See Notes to Financial Statements.
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9
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Interest $66,289,993
--------------
EXPENSES:
Management fees 6,374,777
Trustees' fees and expenses 71,409
Other expenses 2,209
--------------
6,448,395
--------------
NET INVESTMENT INCOME (LOSS) 59,841,598
--------------
NET REALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS (79,843)
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $59,761,755
==============
See Notes to Financial Statements.
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10
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED) AND YEAR ENDED MARCH 31, 2007
Increase (Decrease) in Net Assets Sept. 30, 2007 March 31, 2007
OPERATIONS
Net investment income (loss) $ 59,841,598 $ 118,083,162
Net realized gain (loss) (79,843) 359,197
-------------- ---------------
Net increase (decrease) in net assets
resulting from operations 59,761,755 118,442,359
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (59,841,598) (118,083,162)
From net realized gains -- (26,688)
-------------- ---------------
Decrease in net assets from distributions (59,841,598) (118,109,850)
-------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 580,618,228 983,014,646
Issued in connection with acquistion
(Note 4) 547,078,894 --
Proceeds from reinvestment of distributions 57,432,665 113,736,579
Payments for shares redeemed (628,017,069) (1,087,811,988)
-------------- ---------------
Net increase in net assets
from capital share transactions 557,112,718 8,939,237
-------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS 557,032,875 9,271,746
NET ASSETS
Beginning of period 2,656,985,957 2,647,714,211
-------------- ---------------
End of period $3,214,018,832 $ 2,656,985,957
============== ===============
TRANSACTIONS IN SHARES OF THE FUND
Sold 580,618,228 983,014,646
Issued in connection with acquistion
(Note 4) 547,146,072 --
Issued in reinvestment of distributions 57,432,665 113,736,579
Redeemed (628,017,069) (1,087,811,988)
-------------- ---------------
Net increase (decrease) in
shares of the fund 557,179,896 8,939,237
============== ===============
See Notes to Financial Statements.
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11
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Government Income Trust (the trust) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. Capital Preservation Fund (the fund) is
one fund in a series issued by the trust. The fund is diversified under Rule
2a-7 of the 1940 Act. The fund's investment objective is to seek 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.
The following is a summary of the fund's significant accounting policies.
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 -- For financial reporting, 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 fund 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 fund 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 fund 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 fund will segregate cash, cash equivalents
or other appropriate liquid securities on its records in amounts sufficient to
meet the purchase price.
INCOME TAX STATUS -- It is the 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. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions that would materially impact the financial statements.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
short-term capital gains, if any, are declared daily and paid monthly. The fund
does not expect to realize any long-term capital gains, and accordingly, does
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 fund. In addition, in the normal course of
business, the fund enters into contracts that provide general indemnifications.
The fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the fund. 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.
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12
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The trust has entered into a Management Agreement with
American Century Investment Management, Inc. (ACIM) (the investment advisor),
under which ACIM provides the fund 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 fund, 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 the specific class of shares of
the fund and paid monthly in arrears. The fee consists of (1) an Investment
Category Fee based on the daily net assets of the fund and certain other
accounts managed by the investment advisor that are in the same broad investment
category as the 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 range from
0.2500% to 0.3100%. The effective annual management fee for the six months ended
September 30, 2007, was 0.48%.
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, American Century Investment Services, Inc., and the
trust's transfer agent, American Century Services, LLC.
JPMorgan Chase Bank is a custodian of the fund and a wholly owned subsidiary of
JPMorgan Chase & Co. (JPM). JPM is an equity investor in ACC.
3. 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.
Following are the capital loss carryovers and capital loss deferral amounts for
Capital Preservation and Government Agency Money Market Fund (Government Agency)
as of March 31, 2007:
Capital Preservation Government Agency
Accumulated capital losses -- $(13,028)
Capital loss deferral -- $(12)
Capital Preservation acquired capital loss carryovers of $(13,028) and a capital
loss deferral of $(12) from Government Agency as a result of a reorganization
(see Note 4).
The accumulated capital losses listed above for Government Agency represent net
capital loss carryovers that may be used to offset future realized capital gains
for federal income tax purposes. The capital loss carryovers for Government
Agency expire as follows:
2012 2013 2014 2015
Government Agency $(10,414) $(2,278) $(316) $(20)
The capital loss deferral listed above for Government Agency represents net
capital losses incurred in the five-month period ended March 31, 2007.
Government Agency had elected to treat such losses as having been incurred in
the following fiscal year for federal income tax purposes.
- ------
13
4. REORGANIZATION PLAN
On December 8, 2006, the Board of Trustees approved a plan of reorganization
(the "Reorganization"), pursuant to which Capital Preservation acquired all of
the assets of Government Agency Money Market Fund (Government Agency) in
exchange for shares of equal value of Capital Preservation and assumption by
Capital Preservation of certain of Government Agency's ordinary course
liabilities. The financial statements and performance history of Capital
Preservation will be carried over in the post-reorganization. The reorganization
was effective after the close of business on August 31, 2007. New shares in
connection with the reorganization were issued by Capital Preservation on
September 4, 2007.
The acquisition was accomplished by a tax-free exchange of 547,146,072 shares of
Capital Preservation for 547,146,072 outstanding shares of Government Agency.
The net assets of Capital Preservation and Government Agency immediately before
the acquisition were $2,676,014,751 and $547,078,894, respectively. Immediately
after the acquisition, the combined net assets were $3,223,093,645. Capital
Preservation acquired capital loss carryovers of $(13,028) and a capital loss
deferral of $(12) from Government Agency.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a minimum
threshold for financial statement recognition of the benefit of positions taken
in filing tax returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. FIN 48 is
effective for fiscal years beginning after December 15, 2006, and is to be
applied to all open tax years as of the date of effectiveness. Management has
concluded that the adoption of FIN 48 will not materially impact the financial
statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" (FAS 157), in September 2006, which is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands the required financial statement
disclosures about fair value measurements. Management is currently evaluating
the impact that adopting FAS 157 will have on the financial statement
disclosures.
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14
FINANCIAL HIGHLIGHTS
Capital Preservation
Investor Class
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
2007(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss) 0.02 0.04 0.03 0.01 0.01 0.01
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.02) (0.04) (0.03) (0.01) (0.01) (0.01)
-------- -------- -------- -------- -------- --------
Net Asset
Value, End
of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======== ========
TOTAL RETURN(2) 2.23% 4.59% 3.06% 1.14% 0.60% 1.19%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses
to Average Net
Assets 0.48%(3) 0.48% 0.48% 0.48% 0.48% 0.48%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets 4.42%(3) 4.50% 3.01% 1.12% 0.59% 1.18%
Net Assets, End
of Period
(in thousands) $3,214,019 $2,656,986 $2,647,714 $2,761,800 $2,928,299 $3,270,852
(1) Six months ended September 30, 2007 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
See Notes to Financial Statements.
- ------
15
PROXY VOTING RESULTS
A special meeting of shareholders was held on July 27, 2007, to vote on the
following proposal. The proposal received the required number of votes of the
American Century Government Income Trust and was adopted. A summary of voting
results is listed below the proposal.
PROPOSAL:
To elect eight Trustees to the Board of Trustees of American Century Government
Income Trust (the proposal was voted on by all shareholders of funds issued by
American Century Government Income Trust).
Jonathan S. Thomas For: 4,467,619,148
Withhold: 90,544,597
Abstain: 0
Broker Non-Vote: 0
John Freidenrich For: 4,463,121,891
Withhold: 95,041,854
Abstain: 0
Broker Non-Vote: 0
Ronald J. Gilson For: 4,465,283,403
Withhold: 92,880,342
Abstain: 0
Broker Non-Vote: 0
Kathryn A. Hall For: 4,465,340,375
Withhold: 92,823,370
Abstain: 0
Broker Non-Vote: 0
Peter F. Pervere For: 4,465,230,900
Withhold: 92,932,845
Abstain: 0
Broker Non-Vote: 0
Myron S. Scholes For: 4,464,439,279
Withhold: 93,724,466
Abstain: 0
Broker Non-Vote: 0
John B. Shoven For: 4,464,072,556
Withhold: 94,091,189
Abstain: 0
Broker Non-Vote: 0
Jeanne D. Wohlers For: 4,465,684,896
Withhold: 92,478,849
Abstain: 0
Broker Non-Vote: 0
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16
APPROVAL OF MANAGEMENT AGREEMENT
Capital Preservation
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports from
the advisor concerning fund operations. In addition to this annual review, the
board of directors oversees and evaluates on a continuous basis at its quarterly
meetings the nature and quality of significant services performed by the
advisor, fund performance, audit and compliance information, and a variety of
other reports relating to fund operations. The board, or committees of the
board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information compiled
by the advisor and certain independent providers of evaluative data (the "15(c)
Providers") concerning Capital Preservation (the "fund") and the services
provided to the fund under the management agreement. The information considered
and the discussions held at the meetings included, but were not limited to:
* the nature, extent and quality of investment management, shareholder services
and other services provided to the fund under the management agreement;
* reports on the advisor's activities relating to the wide range of programs and
services the advisor provides to the fund and its shareholders on a routine and
non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a peer
group of other mutual funds with similar investment objectives and strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings to review and discuss the information provided by the advisor
and to complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory fee. The
board also had the benefit of the advice of its independent counsel throughout
the period.
- ------
17
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objectives and approved strategies.
In providing these services, the advisor utilizes teams of investment
professionals (portfolio managers, analysts, research assistants, and securities
traders) who require extensive information technology, research, training,
compliance and other systems to conduct their business.
- ------
18
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for appropriate
benchmarks and peer groups of funds managed similarly to the fund. The Directors
also review detailed performance information during the 15(c) Process. If
performance concerns are identified, the Directors discuss with the advisor the
reasons for such results (e.g., market conditions, security selection) and any
efforts being undertaken to improve performance. The fund's performance for both
the one- and three-year periods was above the median for its peer group during
part of the past year.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review, and
reports to the board. These reports include, but are not limited to, information
regarding the operational efficiency and accuracy of the shareholder and
transfer agency services provided, staffing levels, shareholder satisfaction (as
measured by external as well as internal sources), technology support, new
products and services offered to fund shareholders, securities trading
activities, portfolio valuation services, auditing services, and legal and
operational compliance activities. Certain aspects of shareholder and transfer
agency service level efficiency and the quality of securities trading activities
are measured by independent third party providers and are presented in
comparison to other fund groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment
to providing quality services to shareholders and to conducting its business
ethically. They noted that the advisor's practices generally meet or exceed
industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional services
and content provided by the advisor and its reinvestment in its ability to
provide and expand those services. Accordingly, the Directors also seek to
evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of its
management of the fund specifically, the expenses incurred by the advisor in
providing various functions to the fund, and the breakpoint fees of competitive
funds not managed by the advisor. The Directors believe the advisor is
appropriately sharing economies of scale through its competitive fee structure,
fee breakpoints as the fund complex and the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services. In particular, separate breakpoint schedules based on the size of the
entire fund complex and on the size of the fund reflect the complexity of
assessing economies of scale.
- ------
19
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other funds are charged a variety of fees,
including an investment advisory fee, a transfer agency fee, an administrative
fee, distribution charges and other expenses. Other than their investment
advisory fees and Rule 12b-1 distribution fees, all other components of the
total fees charged by these other funds may be increased without shareholder
approval. The board believes the unified fee structure is a benefit to fund
shareholders because it clearly discloses to shareholders the cost of owning
fund shares, and, since the unified fee cannot be increased without a vote of
fund shareholders, it shifts to the advisor the risk of increased costs of
operating the fund and provides a direct incentive to minimize administrative
inefficiencies. Part of the Directors' analysis of fee levels involves reviewing
certain evaluative data compiled by an independent provider and comparing the
fund's unified fee to the total expense ratio of other funds in the fund's peer
group. The unified fee charged to shareholders of the fund was in the lowest
quartile of the total expense ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that execute
fund portfolio transactions and concluded that this research is likely to
benefit fund shareholders. The Directors also determined that the advisor is
able to provide investment management services to certain clients other than the
fund, at least in part, due to its existing infrastructure built to serve the
fund complex. The Directors concluded, however, that the assets of those other
clients are not material to the analysis and, in any event, are included with
the assets of the fund to determine breakpoints in the fund's fee schedule,
provided they are managed using the same investment team and strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the Directors, in the absence of particular
circumstances and assisted by the advice of legal counsel that is independent of
the advisor, taking into account all of the factors discussed above and the
information provided by the advisor concluded that the investment management
agreement between the fund and the advisor is fair and reasonable in light of
the services provided and should be renewed.
- ------
20
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 fund's investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the 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 website at americancentury.com and on the Securities and Exchange
Commission's website 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 fund files its 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 fund's Form N-Q is available on the SEC's website 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 fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its website at americancentury.com and, upon request, by calling 1-800-345-2021.
- ------
21
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or style
performance or to serve as fund performance comparison. They are not investment
product available for purchase.
The 90-DAY U.S. TREASURY BILL INDEX is derived from secondary market interest
rates as published by the Federal Reserve Bank and includes three-month,
six-month, and one-year instruments.
The CITIGROUP AGENCY INDEX is a market-capitalization-weighted index that
includes U.S. government sponsored agencies with a remaining maturity of at
least one year.
The CITIGROUP CREDIT INDEX includes US and non-US corporate securities and
non-US sovereign and provincial securities.
The CITIGROUP MORTGAGE INDEX measures the mortgage component of the US BIG
Index, comprising 30- and 15-year GNMA, FNMA, and FHLMC pass-throughs and FNMA
and FHLMC balloon mortgages.
The CITIGROUP TREASURY INDEX is comprised of U.S. Treasury securities with an
amount outstanding of at least $5 billion and a remaining maturity of at least
one year.
The CITIGROUP US BROAD INVESTMENT-GRADE (BIG) BOND INDEX is a market-
capitalization-weighted index that includes fixed-rate Treasury, government-
sponsored, mortgage, asset-backed, and investment-grade issues with a maturity
of one year or longer.
The CITIGROUP US HIGH-YIELD MARKET INDEX captures the performance of
below-investment-grade debt issued by corporations domiciled in the United
States or Canada. This index includes cash-pay and deferred-interest securities
that are publicly placed, have a fixed coupon, and are nonconvertible.
The CITIGROUP US INFLATION-LINKED SECURITIES INDEX (ILSI) measures the return of
bonds with fixed-rate coupon payments that adjust for inflation as measured by
the Consumer Price Index (CPI).
- ------
22
NOTES
- ------
23
NOTES
- ------
24
[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 Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0711
SH-SAN-56798N
ITEM 2. CODE OF ETHICS.
Not applicable for semiannual report filings.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semiannual report filings.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semiannual report filings.
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) Not applicable for semiannual report filings.
(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/ Jonathan S. Thomas
--------------------------------------
Name: Jonathan S. Thomas
Title: President
Date: November 29, 2007
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/ Jonathan S. Thomas
--------------------------------------
Name: Jonathan S. Thomas
Title: President
(principal executive officer)
Date: November 29, 2007
By: /s/ Robert J. Leach
--------------------------------------
Name: Robert J. Leach
Title: Vice President, Treasurer, and
Chief Financial Officer
(principal financial officer)
Date: November 29, 2007
