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 811-03391
CENTENNIAL GOVERNMENT TRUST
(Exact name of registrant as specified in charter)
6803 SOUTH TUCSON WAY, CENTENNIAL, COLORADO 80112-3924
(Address of principal executive offices) (Zip code)
ROBERT G. ZACK, ESQ.
OPPENHEIMERFUNDS, INC.
TWO WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1008
(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
Date of fiscal year end: JUNE 30
Date of reporting period: DECEMBER 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
FUND EXPENSES
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FUND EXPENSES. As a shareholder of the Trust, you incur ongoing costs, including
management fees; service fees and other Trust expenses. These examples are
intended to help you understand your ongoing costs (in dollars) of investing in
the Trust and to compare these costs with the ongoing costs of investing in
other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended December 31, 2005.
ACTUAL EXPENSES. The "actual" lines of the table provide information about
actual account values and actual expenses. You may use the information on this
line, together with the amount you invested, to estimate the expense that you
paid over the period. Simply divide your account value by $1,000.00 (for
example, an $8,600.00 account value divided by $1,000.00 = 8.60), then multiply
the result by the number in the "actual" line under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES. The "hypothetical" lines of the
table provide information about hypothetical account values and hypothetical
expenses based on the Trust's actual expense ratio, and an assumed rate of
return of 5% per year before expenses, which is not the Trust's actual return.
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 the Trust 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.
5 | CENTENNIAL GOVERNMENT TRUST
FUND EXPENSES
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BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(7/1/05) (12/31/05) DECEMBER 31, 2005
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Actual $1,000.00 $1,015.30 $3.76
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Hypothetical 1,000.00 1,021.48 3.77
Hypothetical assumes 5% annual return before expenses.
Expenses are equal to the Trust's annualized expense ratio, multiplied by the
average account value over the period, multiplied by 184/365 (to reflect the
one-half year period). The annualized expense ratio based on the 6-month period
ended December 31, 2005 is as follows:
EXPENSE RATIO
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0.74%
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6 | CENTENNIAL GOVERNMENT TRUST
STATEMENT OF INVESTMENTS December 31, 2005 / Unaudited
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PRINCIPAL VALUE
AMOUNT SEE NOTE 1
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U.S. GOVERNMENT AGENCIES--53.4%
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Federal Home Loan Bank:
1.94%, 4/7/06 $ 50,000,000 $ 49,665,061
2%, 2/27/06 20,000,000 19,923,727
3.185%, 2/7/06 13,000,000 12,983,888
4.11%, 2/3/06 69,770,000 69,507,142
4.13%, 1/25/06 75,000,000 74,793,500
4.17%, 2/1/06 68,000,000 67,755,823
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Federal Home Loan Mortgage Corp.:
1.875%, 2/15/06 125,000,000 124,622,059
4.18%, 1/31/06 50,000,000 49,824,167
4.21%, 1/30/06 80,000,000 79,728,286
4.31%, 1/15/06 40,000,000 39,934,480
4.32%, 4/4/06 40,317,000 39,867,062
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Overseas Private Investment Corp.:
3.95%, 1/20/06 1,2 750,000 750,474
3.975%, 1/20/06 1,2 2,810,117 2,825,434
Total U.S. Government
Agencies (Cost $632,181,103) 632,181,103
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REPURCHASE AGREEMENTS--46.7% 3
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Repurchase agreement (Principal
Amount/Value $112,000,000,
with a maturity value of $112,042,933)
with Cantor Fitzgerald & Co./Cantor
Fitzgerald Securities, 3.45%,
dated 12/30/05, to be repurchased
at $112,042,933 on 1/3/06,
collateralized by U.S. Treasury
Bonds, 4%--9.125%, 3/15/10--11/15/27,
with a value of $114,283,195
(Cost $112,000,000) 112,000,000 112,000,000
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Repurchase agreement (Principal
Amount/Value $150,000,000,
with a maturity value of $150,071,167)
with Bear Stearns & Co., Inc., 4.27%,
dated 12/30/05, to be repurchased at
$150,071,167 on 1/3/06, collateralized
by Federal National Mortgage Assn.,
5.50%, 7/1/33--7/1/35, with a
value of $155,281,163
(Cost $150,000,000) 150,000,000 150,000,000
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
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Repurchase agreement (Principal
Amount/Value $290,000,000,
with a maturity value of $290,132,111)
with UBS Warburg LLC, 4.10%,
dated 12/30/05, to be repurchased
at $290,132,111 on 1/3/06,
collateralized by Federal
National Mortgage Assn., 6%,
11/1/34, with a value of
$296,171,726 (Cost
$290,000,000) $ 290,000,000 $ 290,000,000
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Total Repurchase Agreements
(Cost $552,000,000) 552,000,000
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TOTAL INVESTMENTS,
AT VALUE
(COST $1,184,181,103) 100.1% 1,184,181,103
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LIABILITIES IN EXCESS
OF OTHER ASSETS (0.1) (925,231)
--------------------------------
NET ASSETS 100.0% $1,183,255,872
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FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Illiquid security. The aggregate value of illiquid securities as of December
31, 2005 was $3,575,908, which represents 0.30% of the Trust's net assets. See
Note 4 of Notes to Financial Statements.
2. Represents the current interest rate for a variable or increasing rate
security.
3. The Trust may have elements of risk due to concentrated investments. Such
concentrations may subject the Trust to additional risks.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7 | CENTENNIAL GOVERNMENT TRUST
STATEMENT OF ASSETS AND LIABILITIES Unaudited
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December 31, 2005
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ASSETS
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Investments, at value (cost $1,184,181,103)--see accompanying
statement of investments $1,184,181,103
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Cash 196,899
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Receivables and other assets:
Interest 1,606,301
Shares of beneficial interest sold 264,225
Other 72,364
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Total assets 1,186,320,892
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LIABILITIES
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Payables and other liabilities:
Shares of beneficial interest redeemed 2,150,007
Dividends 638,926
Distribution and service plan fees 118,960
Transfer and shareholder servicing agent fees 68,384
Shareholder communications 54,978
Trustees' compensation 10,770
Other 22,995
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Total liabilities 3,065,020
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NET ASSETS $1,183,255,872
===============
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COMPOSITION OF NET ASSETS
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Paid-in capital $1,183,260,169
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Accumulated net investment income 76
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Accumulated net realized loss on investments (4,373)
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NET ASSETS--applicable to 1,183,247,813 shares of beneficial
interest outstanding $1,183,255,872
===============
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NET ASSET VALUE, REDEMPTION PRICE PER SHARE AND OFFERING PRICE
PER SHARE $ 1.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8 | CENTENNIAL GOVERNMENT TRUST
STATEMENT OF OPERATIONS Unaudited
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For the Six Months Ended December 31, 2005
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INVESTMENT INCOME
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Interest $ 22,596,127
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EXPENSES
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Management fees 2,756,328
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Service plan fees 1,218,793
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Transfer and shareholder servicing agent fees 408,259
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Shareholder communications 41,126
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Custodian fees and expenses 20,969
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Trustees' compensation 5,229
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Administration service fees 750
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Other 76,724
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Total expenses 4,528,178
Less reduction to custodian expenses (18,791)
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Net expenses 4,509,387
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NET INVESTMENT INCOME 18,086,740
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NET REALIZED LOSS ON INVESTMENTS (226)
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,086,514
===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9 | CENTENNIAL GOVERNMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
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SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, 2005 JUNE 30,
(UNAUDITED) 2005
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OPERATIONS
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Net investment income $ 18,086,740 $ 19,140,213
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Net realized loss (226) (1,140)
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Net increase in net assets resulting from operations 18,086,514 19,139,073
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DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
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Dividends from net investment income (18,086,664) (19,140,213)
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BENEFICIAL INTEREST TRANSACTIONS
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Net decrease in net assets resulting from beneficial interest
transactions (42,848,847) (202,018,576)
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NET ASSETS
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Total decrease (42,848,997) (202,019,716)
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Beginning of period 1,226,104,869 1,428,124,585
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End of period (including accumulated net investment
income of $76 for the period ended December 31, 2005) $ 1,183,255,872 $ 1,226,104,869
====================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10 | CENTENNIAL GOVERNMENT TRUST
FINANCIAL HIGHLIGHTS
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SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, 2005 JUNE 30,
(UNAUDITED) 2005 2004 2003 2002 2001
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PER SHARE OPERATING DATA
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Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
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Income from investment operations--net
investment income and net realized gain .02 1 .01 1 -- 2 .01 .02 .05
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Dividends and/or distributions to shareholders:
Dividends from net investment income (.02) (.01) -- 2 (.01) (.02) (.05)
Distributions from net realized gain -- -- -- -- -- 2 --
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Total dividends and/or distributions
to shareholders (.02) (.01) -- 2 (.01) (.02) (.05)
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Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================================
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TOTAL RETURN 3 1.53% 1.45% 0.48% 1.15% 1.92% 5.29%
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RATIOS/SUPPLEMENTAL DATA
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Net assets, end of period (in millions) $ 1,183 $ 1,226 $ 1,428 $ 1,776 $ 1,548 $ 1,458
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Average net assets (in millions) $ 1,210 $ 1,360 $ 1,628 $ 1,744 $ 1,585 $ 1,367
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Ratios to average net assets: 4
Net investment income 2.96% 1.41% 0.49% 1.14% 1.90% 5.13%
Total expenses 0.74% 0.73% 0.71% 0.70% 0.71% 0.73%
Expenses after payments and waivers and
reduction to custodian expenses 0.74% 0.73% 0.60% 0.38% 0.63% 0.73%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Less than $0.005 per share.
3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one year. Returns do not reflect the deduction of taxes that a
shareholder would pay on Trust distributions or the redemption of Trust shares.
4. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11 | CENTENNIAL GOVERNMENT TRUST
NOTES TO FINANCIAL STATEMENTS Unaudited
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1. SIGNIFICANT ACCOUNTING POLICIES
Centennial Government Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Trust's investment objective is to seek a high level of current income that
is consistent with the preservation of capital and the maintenance of liquidity.
The Trust's investment advisor is Centennial Asset Management Corporation (the
Manager), a subsidiary of OppenheimerFunds, Inc. (OFI).
The following is a summary of significant accounting policies consistently
followed by the Trust.
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SECURITIES VALUATION. The net asset value of shares of the Trust is normally
determined twice each day, at 12:00 Noon Eastern time and at 4:00 P.M. Eastern
time on each day the New York Stock Exchange (the Exchange) is open for trading.
Portfolio securities are valued on the basis of amortized cost, which
approximates market value.
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REPURCHASE AGREEMENTS. The Trust requires its custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Trust may be delayed or limited.
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FEDERAL TAXES. The Trust intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Trust.
As of December 31, 2005, the Trust had available for federal income tax
purposes an estimated capital loss carryforward of $3,609 expiring by 2014. This
estimated capital loss carryforward represents carryforward as of the end of the
last fiscal year, increased for losses deferred under tax accounting rules to
the current fiscal year and is increased or decreased by capital losses or gains
realized in the first six months of the current fiscal year. During the six
months ended December 31, 2005, it is estimated that the Trust will not utilize
any capital loss carryforward to offset realized capital gains. During the year
ended June 30, 2005, the Trust did not utilize any capital loss carryforward to
offset realized capital gains realized in that fiscal year.
12 | CENTENNIAL GOVERNMENT TRUST
As of June 30, 2005, the Trust had available for federal income tax
purposes post-October losses of $764 and unused capital loss carryforwards as
follows:
EXPIRING
-----------------------
2012 $ 2,557
2013 826
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Total $ 3,383
=======
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TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Trust. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Trust or in other Oppenheimer funds
selected by the Trustee. The Trust purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Trust asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Trust, and will not materially affect the
Trust's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.
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DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are declared
daily and paid monthly. Capital gain distributions, if any, are declared and
paid annually but may be paid at other times to maintain the net asset value per
share at $1.00.
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CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Trust on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Trust pays
interest to its custodian on such cash overdrafts to the extent they are not
offset by positive cash balances maintained by the Trust. The Reduction to
Custodian Expenses line item, if applicable, represents earnings on cash
balances maintained by the Trust during the period. Such interest expense and
other custodian fees may be paid with these earnings.
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SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
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OTHER. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
13 | CENTENNIAL GOVERNMENT TRUST
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
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2. SHARES OF BENEFICIAL INTEREST
The Trust has authorized an unlimited number of no par value shares of
beneficial interest. Transactions in shares of beneficial interest were as
follows:
SIX MONTHS ENDED DECEMBER 31, 2005 YEAR ENDED JUNE 30, 2005
SHARES AMOUNT SHARES AMOUNT
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Sold 1,560,438,382 $ 1,560,433,364 3,341,809,705 $ 3,341,809,705
Dividends and/or
distributions reinvested 17,383,093 17,383,093 18,167,967 18,167,967
Redeemed (1,620,665,304) (1,620,665,304) (3,561,996,248) (3,561,996,248)
-----------------------------------------------------------------------
Net decrease (42,843,829) $ (42,848,847) (202,018,576) $ (202,018,576)
=======================================================================
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3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.50% of the first $250 million of the Trust's net assets, 0.475%
of the next $250 million, 0.45% of the next $250 million, 0.425% of the next
$250 million, 0.40% of the next $250 million, 0.375% of the next $250 million
and 0.35% of net assets in excess of $1.5 billion.
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ADMINISTRATION SERVICE FEES. The Trust pays the Manager a fee of $1,500 per year
for preparing and filing the Trust's tax returns.
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TRANSFER AGENT FEES. Shareholder Services, Inc. (SSI) acts as the transfer and
shareholder servicing agent for the Trust and for other registered investment
companies. The Trust pays SSI a per account fee. For the six months ended
December 31, 2005, the Trust paid $409,399 to SSI for services to the Trust.
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SERVICE PLAN (12b-1) FEES. The Trust has adopted a service plan. It reimburses
Centennial Asset Management Corporation, the Distributor, for a portion of its
costs incurred for services provided to accounts that hold shares of the Trust.
Reimbursement is made periodically depending on asset size, at an annual rate of
up to 0.20% of the average annual net assets of the Trust. The Distributor
currently uses all of those fees to pay dealers, brokers, banks and other
financial institutions periodically for providing personal services and
maintenance of accounts of their customers that hold shares of the Trust. Fees
incurred by the Trust under the Plan are detailed in the Statement of
Operations.
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WAIVERS AND REIMBURSEMENTS OF EXPENSES. SSI has voluntarily agreed to limit
transfer and shareholder servicing agent fees to 0.35% of average annual net
assets of the Trust. This undertaking may be amended or withdrawn at any time.
14 | CENTENNIAL GOVERNMENT TRUST
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4. ILLIQUID SECURITIES
As of December 31, 2005, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Trust will not invest more than 10% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.
15 | CENTENNIAL GOVERNMENT TRUST
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES;
UPDATES TO STATEMENTS OF INVESTMENTS Unaudited
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The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, (ii) on the Fund's website at www.oppenheimerfunds.com, and
(iii) on the SEC's website at www.sec.gov. In addition, the Fund is required to
file Form N-PX, with its complete proxy voting record for the 12 months ended
June 30th, no later than August 31st of each year. The Fund's voting record is
available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, and (ii) in the Form N-PX filing on the SEC's website at
www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC
for the first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund's Form N-Q filings are available on the SEC's website at
http://www.sec.gov. Those forms may be reviewed and copied at the SEC's Public
Reference Room in Washington D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
16 | CENTENNIAL GOVERNMENT TRUST
BOARD APPROVAL OF THE TRUST'S INVESTMENT
ADVISORY AGREEMENT Unaudited
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Each year, the Board of Trustees (the "Board"), including a majority of the
independent Trustees, is required to determine whether to renew the Trust's
investment advisory agreement (the "Agreement"). The Investment Company Act of
1940, as amended, requires that the Board request and evaluate, and that the
Manager provide, such information as may be reasonably necessary to evaluate the
terms of the Agreement. The Board employs an independent consultant to prepare a
report that provides information, including comparative information, that the
Board requests for that purpose. In addition, the Board receives information
throughout the year regarding Trust services, fees, expenses and performance.
The Manager and the independent consultant provided information to the
Board on the following factors: (i) the nature, quality and extent of the
Manager's services, (ii) the investment performance of the Trust and the
Manager, (iii) the fees and expenses of the Trust, including comparative expense
information, (iv) the profitability of the Manager, including an analysis of the
cost of providing services, (v) whether economies of scale are realized as the
Trust grows and whether fee levels reflect these economies of scale for Trust
investors and (vi) other benefits to the Manager from its relationship with the
Trust. Outlined below is a summary of the principal information considered by
the Board as well as the Board's conclusions.
NATURE, QUALITY, AND EXTENT OF SERVICES. The Board considered information
on the nature and extent of the services provided to the Trust by the Manager
and by OppenheimerFunds, Inc., the Manager's parent company, and information
regarding the key personnel that provide such services. The Manager's duties
include providing the Trust with the services of the portfolio managers and the
Manager's investment team, who provide research, analysis and other advisory
services in regard to the Trust's investments; securities trading services;
oversight of third party service providers; monitoring compliance with
applicable Trust policies and procedures and adherence to the Trust's investment
restrictions. The Manager is responsible for providing certain administrative
services to the Trust as well. Those services include providing and supervising
all administrative and clerical personnel that are necessary in order to provide
effective corporate administration for the Trust; compiling and maintaining
records with respect to the Trust's operations; preparing and filing reports
required by the Securities and Exchange Commission; preparing periodic reports
regarding the operations of the Trust for its shareholders; preparing proxy
materials for shareholder meetings; and preparing the registration statements
required by Federal and state securities laws for the sale of the Trust's
shares. The Manager also provides the Trust with office space, facilities and
equipment.
17 | CENTENNIAL GOVERNMENT TRUST
BOARD APPROVAL OF THE TRUST'S INVESTMENT
ADVISORY AGREEMENT Unaudited / Continued
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The Board also considered the quality of the services provided and the
quality of the Manager's resources that are available to the Trust. The Board
took account of the fact that the Manager has been an investment advisor since
1978 and that the Manager's and its parent's assets under management rank among
the top mutual fund managers in the United States. The Board evaluated the
Manager's administrative, accounting, legal and compliance services, and
information the Board has received regarding the experience and professional
qualifications of the Manager's key personnel and the size and functions of its
staff providing investment management services to the Trust. The Board also
considered compliance reports from the Trust's Chief Compliance Officer. In its
evaluation of the quality of the portfolio management services provided, the
Board considered the experience of Carol E. Wolf and Barry D. Weiss and the
Manager's money market investment team and analysts. Ms. Wolf has had over 22
years and Mr. Weiss has had over 7 years of experience managing money market and
other fixed income investments. The Board members also considered the totality
of their experiences with the Manager, as directors or trustees of the Trust and
other funds advised by the Manager. In light of the foregoing, the Board
concluded that the Trust benefits from the services provided under the Agreement
as a result of the Manager's experience, reputation, personnel, operations, and
resources.
INVESTMENT PERFORMANCE OF THE TRUST. During the year, the Manager provided
information on the performance of the Trust at each Board meeting, including
comparative performance information. The Board also reviewed information,
prepared by the Manager and by the independent consultant, comparing the Trust's
historical performance to relevant market indices and to the performance of
other U.S. government money market funds. The Board noted that the Trust's
three-year and five-year performance were better than its peer group median.
However its one-year and ten-year performance were below its peer group median.
COSTS OF SERVICES AND PROFITS REALIZED BY THE MANAGER. The Board
considered information regarding the Manager's costs in serving as the Trust's
investment adviser, including the costs associated with the personnel and
systems necessary to manage the Trust, and information regarding the Manager's
profitability from its relationship with the Trust. The Board reviewed the fees
paid to the Manager and the other expenses borne by the Trust. The Board also
evaluated the comparability of the fees charged and the services provided to the
Trust to the fees and services for other clients or accounts advised by the
Manager. The independent consultant provided comparative data in regard to the
fees and expenses of the Trust, other U.S. government money market funds and
other funds with comparable asset levels and distribution features. The Board
noted that the
18 | CENTENNIAL GOVERNMENT TRUST
Trust's contractual and actual management fees and total expenses are higher
than its peer group median and average. However, the Board concluded that the
Trust's fees are reasonable in light of the Trust's three-year and five-year
performance improvement.
ECONOMIES OF SCALE. The Board considered whether the Manager may realize
economies of scale in managing and supporting the Trust, whether those economies
of scale benefit the Trust's shareholders and the current level of Trust assets
in relation to the Trust's management fee breakpoints, which are intended to
share with shareholders economies of scale that may exist as the Trust grows.
OTHER BENEFITS TO THE MANAGER. In addition to considering the profits
realized by the Manager, the Board considered information that was provided
regarding the direct and indirect benefits the Manager receives as a result of
its relationship with the Trust, including compensation paid to the Manager's
affiliates. The Board also considered the nature and quality of services
provided by affiliates of the Manager, which it reviews at other times during
the year in connection with the renewal of the Trust's service agreements. The
Board considered that the Manager must be able to pay and retain experienced
professional personnel at competitive rates to provide services to the Trust and
that maintaining the financial viability of the Manager is important in order
for the Manager to continue to provide significant services to the Trust and its
shareholders.
CONCLUSIONS. These factors were also considered by the independent
Trustees meeting separately from the full Board, assisted by experienced counsel
to the Trust and to the independent Trustees. Trust counsel and the independent
Trustees' counsel are both independent of the Manager within the meaning and
intent of the Securities and Exchange Commission Rules.
Based on its review of the information it received and its evaluations
described above, the Board, including a majority of the independent Trustees,
decided to continue the advisory agreement for another year. In arriving at this
decision, the Board did not single out any factor or factors as being more
important than others, but considered all of the factors together. The Board
judged the terms and conditions of the advisory agreement, including the
management fee, in light of all of the surrounding circumstances.
19 | CENTENNIAL GOVERNMENT TRUST
ITEM 2. CODE OF ETHICS.
Not applicable to semiannual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to semiannual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to semiannual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
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.
THE FUND'S GOVERNANCE COMMITTEE PROVISIONS WITH RESPECT TO NOMINATIONS OF
DIRECTORS/TRUSTEES TO THE RESPECTIVE BOARDS
1. The Fund's Governance Committee (the "Committee") will evaluate potential
Board candidates to assess their qualifications. The Committee shall have
the authority, upon approval of the Board, to retain an executive search
firm to assist in this effort. The Committee may consider recommendations
by business and personal contacts of current Board members and by
executive search firms which the Committee may engage from time to time
and may also consider shareholder recommendations. The Committee may
consider the advice and recommendation of the Funds' investment manager
and its affiliates in making the selection.
2. The Committee shall screen candidates for Board membership. The Committee
has not established specific qualifications that it believes must be met
by a trustee nominee. In evaluating trustee nominees, the Committee
considers, among other things, an individual's background, skills, and
experience; whether the individual is an "interested person" as defined in
the Investment Company Act of 1940; and whether the individual would be
deemed an "audit committee financial expert" within the meaning of
applicable SEC rules. The Committee also considers whether the
individual's background, skills, and experience will complement the
background, skills, and experience of other nominees and will contribute
to the Board. There are no differences in the manner in which the
Committee evaluates nominees for trustees based on whether the nominee is
recommended by a shareholder.
3. The Committee may consider nominations from shareholders for the Board at
such times as the Committee meets to consider new nominees for the Board.
The Committee shall have the sole discretion to determine the candidates
to present to the Board and, in such cases where required, to
shareholders. Recommendations for trustee nominees should, at a minimum,
be accompanied by the following:
o the name, address, and business, educational, and/or other pertinent
background of the person being recommended;
o a statement concerning whether the person is an "interested person"
as defined in the Investment Company Act of 1940;
o any other information that the Funds would be required to include in
a proxy statement concerning the person if he or she was nominated;
and
o the name and address of the person submitting the recommendation
and, if that person is a shareholder, the period for which that
person held Fund shares.
The recommendation also can include any additional information which the
person submitting it believes would assist the Committee in evaluating the
recommendation.
4. Shareholders should note that a person who owns securities issued by
Massachusetts Mutual Life Insurance Company (the parent company of the
Funds' investment adviser) would be deemed an "interested person" under
the Investment Company Act of 1940. In addition, certain other
relationships with Massachusetts Mutual Life Insurance Company or its
subsidiaries, with registered broker-dealers, or with the Funds' outside
legal counsel may cause a person to be deemed an "interested person."
5. Before the Committee decides to nominate an individual as a trustee,
Committee members and other directors customarily interview the individual
in person. In addition, the individual customarily is asked to complete a
detailed questionnaire which is designed to elicit information which must
be disclosed under SEC and stock exchange rules and to determine whether
the individual is subject to any statutory disqualification from serving
as a trustee of a registered investment company.
ITEM 11. CONTROLS AND PROCEDURES.
Based on their evaluation of the registrant's disclosure controls and procedures
(as defined in rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR
270.30a-3(c)) as of December 31, 2005, the registrant's principal executive
officer and principal financial officer found the registrant's disclosure
controls and procedures to provide reasonable assurances that information
required to be disclosed by the registrant in the reports that it files under
the Securities Exchange Act of 1934 (a) is accumulated and communicated to
registrant's management, including its principal executive officer and principal
financial officer, to allow timely decisions regarding required disclosure, and
(b) is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms adopted by the U.S. Securities and Exchange
Commission.
There have been no changes in the registrant's internal controls over financial
reporting 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 to semiannual reports.
(2) Exhibits attached hereto.
(3) Not applicable.
(b) Exhibit attached hereto.
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.
Centennial Government Trust
By: /s/ John V. Murphy
------------------
John V. Murphy
Principal Executive Officer
Date: February 14, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:/s/ John V. Murphy
------------------
John V. Murphy
Principal Executive Officer
Date: February 14, 2006
By: /s/ Brian W. Wixted
-------------------
Brian W. Wixted
Principal Financial Officer
Date: February 14, 2006