[front cover] June 30, 1998
SEMIANNUAL REPORT
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AMERICAN CENTURY
[graphic of people, stairs, building, figures]
BENHAM GROUP
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INTERNATIONAL BOND
[american century logo(reg.sm)]
American
Century(reg.sm)
[inside front cover]
A Note from the Founder
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On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in turn, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
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Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very good
information, from fund statistics and financials to Q&A's with fund managers. We
hope the new design will make the reports more interesting and understandable
while helping you keep abreast of your fund's strategy and performance.
What's New
The reports are designed to be attractive and easy to use whether you're reading
them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
THE BOTTOM LINE.
The new design actually costs slightly less than the old one. We reallocated
costs and eliminated a cover letter and the envelope that previously came with
your report enclosed. This not only saves money, but reduces the number of
mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-friendly
publication.
We hope you enjoy it.
[left margin]
Benham Group
International Bond
(BEGBX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
Our Message to You
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/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
International bonds performed well during the first half of 1998 as
interest rates fell worldwide. Fallout from the financial crisis in Asia
tempered economic growth in much of the world and kept price inflation low--an
excellent environment for bonds.
For U.S. investors, though, foreign bond returns were reduced by currency
fluctuations. The dollar's continued strength against most of the world's
currencies weakened overseas returns when they were converted into dollars.
One of the benefits of investing in International Bond is that you get full
exposure to a variety of foreign currencies as insurance against a decline in
the dollar's value. In order to retain this currency diversification, we widened
International Bond's investment parameters at the beginning of 1998. Instead of
focusing exclusively on European bonds, the fund can now invest in foreign bond
markets in North America, Asia, and Australia as well.
This broader scope will become more important in 1999, when European
economic and monetary union (EMU) unites 11 countries with a single currency.
Under International Bond's old policy of investing only in Europe, EMU would
have severely limited the fund's currency diversification. However, the expanded
investment universe enables International Bond to maintain its exposure to a
diversified mix of currencies. (The management team talks more about EMU and
currency diversification in the Q&A beginning on page 5.)
International Bond also has a new distribution policy that became effective
earlier this year. International Bond paid a capital gains distribution in March
1998 as well as in December 1997. The fund will continue on this March- December
capital gains distribution schedule going forward. The March distribution allows
the fund to promptly distribute capital gains realized between the IRS's October
31 deadline for December distributions and the fund's December 31 fiscal
year-end.
We understand how important it is for you to follow the strategies of your
fund management team and track the progress of your investments. For that
reason, we hope you like the new design of this report. It's intended to make
the important information you need about our funds more accessible.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
INTERNATIONAL BOND
Performance Information ................................................. 4
Management Q&A .......................................................... 5
Schedule of Investments ................................................. 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ............................................................. 10
Statement of Operations ................................................. 11
Statements of Changes
in Net Assets ........................................................... 12
Notes to Financial
Statements .............................................................. 13
Financial Highlights .................................................... 15
OTHER INFORMATION
Retirement Account
Information ............................................................. 16
Background Information
Investment Philosophy
and Policies ......................................................... 17
Comparative Indices .................................................. 17
Lipper Rankings ...................................................... 17
Investment Team
Leaders .............................................................. 17
The Fund's Subadvisor ................................................ 17
Glossary ................................................................ 18
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* International bonds produced solid returns during the first half of 1998 as
interest rates declined around the globe.
* The strong dollar reduced foreign bond returns modestly for U.S. investors.
* Rates fell as a result of the Asian financial meltdown, which kept global
inflation low and sparked demand for bonds as a safe haven.
MANAGEMENT Q&A
* International Bond beat the average international income fund and performed
in line with its benchmark for the first half of 1998.
* We made the following adjustments to the fund's portfolio:
* Lengthened its duration (a measure of interest rate sensitivity) to take
advantage of falling interest rates.
* Overweighted Swedish and British bond markets early in the year.
* Shifted from an emphasis on Sweden and the U.K. to Germany and
France by June as relative values changed.
* We have a negative outlook on the Japanese bond market, so we have reduced
our holdings there since the end of June.
* We plan to maintain our neutral weighting in Europe and a slightly long
duration relative to the benchmark.
EMU UPDATE
* European economic and monetary union (EMU) is on schedule to begin in 1999,
with eleven countries joining together under a single currency.
* Bond yields among EMU countries have converged and are now moving in tandem.
* The euro, which will essentially replace 11 currencies, will reduce
International Bond's overall currency diversification. However, we expect
the euro to be a strong and stable international currency.
* EMU has already been priced into the European bond markets, though there
will be some currency logistics to resolve at year-end.
* Existing bonds will switch from the issuing country's currency to the new
euro currency, and all new bonds issued by EMU countries will be denominated
in the euro.
* We now view EMU countries as one big market when comparing values among
foreign bonds.
[left margin]
"INTERNATIONAL BOND BEAT THE AVERAGE INTERNATIONAL INCOME FUND AND PERFORMED IN
LINE WITH ITS BENCHMARK FOR THE FIRST HALF OF 1998."
INTERNATIONAL BOND
(BEGBX)
TOTAL RETURNS: AS OF 6/30/98
6 Months 3.02%*
1 Year 4.40%
NET ASSETS: $142.5 million
INCEPTION DATE: 1/7/92
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on page 18.
2 1-800-345-2021
Market Perspective from Randall W. Merk
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/photo of Randall W. Merk/
Randall W. Merk, director of fixed-income investing at American Century
FAVORABLE RETURNS
International bonds produced solid returns during the first half of 1998 as
interest rates declined around the globe. The Salomon Non-U.S. World Government
Bond Index (WGBI) returned 4.32% in local currencies for the six months ended
June 30, 1998.
For U.S. investors, the strong U.S. dollar reduced foreign bond returns.
The dollar rose about 1% in value against most major European currencies, and it
surged by more than 6% against the Japanese yen. As a result, bond gains earned
in foreign currencies were worth less in dollar terms--the Salomon Non-U.S. WGBI
returned just 2.09% when translated into U.S. dollars. However, the dollar's
strength has been much milder in 1998 than in the past several years.
THE EFFECTS OF ASIA
The main reason that interest rates fell worldwide was the spreading
effects of the financial meltdown in Asia. In mid-1997, a currency crisis among
Southeast Asian countries pushed their economies into recession and sent their
financial markets into freefall. Since then, the effects of this crisis have had
a growing impact on the rest of the world.
A lack of consumer demand in Asia has reduced economic activity in many
countries that export to the region. Japan, a close Asian trading partner, is
Randall W. Merk, director of fixed-income taking the biggest hit, but Europe and
North America are also feeling the effects. In addition, the crisis has
contributed to low global inflation--Asian countries, in an effort to rebuild
their economies, have cut prices on their exports, and this has held prices in
check throughout the world.
The prospects of slower growth and low inflation have been positive for
global fixed-income markets, pushing bond yields lower and bond prices higher.
Bonds have also benefited from a "flight to quality" as investors fleeing Asian
markets looked to bonds elsewhere in the world as a safe haven. Although this
has occurred primarily in the U.S., European bond markets have also seen some
safe-haven demand.
EMU UPDATE
Plans for European economic and monetary union (EMU) were finalized in
April. Eleven European countries (see the list at right) will join together in
1999 under a common currency and a single central bank. Exchange rates have been
established between the currencies of the member countries and the new euro
currency.
The biggest story in the European bond markets over the past couple of
years has been the convergence of bond yields among EMU countries. As the
accompanying graph shows, yields finally came together at the end of 1997. So
far in 1998, the bond yields of EMU member countries have moved in tandem and
are acting as if EMU is already in place.
[right margin]
"THE MAIN REASON THAT INTEREST RATES FELL WORLDWIDE WAS THE SPREADING EFFECTS OF
THE FINANCIAL MELTDOWN IN ASIA."
EMU MEMBER COUNTRIES
AUSTRIA ITALY
BELGIUM LUXEMBOURG
FINLAND NETHERLANDS
FRANCE PORTUGAL
GERMANY SPAIN
IRELAND
[line chart - data below]
CONVERGING 10-YEAR NOTE YIELDS
Germany Italy Spain
1/31/96 5.98% 10.00% 9.54%
2/29/96 6.40% 10.33% 9.68%
3/31/96 6.44% 10.59% 9.75%
4/30/96 6.36% 9.59% 9.13%
5/31/96 6.61% 9.46% 9.24%
6/30/96 6.62% 9.23% 9.00%
7/31/96 6.61% 9.32% 8.95%
8/31/96 6.48% 9.39% 8.88%
9/30/96 6.18% 8.46% 7.98%
10/31/96 6.10% 8.20% 7.83%
11/30/96 5.74% 7.55% 7.05%
12/31/96 5.97% 7.52% 6.89%
1/31/97 5.80% 7.35% 6.76%
2/28/97 5.62% 7.74% 7.01%
3/31/97 5.98% 8.02% 7.16%
4/30/97 5.85% 7.71% 6.89%
5/31/97 5.99% 7.54% 6.75%
6/30/97 5.79% 7.00% 6.42%
7/31/97 5.60% 6.63% 6.22%
8/31/97 5.74% 6.84% 6.39%
9/30/97 5.57% 6.22% 5.93%
10/31/97 5.62% 6.26% 6.05%
11/30/97 5.49% 5.91% 5.79%
12/31/97 5.42% 5.63% 5.63%
1/31/98 5.13% 5.47% 5.35%
2/28/98 5.00% 5.33% 5.19%
3/31/98 4.97% 5.19% 5.11%
4/30/98 5.05% 5.23% 5.17%
5/31/98 4.93% 5.15% 5.08%
6/30/98 4.84% 5.10% 5.05%
Source: Salomon Brothers Yield Book
www.americancentury.com 3
International Bond--Performance
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TOTAL RETURNS AS OF JUNE 30, 1998
INCEPTION 1/7/92
INTERNATIONAL FUND INTERNATIONAL INCOME FUNDS(2)
BOND BENCHMARK(+) AVERAGE RETURN FUND'S RANKING
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6 MONTHS(1) .......... 3.02% 3.12% 2.78% --
1 YEAR ............... 4.40% 4.68% 3.67% 19 OUT OF 54
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AVERAGE ANNUAL RETURNS
3 YEARS .............. 3.16% 3.51% 5.56% 25 OUT OF 38
5 YEARS .............. 7.01% 7.90% 5.96% 6 OUT OF 16
LIFE OF FUND ......... 7.10% 6.91% 6.90%(3) 4 OUT OF 10(3)
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services, an independent mutual fund ranking
service.
(3) Since 1/31/92, the date nearest the fund's inception for which data are
available.
See pages 17-18 for more information about returns, the fund's benchmark, and
Lipper fund rankings.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 6/30/98
J.P. Morgan ECU Index $15,780
International Bond $15,593
Fund Benchmark + $15,424
J.P. Morgan International Fund
ECU Index Bond Benchmark+
DATE ACCT VALUE ACCT VALUE ACCT VALUE
1/7/92 $10,000 $10,000 $10,000
Mar-92 $9,386 $9,736 $9,386
Jun-92 $10,391 $10,731 $10,391
Sep-92 $11,050 $11,501 $11,050
Dec-92 $10,120 $10,708 $10,120
Mar-93 $10,610 $11,179 $10,610
Jun-93 $10,548 $11,114 $10,548
Sep-93 $11,218 $11,992 $11,218
Dec-93 $11,200 $11,970 $11,200
Mar-94 $11,317 $11,871 $11,317
Jun-94 $11,528 $11,971 $11,528
Sep-94 $11,749 $12,050 $11,749
Dec-94 $11,863 $12,152 $11,863
Mar-95 $13,543 $13,834 $13,543
Jun-95 $13,906 $14,202 $13,906
Sep-95 $14,188 $14,393 $14,188
Dec-95 $14,906 $15,117 $14,906
Mar-96 $14,633 $14,834 $14,633
Jun-96 $14,700 $14,881 $14,700
Sep-96 $15,257 $15,491 $15,257
Dec-96 $15,798 $16,082 $15,798
Mar-97 $14,759 $14,992 $14,759
Jun-97 $14,735 $14,938 $14,735
Sep-97 $14,833 $15,100 $14,833
Dec-97 $14,957 $15,138 $14,957
Mar-98 $15,457 $15,259 $15,056
Jun-98 $15,780 $15,593 $15,424
$10,000 investment made 1/7/92
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED JUNE 30)
International Fund
Bond Benchmark+
6/92* 7.31% 3.91%
6/93 3.57% 1.51%
6/94 7.71% 9.29%
6/95 18.63% 20.63%
6/96 4.78% 5.71%
6/97 0.28% 0.18%
6/98 4.40% 4.68%
The chart at left shows the growth of a $10,000 investment over the life of the
fund, while the chart below shows the fund's year-by-year performance. The
fund's benchmark(+) is provided for comparison in each chart. International
Bond's returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the returns of the index do not.
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
(+) From the fund's inception to December 31, 1997, the benchmark was the J.P.
MORGAN ECU-WEIGHTED EUROPEAN INDEX. Since January 1, 1998, the benchmark has
been the J.P. MORGAN GLOBAL TRADED BOND INDEX (excluding the U.S. and with
Japan weighted at 15%).
* From the fund's 1/7/92 inception date to 6/30/92.
4 1-800-345-2021
International Bond--Q&A
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An interview with Dominic Pegler, a portfolio manager on the International
Bond fund management team.
HOW DID THE FUND PERFORM DURING THE FIRST HALF OF 1998?
International Bond's return was consistent with the performance of foreign
bond markets in general. For the six months ended June 30, 1998, the fund
returned 3.02%, compared with the 3.12% return of its benchmark, the J.P. Morgan
Global Traded Government Bond Index (excluding the U.S. and with Japan weighted
at 15%).
International Bond outperformed the 2.78% average return of the 55
"International Income Funds" tracked by Lipper Analytical Services. (See the
Total Returns table on the previous page for other fund performance
comparisons.)
HOW WAS THE FUND POSITIONED?
One of the most significant positioning changes we made to the portfolio
was to increase its duration. Duration is a measure of the fund's sensitivity to
changes in interest rates. The longer the fund's duration, the more its share
price rises when rates fall, but the more the share price drops when rates rise.
Conversely, a shorter duration means the fund's share price fluctuates less when
rates change.
We lengthened International Bond's duration because we expected the Asian
crisis to cause interest rates to fall worldwide. We also believed that
longer-term bonds would perform better than shorter-term securities. As a
result, we purchased some long-maturity bonds in Japan, Europe (mainly Germany
and France), and Canada.
These investments caused our duration to extend from around 4.5 years at
the end of 1997 to about six years by March 1998. By June, however, interest
rates had declined quite a bit, so we eased duration back to a more neutral 5.3
years.
AS OF JUNE 30, ABOUT 20% OF THE PORTFOLIO WAS IN CASH. WHY?
It was part of our strategy to lengthen duration. International Bond's
benchmark has a duration of around 5.5 years, and we try to keep the fund's
duration close to this level. The long-term securities we bought had durations
of more than 10 years, so we purchased cash equivalents, which have extremely
short durations, to balance things out.
Although the cash equivalents were U.S. government agency notes, we used
forward currency contracts to maintain non-dollar exposure.
HOW DO FORWARD CURRENCY CONTRACTS WORK?
Basically, we agree to buy or sell a currency at a prearranged price on a
specific future date. For example, we might enter into an agreement to sell
German marks and buy Japanese yen three months from now. It gives us exposure to
a particular currency without having any investments denominated in the
currency.
WHY DO YOU USE CURRENCY CONTRACTS?
It gives us more flexibility and makes it easier to provide currency
diversification for our shareholders. One of International Bond's goals is to
provide broad exposure to currencies other than the U.S. dollar. We manage the
fund's currency exposure to closely match that of the benchmark.
[right margin]
"INTERNATIONAL BOND'S RETURN WAS CONSISTENT WITH THE PERFORMANCE OF FOREIGN BOND
MARKETS IN GENERAL."
PORTFOLIO AT A GLANCE
6/30/98 12/31/97
NUMBER OF SECURITIES 17 25
WEIGHTED AVERAGE
MATURITY 7.7 YRS 6.3 YRS
AVERAGE DURATION 5.3 YRS 4.3 YRS
EXPENSE RATIO 0.88%* 0.84%
* Annualized.
"WE LENGTHENED INTERNATIONAL BOND'S DURATION BECAUSE WE EXPECTED THE ASIAN
CRISIS TO CAUSE INTEREST RATES TO FALL WORLDWIDE."
Investment terms are defined in the Glossary on page 18.
www.americancentury.com 5
International Bond--Q&A
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(Continued)
However, we often overweight or underweight foreign bond markets in the
fund's portfolio. For example, Japan and Germany each make up 15% of the
benchmark, but at the end of June, International Bond had 5% of its portfolio in
Japanese bonds and 24% in German bonds. To bring the portfolio's currency
weightings back in line with the benchmark, we used forward currency contracts
to sell German marks and buy Japanese yen.
Ultimately, forward currency contracts help us maintain a fairly stable,
diversified currency mix while we try to add value through modest adjustments to
the fund's duration and bond market weightings.
WHAT CHANGES DID YOU MAKE TO THE FUND'S BOND MARKET WEIGHTINGS?
At the start of 1998, we were overweighted relative to the benchmark in
Sweden and the U.K., which we felt offered the most attractive bond values.
Meanwhile, we were underweighted in "core" Europe (Germany, France, the
Netherlands), and we had taken neutral positions in Japan, Canada and Australia,
where the fund was investing for the first time.
Swedish bonds performed so well in the first quarter that they no longer
looked attractive, so we sold all of our investments there. Unexpectedly strong
economic growth in the U.K. led us to cut back our holdings to around neutral.
We moved some of these assets into German and French bonds, which were most
likely to benefit from the "flight to quality" out of Asia. We shifted the rest
into cash equivalents to balance duration.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR INTERNATIONAL BOND MARKETS?
We're a little negative on the Japanese bond market. Bond returns there
depend on whether the authorities do anything meaningful about the country's
banking crisis or economic problems. Japanese interest rates can't get much
lower than they already are, and any progress Japan makes toward solving its
problems would likely cause rates to rise, hurting bond prices.
We expect the Japanese government to put together a substantial rebuilding
package, which will almost certainly include reform measures for its financial
system. Once the plan is announced, however, we'll have to wait and see whether
it produces any results.
Europe should take a bit of a back seat in the global fixed-income markets.
With the fallout from Asia keeping inflation and economic growth at modest
levels, we believe that European bond markets are about where they should be, at
fair value.
WHAT ABOUT EMU? HOW WILL IT AFFECT THE EUROPEAN BOND MARKETS WHEN IT BEGINS IN
1999?
It's already been priced into the markets. Bond yields in EMU countries are
very close together and already tend to move as a bloc. There will be some
currency logistics as the euro becomes the de facto currency for EMU-member
bonds, and it will be interesting to see how the transition to fixed exchange
rates goes at the end of this year, but everything else should generally remain
the same.
[left margin]
"AT THE START OF 1998, WE WERE OVERWEIGHTED RELATIVE TO THE BENCHMARK IN SWEDEN
AND THE U.K., WHICH WE FELT OFFERED THE MOST ATTRACTIVE BOND VALUES."
BOND HOLDINGS BY COUNTRY
% OF FUND INVESTMENTS
AS OF AS OF
6/30/98 12/31/97
FRANCE 28% 17%
GERMANY 24% 26%
U.S. (TEMPORARY
CASH INVESTMENTS) 21% --
UNITED KINGDOM 10% 31%
DENMARK 5% 4%
CANADA 5% --
JAPAN 5% --
SPAIN 2% 2%
SWEDEN -- 10%
NETHERLANDS -- 8%
SWITZERLAND -- 2%
6 1-800-345-2021
International Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT WILL HAPPEN TO EXISTING BONDS ISSUED BY EMU COUNTRIES?
The only change will be the currency denomination, which will switch from
the "home" currency to the euro. All existing bonds, and any new ones issued by
EMU member countries, will be denominated in the euro. Although the EMU has its
own central bank, it will not issue any bonds as an entity.
HOW WILL EMU AFFECT YOUR MANAGEMENT OF THE FUND?
It's already changed the way we look at Europe. Instead of looking at
Germany, France, Italy, and other EMU countries as distinct markets, we've
started to look at them as one big market. We now compare the relative values of
the EMU "market" with Japan, Canada, and the European markets outside the
EMU--mainly Sweden, Denmark and the U.K.
The other interesting thing about EMU is the effect it will have on the
global economy. The EMU will become the second-largest economy in the world,
bigger than Japan. And if other European countries join EMU down the road--as we
expect the U.K., Sweden, Denmark, and Greece to do in the next five years--then
it will surpass the U.S. as the largest economy on the planet.
This has profound implications for worldwide commerce. EMU will give the
Continent a great deal of economic clout in the global marketplace. We expect
the euro to join the dollar as a major currency used for international
transactions and held in reserve by the world's central banks.
HOW WILL THE EURO AFFECT THE FUND'S CURRENCY DIVERSIFICATION?
The fund will certainly be exposed to fewer currencies, since we're
essentially replacing eleven currencies with one. As the accompanying chart
shows, about 60% of the benchmark will be denominated in the euro as of 1999.
But you're not actually losing as much diversification as you think.
Historically, the currencies of several countries--including France, Belgium,
the Netherlands, Luxembourg, and Austria--tended to move in sync with the German
mark. So, the currencies of more than half of the EMU countries were already
tightly linked before the euro came along.
Another factor that will help offset the loss of currency diversification
is the strength of the euro itself. We expect the euro to provide a great deal
of stability and be on a par with the U.S. dollar and Japanese yen as major
international currencies.
WHAT ARE YOUR PLANS FOR INTERNATIONAL BOND OVER THE LAST HALF OF THE YEAR?
With regard to bond market weightings, we plan to underweight Japan, at
least over the near term. Since the end of June, we've sold our holdings there.
We'll likely remain neutral in Europe and Canada for the time being.
We'll also look to maintain a longer duration relative to the benchmark.
Recently, concerns about Russia and China have renewed the "flight to quality"
toward government bonds in developed markets. We think the fund will benefit
from this trend.
[right margin - ]
"INSTEAD OF LOOKING AT GERMANY, FRANCE, ITALY, AND OTHER EMU COUNTRIES AS
DISTINCT MARKETS, WE'VE STARTED TO LOOK AT THEM AS ONE BIG MARKET."
EFFECTS OF THE EURO ON THE CURRENCY WEIGHTINGS OF THE FUND'S BENCHMARK (J.P.
MORGAN GLOBAL TRADED GOVERNMENT BOND INDEX, EXCLUDING THE U.S. AND WITH JAPAN
WEIGHTED AT 15%)
GERMANY 16% \
FRANCE 15% \
ITALY 12% \ EURO
SPAIN 6% / 60%
NETHERLANDS 6% /
BELGIUM 5% /
JAPAN 15%
U.K. 13%
CANADA 5%
SWEDEN 3%
DENMARK 3%
AUSTRALIA 1%
www.americancentury.com 7
International Bond--Schedule of Investments
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
GOVERNMENT BONDS
CANADA--4.7%
CAD 3,220,000 Government of Canada,
7.00%, 12/01/06 $2,432,777
3,800,000 Government of Canada,
8.00%, 6/01/23 3,448,433
--------------
5,881,210
--------------
DENMARK--5.1%
DKK 36,700,000 Kingdom of Denmark,
8.00%, 3/15/06 6,375,816
--------------
FRANCE--22.5%
FRF 900,000 Caisse Amort Dette Societe,
6.25%, 10/25/07 163,420
108,150,000 Government of France,
5.50%, 4/25/07 18,771,827
52,570,000 Government of France,
6.00%, 10/25/25 9,463,121
--------------
28,398,368
--------------
GERMANY--23.6%
DEM 15,050,000 German Federal Republic,
6.75%, 4/22/03 9,158,950
12,250,000 German Federal Republic,
6.00%, 7/4/07 7,380,376
6,560,000 German Federal Republic,
6.25%, 1/4/24 4,092,057
7,600,000 Kredit Fuer Wiederaufbau
International Finance,
6.75%, 6/20/05 4,698,732
7,300,000 Tennessee Valley Authority
Global Bond, 6.375%,
9/18/06 4,423,961
--------------
29,754,076
--------------
JAPAN--5.6%
JPY 902,000,000 Government of Japan,
2.60%, 3/20/07 7,094,412
--------------
SPAIN--1.6%
ESP 261,560,000 Government of Spain,
7.35%, 3/31/07 1,988,807
--------------
UNITED KINGDOM--10.5%
GBP 1,870,000 United Kingdom Treasury,
8.50%, 12/07/05 3,574,648
5,240,000 United Kingdom Treasury,
7.50%, 12/07/06 9,627,368
--------------
13,202,016
--------------
TOTAL GOVERNMENT BONDS--73.6% 92,694,705
--------------
(Cost $92,367,683)
Principal Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS--5.5%
FRF 41,000,000 CETELEM EOS, 6.30%,
11/24/99 $6,977,715
--------------
(Cost $8,310,853)
SHORT-TERM CASH INVESTMENTS--20.9%
$26,250,000 FHLB Discount Notes,
5.55%, 7/1/98(1) 26,250,000
--------------
(Cost $26,250,000)
TOTAL INVESTMENT SECURITIES--100.0% $125,922,420
==============
(Cost $126,928,536)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Settlement Unrealized
Contracts to Sell Dates Value Gain (Loss)
- -----------------------------------------------------------------------------
16,598,804 AUD 9/24/98 $10,314,499 $517,165
299,782,413 BEF 9/24/98 8,099,294 26,619
8,250,327 CAD 9/24/98 5,615,577 25,643
9,358,975 CHF 9/24/98 6,232,747 203,076
71,642,416 DEM 9/24/98 39,926,334 5,869
62,698,663 DEM 12/18/98 35,107,089 118,858
15,961,955 DKK 9/24/98 2,332,071 (6,075)
15,961,955 DKK 12/18/98 2,341,130 9,154
1,131,354,393 ESP 9/24/98 7,400,141 45,893
201,425,678 FRF 9/24/98 33,484,668 (39,384)
77,227,540 FRF 12/18/98 12,898,462 42,048
18,485,295 GBP 9/24/98 30,718,207 (168,591)
919,825 GBP 12/18/98 1,521,156 (1,150)
31,572,298,006 ITL 9/24/98 17,795,391 65,126
1,980,964,742 JPY 9/24/98 14,506,239 53,518
479,033,901 JPY 12/18/98 3,552,433 266,091
18,509,120 NLG 9/24/98 9,152,415 31,357
4,136,517 NZD 9/24/98 2,140,648 173,940
36,299,028 SEK 9/24/98 4,566,806 15,585
------------------------------------
$247,705,307 $1,384,742
====================================
(Value on Settlement Date $249,090,049)
See Notes to Financial Statements
8 1-800-345-2021
International Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
JUNE 30, 1998 (UNAUDITED)
Settlement Unrealized
Contracts to Buy Dates Value Gain (Loss)
- ------------------------------------------------------------------------------
16,598,804 AUD 9/24/98 $10,314,499 $(387,784)
3,997,063 AUD 12/18/98 2,486,718 54,805
299,782,413 BEF 9/24/98 8,099,294 54,036
261,028,995 BEF 12/18/98 7,085,644 (20,473)
8,250,327 CAD 9/24/98 5,615,577 (236,008)
2,102,205 CAD 12/18/98 1,432,630 1,682
9,358,975 CHF 9/24/98 6,232,747 (109,908)
121,509,482 DEM 9/24/98 67,717,291 (263,639)
15,961,955 DKK 9/24/98 2,332,071 (9,078)
1,131,354,393 ESP 9/24/98 7,400,141 43,653
998,531,266 ESP 12/18/98 6,555,777 (39,106)
187,944,073 FRF 9/24/98 31,243,508 (79,406)
23,055,247 GBP 9/24/98 38,312,391 (268,262)
31,572,298,006 ITL 9/24/98 17,795,391 175,782
29,626,412,797 ITL 12/18/98 16,748,623 (62,120)
2,712,603,528 JPY 9/24/98 19,863,894 (357,710)
1,511,338,100 JPY 12/18/98 11,207,825 (11,914)
18,509,120 NLG 9/24/98 9,152,415 61,268
16,338,472 NLG 12/18/98 8,118,854 (25,643)
4,136,517 NZD 9/24/98 2,140,648 (126,164)
36,299,028 SEK 9/24/98 4,566,806 (12,820)
34,579,753 SEK 12/18/98 4,366,461 (7,733)
-------------------------------------
$288,789,205 $(1,626,542)
=====================================
(Value on Settlement Date $290,415,747)
NOTES TO SCHEDULE OF INVESTMENTS
AUD = Australian Dollar
BEF = Belgian Franc
CAD = Canadian Dollar
CHF = Swiss Franc
DEM = German Mark
DKK = Danish Krone
ESP = Spanish Peseta
FHLB = Federal Home Loan Bank
FRF = French Franc
GBP = British Pound
ITL = Italian Lira
JPY = Japanese Yen
NLG = Netherlands Guilder
NZD = New Zealand Dollar
SEK = Swedish Krona
(1) The rates for U.S. Government Agency discount notes represent the yield to
maturity at purchase.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each country
* the percent and dollar breakdown of each investment category
* a list of forward currency contracts, which are agreements to buy or sell
currencies at a prearranged price on a specific future date
See Notes to Financial Statements
www.americancentury.com 9
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $126,928,536)
(Note 3) .............................................. $ 125,922,420
Foreign currency holdings, at value
(identified cost of $379,749) ......................... 379,529
Cash .................................................... 9,114,574
Receivable for investments sold ......................... 8,420,509
Receivable for forward foreign
currency exchange contracts ........................... 1,991,168
Receivable for capital shares sold ...................... 454,333
Interest receivable ..................................... 1,495,465
-------------
147,777,998
-------------
LIABILITIES
Disbursements in excess of
demand deposit cash ................................... 158,427
Payable for investments purchased ....................... 2,632,031
Payable for forward foreign
currency exchange contracts ........................... 2,232,968
Payable for capital shares redeemed ..................... 158,902
Accrued management fees (Note 2) ........................ 98,245
-------------
5,280,573
-------------
Net Assets .............................................. $ 142,497,425
=============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ................................. 12,765,728
=============
Net Asset Value Per Share ............................... $ 11.16
=============
NET ASSETS CONSIST OF:
Capital paid in ......................................... $ 143,621,834
Undistributed net investment income ..................... 1,181,038
Accumulated net realized loss
from investments
and foreign currency transactions ..................... (1,036,389)
Net unrealized depreciation on
investments and translation
of assets and liabilities in
foreign currencies (Note 3) ........................... (1,269,058)
-------------
$ 142,497,425
=============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakout tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
10 1-800-345-2021
Statement of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest (net of foreign taxes
withheld of $6,644) ..................................... $ 3,327,117
-----------
Expenses (Note 2):
Management fees ........................................... 630,134
Trustees' fees and expenses ............................... 34,480
-----------
664,614
-----------
Net investment income ..................................... 2,662,503
-----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY (NOTE 3)
Net realized gain (loss) on:
Investments ............................................... 6,206,784
Foreign currency transactions ............................. (7,253,623)
-----------
(1,046,839)
-----------
Change in net unrealized
depreciation on:
Investments ............................................... (2,139,575)
Translation of assets and
liabilities in foreign currencies ....................... 5,079,667
-----------
2,940,092
-----------
Net realized and unrealized
gain on investments and
foreign currency ........................................ 1,893,253
-----------
Net Increase in Net Assets
Resulting from Operations ............................... $ 4,555,756
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks out how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
www.americancentury.com 11
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1997
Decrease in Net Assets 1998 1997
OPERATIONS
Net investment income ...................... $ 2,662,503 $ 9,944,104
Net realized loss on investments
and foreign currency transactions ........ (1,046,839) (13,266,841)
Change in net unrealized
depreciation on investments
and translation
of assets and liabilities in
foreign currencies ....................... 2,940,092 (12,346,528)
------------- -------------
Net increase (decrease) in net
assets resulting from operations ......... 4,555,756 (15,669,265)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. -- (559,851)
From net realized gains on
investment transactions .................. (1,237,801) (2,182,275)
------------- -------------
Decrease in net assets from
distributions ............................ (1,237,801) (2,742,126)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 21,774,116 93,135,669
Proceeds from reinvestment
of distributions ......................... 1,156,498 2,542,647
Payments for shares redeemed ............... (49,482,300) (163,991,495)
------------- -------------
Net decrease in net assets
from capital share transactions .......... (26,551,686) (68,313,179)
------------- -------------
Net decrease in net assets ................. (23,233,731) (86,724,570)
NET ASSETS
Beginning of period ........................ 165,731,156 252,455,726
------------- -------------
End of period .............................. $ 142,497,425 $ 165,731,156
============= =============
Undistributed (distributions in
excess of) net investment income ......... $ 1,181,038 $ (1,481,465)
============= =============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ....................................... 1,966,117 8,534,948
Issued in reinvestment of dividends ........ 103,889 230,124
Redeemed ................................... (4,480,534) (15,004,608)
------------- -------------
Net decrease ............................... (2,410,528) (6,239,536)
============= =============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
the fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
12 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century International Bond Funds (the Trust) is
registered under the Investment Company Act of 1940 as an open-end
non-diversified management investment company. American Century - Benham
International Bond Fund (the Fund) is the sole fund issued by the Trust. The
Fund's investment objective is to provide high current income and capital
appreciation by investing in high-quality, nondollar-denominated government and
corporate debt securities issued outside the United States. The following
significant accounting policies, related to the Fund, are in accordance with
accounting policies generally accepted in the investment company industry.
SECURITY VALUATIONS--Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. When valuations are
not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Interest income less foreign taxes withheld (if any) is
recorded on the accrual basis and includes accretion of discounts and
amortization of premiums.
FOREIGN CURRENCY TRANSACTIONS--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, interest income, and certain
expenses are translated at the rates of exchange prevailing on the respective
dates of such transactions.
Net realized foreign currency exchange gains or losses arise from sales of
portfolio securities, sales of foreign currencies, and the difference between
asset and liability amounts initially stated in foreign currencies and the U.S.
dollar value of the amounts actually received or paid. Net unrealized foreign
currency exchange gains or losses arise from changes in the value of portfolio
securities and other assets and liabilities resulting from changes in the
exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on foreign currency transactions and unrealized
appreciation (depreciation) on translation of assets and liabilities in foreign
currencies, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Fund may enter into
forward foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. When
required, the Fund will segregate assets in an amount sufficient to cover its
obligations under the hedge contracts. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. Forward contracts involve elements of market risk in
excess of the amount reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign currency exchange
rate underlying the forward contract. Additionally, losses may arise if the
counterparties do not perform under the contract terms.
REPURCHASE AGREEMENTS--The Fund may enter into repurchase agreements with
institutions that the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Trustees. Each repurchase agreement is recorded at cost.
The Fund requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Fund to obtain
those securities in the event of a default under the repurchase agreement. ACIM
monitors, on a daily basis, the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each repurchase agreement.
INCOME TAX STATUS--It is the policy of the Fund to distribute all taxable
income and capital gains to shareholders and to otherwise qualify as a regulated
investment company under provisions of the Internal Revenue Code. Accordingly,
no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income are expected
to be declared and paid quarterly. Distributions from net realized capital gains
are generally declared and paid annually.
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
JUNE 30, 1998 (UNAUDITED)
The character of distributions made during the year from net investment
income or net realized capital gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect the
differing character of certain income items and net capital gains and losses for
financial statement and tax purposes and may result in reclassification among
certain capital accounts.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions 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
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into a Management Agreement with ACIM that provides
the Fund with investment advisory and management services in exchange for a
single, unified management fee. The Agreements provide that all expenses of the
Fund, except brokerage commissions, taxes, portfolio insurance, interest, fees
and expenses of those directors who are not considered "interested persons" as
defined in the Investment Company Act of 1940 (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The annual rate at which this fee
is assessed is determined monthly in a two-step process: First, a fee rate
schedule is applied to the net assets of all of the funds in the Fund's
investment category which are managed by ACIM (the "Investment Category Fee").
The overall investment objective of each Fund determines its Investment
Category. The three investment categories are: the Money Market Fund Category,
the Bond Fund Category and the Equity Fund Category. The Funds are included in
the Equity Fund Category. Second, a separate fee rate schedule is applied to the
net assets of all of the funds managed by ACIM (the "Complex Fee"). The
Investment Category Fee and the Complex Fee are then added to determine the
unified management fee rate. The management fee is paid monthly by each Fund
based on each Fund's average daily closing net assets during the previous month
multiplied by the monthly management fee rate. The annualized Investment
Category Fee schedule for the Funds is as follows:
0.6100% of the first $1 billion
0.5580% of the next $1 billion
0.5280% of the next $3 billion
0.5080% of the next $5 billion
0.4950% of the next $15 billion
0.4930% of the next $25 billion
0.4925% of the net assets over $50 billion
The annualized Complex Fee schedule (for all Funds) is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
ACIM has entered into a Subadvisory Agreement with J.P. Morgan Investment
Management (JPMIM) on behalf of the Fund. The subadvisor makes investment
decisions for the Fund in accordance with the Fund's investment objectives,
policies, and restrictions under the supervision of ACIM and the Board of
Trustees. ACIM pays all costs associated with retaining JPMIM as the subadvisor
of the Fund.
Certain officers and trustees of the Trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Trust's investment manager, ACIM, and the
Trust's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments,
totaled $254,631,495 and $274,863,853, respectively. On June 30, 1998,
accumulated net unrealized depreciation on investments was $1,077,542, based on
the aggregate cost of investments for federal income tax purposes of
$126,999,962, which consisted of unrealized appreciation of $1,049,528 and
unrealized depreciation of $2,127,070.
14 1-800-345-2021
<TABLE>
<CAPTION>
International Bond--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................... $ 10.92 $ 11.79 $ 11.95 $ 10.36 $ 10.82 $ 10.01
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ............... 0.19 0.65 0.69 0.61 0.78 0.69
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ........................ 0.14 (1.34) 0.03 1.88 (0.63) 0.49
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations .......................... 0.33 (0.69) 0.72 2.49 0.15 1.18
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... -- (0.04) (0.71) (0.90) (0.60) (0.37)
In Excess of Net Investment
Income .............................. -- -- (0.02) -- -- --
From Net Realized Gains
on Investment Transactions .......... (0.09) (0.14) (0.15) -- (0.01) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ................. (0.09) (0.18) (0.88) (0.90) (0.61) (0.37)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period ......................... $ 11.16 $ 10.92 $ 11.79 $ 11.95 $ 10.36 $ 10.82
=========== =========== =========== =========== =========== ===========
Total Return(2) ..................... 3.02% (5.88)% 6.38% 24.40% 1.52% 11.79%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.88%(3) 0.84% 0.83% 0.82% 0.86% 0.85%
Ratio of Net Investment Income
to Average Net Assets ............... 3.52%(3) 4.82% 5.48% 6.14% 6.09% 6.27%
Portfolio Turnover Rate ............... 189% 163% 242% 167% 166% 310%
Net Assets, End of Period
(in thousands) ...................... $ 142,497 $ 165,731 $ 252,456 $ 252,247 $ 194,301 $ 355,615
</TABLE>
(1) Six months ended June 30, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return for periods less than one year are not
annualized.
(3) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 15
Retirement Account Information
- --------------------------------------------------------------------------------
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
16 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies
INTERNATIONAL BOND seeks current income and capital appreciation by
investing in high-quality, non-dollar-denominated government and corporate debt
securities outside the U.S. Under normal market conditions, the fund will invest
at least 65% of its total assets in foreign government bonds, and it may invest
up to 35% of its total assets in high-quality foreign corporate bonds. The fund
typically maintains a weighted average maturity of 2-10 years.
The fund normally remains fully invested in foreign bonds; however, the
fund may invest up to 25% of its assets in U.S. securities when the U.S. dollar
appears to be strengthening.
International investing involves special risks, such as political
instability and currency fluctuations. The fund is not intended to serve as a
complete investment program by itself.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The J.P. MORGAN GLOBAL TRADED GOVERNMENT BOND INDEX (excluding the U.S. and
with Japan weighted at 15%) consists of foreign bonds from 21 developed nations
in North America, Europe, Asia, and Australia.
LIPPER RANKINGS
LIPPER ANALYTICAL SERVICES, INC. is an independent mutual fund ranking
service that groups funds according to their investment objectives. Rankings are
based on average annual returns for each fund in a given category for the
periods indicated. Rankings are not included for periods less than one year.
The Lipper category for International Bond is:
INTERNATIONAL INCOME FUNDS--funds that invest in U.S. dollar and non-U.S.
dollar debt securities of issuers located in at least three countries (excluding
the U.S., except in periods of market weakness).
THE FUND'S SUBADVISOR
J.P. MORGAN INVESTMENT MANAGEMENT, INC. (J.P. Morgan) is the subadvisor to
the fund and makes the fund's day-to-day investment decisions. J.P. Morgan is a
leading global financial services firm with over $280 billion in assets under
management, primarily in pension funds, institutional accounts and private
accounts. The subadvisor is a wholly owned subsidiary of J.P. Morgan & Co.,
Incorporated.
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INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS:
DOMINIC PEGLER (J.P. MORGAN)
DAVE SCHROEDER
www.americancentury.com 17
Glossary
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RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on page 15.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES--the number of different securities held by the fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* AVERAGE DURATION--another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio. As the
duration of a portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
* EXPENSE RATIO--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
INVESTMENT TERMS
* BASIS POINT--one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%).
* COUPON--the stated interest rate of a security.
FOREIGN CURRENCY TERMS
* CURRENCY FLUCTUATIONS--the movement of foreign currency values in relation to
the U.S. dollar. Currency exchange rates come into play when foreign bond
income, gains or losses are converted into U.S. dollars, as is required for fund
pricing. Changing currency values may have a greater effect on the fund's return
than changing foreign interest rates and bond prices. When the dollar's value
declines compared to foreign currencies, U.S. investors receive higher foreign
bond returns (foreign currencies buy more dollars). Conversely, when the dollar
is stronger, U.S. investors generally receive lower returns (foreign currencies
buy fewer dollars).
* CURRENCY HEDGING--a strategy used to offset fluctuations in the value of a
currency. For example, if the fund managers expect the dollar to strengthen
against foreign currencies, they might choose to invest (or hedge) a portion of
the fund's securities in U.S. dollars to offset the expected currency losses.
18 1-800-345-2021
Notes
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Notes
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20 1-800-345-2021
[inside back cover]
[right margin]
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American
Century(reg.sm)
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
INVESTOR SERVICES:
1-800-345-2021 or 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
FAX: 816-340-7962
INTERNET: www.americancentury.com
AMERICAN CENTURY INTERNATIONAL BOND FUNDS
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
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Recycled
[back cover]
[40 Years]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9808 (c)1998 American Century Services Corporation
SH-BKT-13278 Funds Distributor, Inc.
