[front cover]
JUNE 30, 1999
SEMIANNUAL REPORT
AMERICAN CENTURY
[graphic of stairs]
INTERNATIONAL BOND
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
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Y2K, short for the year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and returned
to production. We have an ongoing commitment to testing our systems with our
vendors and business partners and within the industry throughout the rest of the
year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans are designed to minimize the impact on our investors and help
us maintain operations in the event of any Y2K-related incidents. We will
conduct practice drills of contingency scenarios during the rest of 1999 and
refine those plans to respond quickly and effectively so that the date change is
as seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
MINIMIZE YOUR MUTUAL FUND TAX HIT
American Century's newest equity fund, Tax-Managed Value, is designed for
long-term growth and to minimize the tax hit you take on your mutual fund
investments each year. The fund is managed to keep taxable distributions
to a minimum by using the following strategies:
* BUY AND HOLD --Low portfolio turnover helps limit realized capital gains
and takes advantage of long-term capital gains tax rates.
* OFFSET GAINS --When gains are realized in the portfolio, they may be
offset with capital losses from securities sold in that tax year or losses
carried over from previous years.
* SELL HIGHER-COST SHARES FIRST --Selling shares that cost the most first
helps minimize the taxable gains, if any, incurred from a sale.
[left margin]
INTERNATIONAL BOND
(BEGBX)
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TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
[end left margin]
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 bond markets experienced tough going in the first half of
1999. The two key impediments to the performance of both the markets and to the
American Century International Bond fund were rising yields and the decline in
the value of the euro (the new currency of the Economic and Monetary Union)
compared to the U.S. dollar.
The majority of International Bond's holdings are European government
bonds, so the performance of the euro had a major impact on fund performance. As
you will read in the Management Q&A section, our investment team took several
steps to mitigate these influences, but with headwinds this strong, it was often
difficult to make progress. Long-term, however, we believe the euro and the new
economic order in Europe will make that region a compelling field for
investment.
Also on the investment front, we continued to expand the entire American
Century investment team, which has doubled over the past three years. Our
portfolio teams have excellent depth with an array of experienced managers and
analysts. We remain committed to building and maintaining a talented management
group.
In the spirit of our ongoing Year 2000 readiness disclosures,* here's an
update on our preparations for Y2K. Our senior-level Year 2000 Steering
Committee, computer programmers, business partners and Y2K team have been
working diligently to make January 1, 2000, a non-event for American Century
investors. All of our computer systems have been modified, tested, and returned
to production. We have an ongoing commitment to testing our systems with our
vendors and business partners and within the industry throughout the rest of the
year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
Elsewhere on the corporate front, we redesigned and enhanced our Web site,
www.americancentury.com. If you visit our site, you'll find daily fund
information, including performance and price data, along with market and
national news.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
INTERNATIONAL BOND
Performance Information ................................................. 4
Management Q&A .......................................................... 5
Portfolio at a Glance ................................................... 5
Bond Holdings
by Country ........................................................... 6
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 .................................................... 16
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................. 18
Background Information
Portfolio Managers ................................................... 19
Investment Philosophy
and Policies ...................................................... 19
Comparative Indices .................................................. 19
Lipper Rankings ...................................................... 19
The Fund's Subadvisor ................................................ 19
Glossary ................................................................ 20
*This letter includes a Year 2000 Readiness Disclosure.
[end right margin]
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* International bond markets suffered a setback as stronger-than-expected
global economic growth and the looming threat of interest rate hikes pushed
bond yields higher around the world.
* As bond prices declined, the stronger U.S. dollar also placed downward
pressure on major international currencies, especially the euro--the new
European common currency--and the Japanese yen. For U.S. investors, a
stronger dollar translates into lower foreign bond returns.
* The biggest surprise in the year's first half was Asia's economic comeback.
At the start of 1999, Asia was widely expected to be a lingering drag on the
global economy. Instead, Asia has rebounded more quickly than anticipated,
precipitating interest rate increases.
MANAGEMENT Q&A
* The International Bond fund's return declined in the first half of 1999,
reflecting a rise in global interest rates and a robust dollar relative to a
number of foreign currencies.
* An underweighting in Japanese bonds relative to the benchmark also negatively
impacted International Bond's performance. We had reduced our investments in
Japan late in 1998 when it appeared that interest rates there had reached
bottom. Unfortunately, the bond market in Japan rallied in the first six
months of 1999 after the Bank of Japan cut interest rates.
* To protect against a global climate of rising interest rates, we decreased
the portfolio's duration from 4.9 years in March to 4.6 years on June 30.
Generally, the shorter the duration, the less a bond fund's price will move
as a result of changes in interest rates.
* We reduced a portion of our European bond holdings, which still comprise 62%
of the portfolio. We think we've seen the lows on interest rates in most of
Europe.
* We expect global bond yields to have an upward bias at least for the rest of
1999. We will continue to position the fund defensively and be alert for
opportunities to increase the portfolio's bond allocation and lengthen its
duration. The fund also uses foreign currency contracts to adjust exposure
relative to its benchmark.
[left margin]
INTERNATIONAL BOND(1)
(BEGBX)
TOTAL RETURNS: AS OF 6/30/99
6 Months -10.19%(2)
1 Year 2.76%
INCEPTION DATE: 1/7/92
NET ASSETS: $124.9 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
Investment terms are defined in the Glossary on pages 20-21.
[end left margin]
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
MARKETS UNDER PRESSURE
International bond markets experienced a rough first half of the year as
stronger-than-expected economic growth and the looming threat of interest rate
hikes pushed bond yields higher around the globe.
Market conditions shifted from the slow-growth, disinflationary conditions
of the third and fourth quarters of 1998 to more rapid growth and the risk of
inflation in many major markets. That shift was reflected in international bond
markets as yields moved up and pushed down returns.
In tandem with slumping bond prices was the unrelenting strength of the
U.S. dollar against major international currencies, particularly the euro, the
new European common currency, and the Japanese yen. For U.S. investors, a
stronger dollar reduces foreign bond returns.
EUROPE
Introduced with great fanfare on January 1, 1999, the euro plunged more
than 12% against the dollar by the end of June.
There wasn't much good news for the bond market in the 11-nation European
Economic and Monetary Union, also called the "euro zone." Rising rates, an
oversupply of bonds, hints of a pickup in economic growth, and the search for
fiscal discipline (the European Central Bank has taken a hands-off position
regarding propping up the sagging currency) all took the wind out of the
eurobond market.
Many euro zone investors turned to other markets, which reduced demand and
resulted in a surplus of European bonds. The U.S. economy, meanwhile, continued
its record-setting pace of uninterrupted growth for the last eight years. The
stagnant European economy and healthy U.S. domestic growth, coupled with low
inflation, put more pressure on the euro.
ASIA AND EMERGING MARKETS
Emerging market bonds performed relatively better than most other
international bonds. Latin American securities were among the best performers as
the region's currencies experienced a healthy rebound from their lows last year.
The gradual return to health of Asian economies surprised some investors.
At the start of 1999, Asia was widely expected to be a lingering drag on the
global economy. Instead, Asia has rebounded more quickly than many had
anticipated, precipitating a move up in rates.
In contrast to European central bankers' hands-off approach to the euro,
Japanese officials actively intervened to slow the yen's strength near the end
of the second quarter. Officials believed that an overly strong yen could hamper
Japan's emergence from recession and push bond yields higher. Thus the dollar
also advanced against the yen when Japanese interest rates fell--bucking the
global trend.
With emerging Asia and Japan on the mend, the global economy looked much
stronger in June than it did when the year began.
[right margin]
"MARKET CONDITIONS SHIFTED FROM THE SLOW-GROWTH, DISINFLATIONARY CONDITIONS OF
THE THIRD AND FOURTH QUARTERS OF 1998 TO MORE RAPID GROWTH AND THE RISK OF
INFLATION IN MANY MAJOR MARKETS."
EURO AND JAPANESE YEN VS. U.S. DOLLAR
[data shown in line chart]
Euro Japanese Yen
1/1/99 0.8549 113.60
1/8/99 0.8632 110.85
1/15/99 0.8654 114.15
1/22/99 0.8630 114.57
1/29/99 0.8801 116.33
2/5/99 0.8876 113.13
2/12/99 0.8843 114.24
2/19/99 0.9034 121.30
2/26/99 0.9068 119.20
3/5/99 0.9240 122.72
3/12/99 0.9170 118.70
3/19/99 0.9178 117.14
3/26/99 0.9259 120.30
4/2/99 0.9271 120.65
4/9/99 0.9262 121.00
4/16/99 0.9341 117.84
4/23/99 0.9435 119.13
4/30/99 0.9461 119.47
5/7/99 0.9296 120.81
5/14/99 0.9382 122.84
5/21/99 0.9448 124.00
5/28/99 0.9589 121.56
6/4/99 0.9637 122.24
6/11/99 0.9507 117.90
6/18/99 0.9618 120.47
6/25/99 0.9588 121.47
6/30/99 0.9661 120.99
Source: Bloomberg Financial Markets
This graph depicts the number of Euros or Japanese yen needed to equal one U.S.
dollar.
[end right margin]
www.americancentury.com 3
International Bond--Performance
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<TABLE>
<CAPTION>
TOTAL RETURNS AS OF JUNE 30, 1999
INVESTOR CLASS (INCEPTION 1/7/92) ADVISOR CLASS (INCEPTION 10/27/98)
INTERNATIONAL FUND INTERNATIONAL INCOME FUNDS(2) INTERNATIONAL FUND
BOND BENCHMARK AVERAGE RETURN FUND'S RANKING BOND BENCHMARK
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) -10.19% -9.99% -6.14% -- -10.27% -9.99%
1 YEAR 2.76% 3.42% 2.48% 30 OUT OF 54 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 2.49% 2.76% 4.19% 29 OUT OF 39 -- --
5 YEARS 6.00% 6.71% 6.06% 10 OUT OF 25 -- --
LIFE OF FUND 6.51% 6.42%(3) 6.42%(4) 4 OUT OF 10(4) -8.37% -8.63%(5)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 12/31/91, the date nearest the class's inception for which data are
available.
(4) Since 1/31/92, the date nearest the class's inception for which data are
available.
(5) Since 10/31/98, the date nearest the class's inception for which data are
available.
See pages 18-20 for information about share classes, the fund's benchmark,
returns, and Lipper fund rankings.
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 6/30/99
Fund Benchmark $16,994
International Bond $16,022
$10,000 investment made 1/7/92
[data shown in mountain chart]
International Bond Fund Benchmark
1/7/92 $10,000 $10,000
3/31/92 $9,736 $9,464
6/30/92 $10,731 $10,477
9/30/92 $11,502 $11,141
12/31/92 $10,708 $10,204
3/31/93 $11,179 $10,698
6/30/93 $11,115 $10,635
9/30/93 $11,992 $11,310
12/31/93 $11,971 $11,293
3/31/94 $11,871 $11,410
6/30/94 $11,971 $11,623
9/30/94 $12,050 $11,846
12/31/94 $12,153 $11,962
3/31/95 $13,834 $13,655
6/30/95 $14,202 $14,021
9/30/95 $14,394 $14,305
12/31/95 $15,118 $15,030
3/31/96 $14,834 $14,754
6/30/96 $14,881 $14,821
9/30/96 $15,492 $15,383
12/31/96 $16,082 $15,929
3/31/97 $14,990 $14,881
6/30/97 $14,936 $14,857
9/30/97 $15,100 $14,955
12/31/97 $15,136 $15,080
3/31/98 $15,258 $15,181
6/30/98 $15,593 $15,552
9/30/98 $17,213 $17,153
12/31/98 $17,840 $17,869
3/31/99 $16,794 $17,858
6/30/99 $16,022 $16,994
The graph 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 graph. 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%).
International Bond's total returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
returns of the benchmark do not. The graphs are based on Investor Class shares
only; performance for other classes will vary due to differences in fee
structures (see the Total Returns table above). 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.
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDING JUNE 30)
[data shown in bar chart]
International Bond Fund 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%
6/99 2.76% 3.42%
*From 1/7/92 to 6/30/92.
4 1-800-345-2021
International Bond--Q&A
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[photo of David M. Gibbon]
An interview with David M. Gibbon, a portfolio manager on the International
Bond investment team.
HOW DID INTERNATIONAL BOND PERFORM DURING THE FIRST HALF OF 1999?*
International Bond's total return was -10.19% for the six months ended June
30, 1999, compared with a -9.99% return for its benchmark, the J.P. Morgan
Global Traded Government Bond Index. The negative returns of both the fund and
the index reflected a rise in global interest rates and the strength of the U.S.
dollar relative to a number of foreign currencies.
WHAT OTHER FACTORS AFFECTED THE FUND'S PERFORMANCE?
International Bond's progress was also slowed by an underweighting in
Japanese bonds relative to its benchmark. The bond market in Japan rallied in
the first half of 1999 as the Bank of Japan cut interest rates to jump-start the
economy. We reduced our investments in Japanese bonds in the fall of 1998 when
it appeared that interest rates there seemed to have nowhere to go but up (which
is exactly what happened last December, when they rose 1% in less than two
weeks). As a result, the fund didn't receive the full impact of this year's bond
rally in Japan.
However, our underweighting in Japanese bonds was partially offset by our
currency exposure. The fund held fewer yen than the benchmark and had a
substantial position in dollars, 10%, in fact. The benchmark doesn't have a
dollar position. As the dollar appreciated (and the yen weakened), our position
boosted performance.
WHY DID THE DOLLAR STRENGTHEN AGAINST OTHER MAJOR CURRENCIES, PARTICULARLY THE
EURO AND THE YEN?
The dollar owed its strength to the attractive level of interest rates in
the United States, as well as to the continuing vitality of the U.S. economy and
weaker-than-expected industrial production in the European Economic and Monetary
Union (EMU). Investors were also waiting for more proof that the struggling
Japanese economy was actually getting back on its feet.
To get an idea of the appeal of U.S. interest rates, compare the 10-year
Treasury bond, which was yielding 5.80% at the end of June, with the 10-year
German bond's yield of 4.50%. The yield on Japanese 10-year government bonds was
only about 1.9%. Higher U.S. yields draw investors to dollar-denominated assets.
The strong dollar was also a product of investor confidence that the
Federal Reserve (the U.S. central bank) was going to keep a keen eye on
inflation, and wouldn't hesitate to tighten monetary policy by lifting
short-term interest rates if the U.S. economy appeared to be overheating.
It's important for shareholders to understand that currency fluctuations
can significantly impact International Bond's short-term performance. That's
because the fund is managed to give
*All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"THE NEGATIVE RETURNS OF BOTH THE FUND AND THE INDEX REFLECTED A RISE IN GLOBAL
INTEREST RATES AND THE STRENGTH OF THE U.S. DOLLAR RELATIVE TO A NUMBER OF
FOREIGN CURRENCIES."
PORTFOLIO AT A GLANCE
6/30/99 12/31/98
NUMBER OF SECURITIES 26 25
WEIGHTED AVERAGE
MATURITY 5.9 YRS 7.3 YRS
AVERAGE DURATION 4.6 YRS 5.7 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.86%* 0.84%
*Annualized.
Investment terms are defined in the Glossary on pages 20-21.
[end right margin]
www.americancentury.com 5
International Bond--Q&A
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(Continued)
dollar-based investors a "pure play" on high-quality international bonds and
currency diversification away from the dollar. We use foreign currency contracts
to adjust International Bond's currency exposure relative to its benchmark. By
utilizing currency contracts, the fund can gain currency exposure for its
shareholders while holding less than the benchmark's weighting in a particular
country's bonds.
GOING FORWARD, WHAT'S YOUR OUTLOOK FOR INTEREST RATES IN WORLD MARKETS?
We believe interest rates are going to rise globally during the rest of
1999. We've enjoyed low inflation for the past couple of years, thanks to
reduced economic activity abroad, especially in Asia. But Asian economies
represent one-third of global demand for basic materials and one-fourth of the
world's demand for oil, and recent commodity price strength attests to increased
economic activity in that region. As Asia begins hitting on more cylinders, we
can expect to see upward pressure on interest rates.
GIVEN THE PROSPECTS FOR HIGHER INTEREST RATES GLOBALLY, WHAT ADJUSTMENTS DID YOU
MAKE TO INTERNATIONAL BOND'S PORTFOLIO?
The most significant change we made was to decrease the portfolio's
duration--from 4.9 years in March to 4.6 years at the end of June--to defend
against the impact of rising interest rates. Duration is a measure of a bond
portfolio's sensitivity to changes in interest rates. Generally, the shorter the
duration, the less a bond fund's price will move as a result of changes in
interest rates. In contrast, prices of bond funds with long durations typically
move the fastest and the furthest in response to interest rate changes.
We also lowered International Bond's duration by raising the fund's cash
level from 6% of assets to a 10% weighting. We think cash can be a
good-performing asset on a relative basis. Money market investments and other
cash instruments capture higher interest rates almost instantly.
ARE THERE OTHER AREAS OF OPPORTUNITY BESIDES CASH?
We believe there are currently opportunities in corporate bonds, and that
they may be a good source of added value later in the year. Global economic
growth is strengthening, which should lead to an improvement in credit quality.
The markets have been willing to pay more for high-quality, non-dollar corporate
bonds over the last two years (the credit premiums have nearly doubled), and
volatility on the highest quality bonds (with a credit rating of AA or better)
has been relatively low. These securities provide an excellent way to enhance
the yield of the fund while maintaining low credit risk. In addition, with our
outlook for improving global growth, corporate credit quality should remain
strong over the medium term.
WHAT WERE SOME OF THE CHANGES YOU MADE IN INTERNATIONAL BOND'S COUNTRY
WEIGHTINGS?
To begin with, we reduced our European bond holdings from 75% of the fund's
portfolio to 62% now. Once the EMU became official on January 1, we broadened
our European bond holdings--which were heavily concentrated in German and French
bonds--into countries where we hadn't maintained large positions, such as Italy,
Belgium, and Spain. Looking at the euro zone, confidence appears to be returning
to the business sector--its
[left margin]
"THE MOST SIGNIFICANT CHANGE WE MADE WAS TO DECREASE THE PORTFOLIO'S
DURATION--FROM 4.9 YEARS IN MARCH TO 4.6 YEARS AT THE END OF JUNE--TO DEFEND
AGAINST THE IMPACT OF RISING INTEREST RATES."
BOND HOLDINGS BY COUNTRY
% OF FUND INVESTMENTS
AS OF AS OF
6/30/99 12/31/98
GERMANY 15% 34%
FRANCE 15% 27%
ITALY 14% --
UNITED KINGDOM 13% 13%
CANADA 11% 6%
U.S. (TEMPORARY
CASH INVESTMENTS) 10% 6%
NETHERLANDS 5% 5%
SPAIN 4% 2%
DENMARK 4% 5%
JAPAN 4% --
SWEDEN 3% 2%
BELGIUM 2% --
[end left margin]
6 1-800-345-2021
International Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
industrially based economies are benefiting from renewed vigor in emerging
markets. It's just a matter of time before this improved business confidence
translates into greater economic output. We think we've seen the lows on
interest rates in most of Europe.
One exception to that might be the United Kingdom. We raised our bond
holdings there in the second quarter, after they had dipped below the benchmark
earlier in the year. (At the beginning of 1999, the U.K. bond market did not
appear poised to rally, so we reduced our U.K. bond position to 8% --below the
benchmark's 13% allocation.) The rationale for the move was to purchase bonds
with high yields--which we expect to decline moving forward, leading to capital
appreciation for the fund (as yields drop, bond prices rise).
WHY ARE YOU OVERWEIGHTED IN CANADIAN AND SCANDINAVIAN BONDS? WHAT'S THEIR
ATTRACTION?
These markets offer yields that are relatively attractive given our
economic outlook. In addition, Canada and the Scandinavian countries of Denmark
and Sweden are commodity exporters, and their currencies are currently
benefiting from rising commodity prices. Given the strong linkage between these
currencies and commodity prices--and our expectations of stronger industrial
activity--these bonds offer a chance to benefit from continued currency
strength. We also expect Scandinavian bonds to outperform other European bonds
as Sweden and Denmark prepare for a probable entry into the EMU in the next
three years.
WHAT IS YOUR OUTLOOK FOR INTERNATIONAL BONDS OVER THE LAST HALF OF THE YEAR?
We continue to believe that the recovery in the global economy, after the
crisis in Asia and emerging markets, removes a very significant support from
global bond markets. We anticipate a worsening in inflation expectations. With
monetary policy likely to remain neutral in Europe and Japan, there may be a
need for the Federal Reserve to be much less accommodative than it was last
year.
The anticipation of higher interest rates in the United States is obviously
uncomfortable for global bond markets, because the United States occupies such a
prominent place in the world economy. So we expect global bond yields to have an
upward bias at least for the balance of this year, though we are optimistic that
we may still find pockets of value in foreign markets. We will therefore
continue to position the fund defensively and be alert for opportunities to
increase the portfolio's bond allocation and lengthen its duration.
[right margin]
"WITH MONETARY POLICY LIKELY TO REMAIN NEUTRAL IN EUROPE AND JAPAN, THERE MAY
BE A NEED FOR THE FEDERAL RESERVE TO BE MUCH LESS ACCOMMODATIVE THAN IT WAS
LAST YEAR."
"SO WE EXPECT GLOBAL BOND YIELDS TO HAVE AN UPWARD BIAS AT LEAST FOR THE BALANCE
OF THIS YEAR, THOUGH WE ARE OPTIMISTIC THAT WE MAY STILL FIND POCKETS OF VALUE
IN FOREIGN MARKETS."
[end right margin]
www.americancentury.com 7
International Bond--Schedule of Investments
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This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of
reporting period.
JUNE 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
GOVERNMENT BONDS--71.7%
BELGIUM--2.0%
EUR 2,150,000 Kingdom of Belgium,
8.75%, 6/25/02 $ 2,532,303
----------------------------
CANADA--11.2%
CAD 13,300,000 Government of Canada,
4.50%, 6/1/01 8,903,380
6,630,000 Government of Canada,
7.00%, 12/1/06 4,889,242
----------------------------
13,792,622
----------------------------
DENMARK--4.3%
DKK 19,600,000 Kingdom of Denmark,
4.00%, 2/15/01 2,731,562
15,600,000 Kingdom of Denmark,
8.00%, 3/15/06 2,579,393
----------------------------
5,310,955
----------------------------
FRANCE--10.7%
EUR 3,240,000 Government of France,
4.50%, 7/12/03 3,432,472
4,933,000 Government of France,
4.00%, 4/25/09 4,839,684
4,460,000 Government of France,
6.00%, 10/25/25 4,963,951
----------------------------
13,236,107
----------------------------
GERMANY--9.1%
EUR 5,470,823 German Federal Republic,
4.50%, 8/19/02 5,787,360
1,641,246 German Federal Republic,
6.00%, 7/4/07 1,860,524
3,680,000 German Federal Republic,
3.75%, 1/4/09 3,576,254
----------------------------
11,224,138
----------------------------
ITALY--14.0%
EUR 16,350,000 Republic of Italy,
4.75%, 5/1/03 17,338,121
----------------------------
JAPAN--4.2%
JPY 625,700,000 Government of Japan,
1.90%, 3/20/09 5,223,046
----------------------------
NETHERLANDS--4.6%
EUR 5,000,000 Government of Netherlands,
6.50%, 4/15/03 5,629,377
----------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
SPAIN--4.3%
EUR 3,000,000 Government of Spain,
7.90%, 2/28/02 $ 3,425,547
1,572,007 Government of Spain,
7.35%, 3/31/07 1,911,637
----------------------------
5,337,184
----------------------------
SWEDEN--2.8%
SEK 18,000,000 Kingdom of Sweden,
5.50%, 4/12/02 2,191,231
10,200,000 Kingdom of Sweden,
6.50%, 5/5/08 1,325,919
----------------------------
3,517,150
----------------------------
UNITED KINGDOM--4.5%
GBP 3,100,000 U.K. Treasury Bonds,
7.25%, 12/7/07 5,504,503
----------------------------
TOTAL GOVERNMENT BONDS 88,645,506
----------------------------
(Cost $93,892,302)
CORPORATE BONDS--18.7%
FRANCE--4.2%
FRF 33,000,000 CETELEM EOS,
6.30%, 11/24/99 5,222,030
----------------------------
GERMANY--6.4%
DEM 4,600,000 DSL Finance NV,
5.375%, 1/21/08 2,520,746
5,820,000 LKB Baden Wurttemberg
Finance BV, 6.50%,
9/15/08 3,416,222
EUR 2,000,000 European Investment Bank,
4.00%, 4/15/09 1,954,953
----------------------------
7,891,921
----------------------------
UNITED KINGDOM--8.1%
GBP 1,600,000 European Investment Bank,
7.625%, 12/7/07 2,785,550
1,745,000 General Electric Capital Corp.,
7.25%, 8/6/07 2,955,473
2,500,000 International Bank
Reconstruction &
Development, 7.125%,
7/30/07 4,261,787
----------------------------
10,002,810
----------------------------
TOTAL CORPORATE BONDS 23,116,761
----------------------------
(Cost $25,863,669)
See Notes to Financial Statements
8 1-800-345-2021
International Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
JUNE 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS(1)--9.6%
$11,900,000 FHLB Discount Note,
4.60%, 7/1/99 $ 11,900,000
----------------------------
(Cost $11,900,000)
TOTAL INVESTMENT SECURITIES--100.0% $123,662,267
============================
(Cost $131,655,971)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Contracts Settlement Unrealized
to Sell Dates Value Gain (Loss)
- --------------------------------------------------------------------------------
14,737,263 CAD 8/23/99 $10,016,008 $ 13,368
19,930,587 DKK 8/23/99 2,772,816 7,485
9,182,411 EUR 8/23/99 9,503,329 (64,192)
5,401,143 GBP 8/23/99 8,516,628 (84,874)
623,936,807 JPY 8/23/99 5,197,813 (64,125)
------------------------------------------
$36,006,594 $(192,338)
==========================================
(Value on Settlement Date $35,814,256)
Contracts Settlement Unrealized
to Buy Dates Value Gain (Loss)
- --------------------------------------------------------------------------------
2,544,058 AUD 8/23/99 $ 1,682,710 $ 23,220
3,118,145 CAD 8/23/99 2,119,211 (4,866)
3,094,434 EUR 8/23/99 3,202,582 7,552
6,299,276 GBP 8/23/99 9,932,821 114,872
183,378,880 JPY 8/23/99 1,527,669 (7,669)
------------------------------------------
$18,464,993 $133,109
==========================================
(Value on Settlement Date $18,331,884)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are used by the portfolio management
team in an effort to protect foreign investments against declines in foreign
currencies. This is also known as hedging. The contracts are called "forward"
because they allow your fund to exchange a foreign currency for U.S. dollars at
a date in the future--and at a price (known as the exchange rate) agreed upon
when the contract is initially entered into.
NOTES TO SCHEDULE OF INVESTMENTS
AUD = Australian Dollar
CAD = Canadian Dollar
DKK = Danish Krone
EUR = Euro
GBP = British Pound
FHLB = Federal Home Loan Bank
JPY = Japanese Yen
SEK = Swedish Krona
(1) The rates for U.S. Government agency discount notes are the yield to
maturity at purchase.
See Notes to Financial Statements
www.americancentury.com 9
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $131,655,971) (Note 3) ................. $ 123,662,267
Cash .......................................................... 227,508
Receivable for investments sold ............................... 1,281,145
Receivable for forward foreign currency exchange contracts .... 166,497
Interest receivable ........................................... 2,182,629
-------------
127,520,046
-------------
LIABILITIES
Disbursements in excess of demand deposit cash ................ 1,333,664
Payable for forward foreign currency exchange contracts ....... 225,726
Payable for capital shares redeemed ........................... 920,099
Accrued management fees (Note 2) .............................. 89,228
Distribution and service fees payable (Note 2) ................ 118
Payable for trustees' fees and expenses ....................... 2,374
Other liabilities ............................................. 22,239
-------------
2,593,448
-------------
NET ASSETS .................................................... $ 124,926,598
=============
NET ASSETS CONSIST OF:
Capital paid in ............................................... $ 133,874,858
Undistributed net investment income ........................... 1,412,095
Accumulated net realized loss on investments and
foreign currency transactions .............................. (2,160,185)
Net unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (Note 3) ... (8,200,170)
-------------
$ 124,926,598
=============
INVESTOR CLASS
Net assets .................................................... $ 124,602,108
Shares outstanding ............................................ 11,789,571
Net asset value per share ..................................... $ 10.57
ADVISOR CLASS
Net assets .................................................... $ 324,490
Shares outstanding ............................................ 30,731
Net asset value per share ..................................... $ 10.56
See Notes to Financial Statements
10 1-800-345-2021
Statement of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
INVESTMENT INCOME
INCOME:
Interest (net of foreign taxes withheld of $31,330) ............ $ 2,847,430
------------
EXPENSES (NOTE 2):
Management fees ................................................ 596,912
Distribution fees .............................................. 205
Service fees ................................................... 205
Trustees' fees and expenses .................................... 13,281
------------
610,603
------------
NET INVESTMENT INCOME .......................................... 2,236,827
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
NET REALIZED GAIN (LOSS) ON:
Investments .................................................... 1,567,077
Foreign currency transactions .................................. (3,728,328)
------------
(2,161,251)
------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
Investments .................................................... (5,680,125)
Translation of assets and liabilities in foreign currencies .... (9,968,380)
------------
(15,648,505)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCY ........................................ (17,809,756)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $(15,572,929)
============
See Notes to Financial Statements
www.americancentury.com 11
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1998
DECREASE IN NET ASSETS
OPERATIONS 1999 1998
<S> <C> <C>
Net investment income ................................................... $ 2,236,827 $ 6,205,025
Net realized gain (loss) on investments and foreign currency transactions (2,161,251) 6,392,408
Change in net unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies .......... (15,648,505) 11,657,485
------------- -------------
Net increase (decrease) in net assets resulting from operations ......... (15,572,929) 24,254,918
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
Investor Class ....................................................... (5,282,667) (2,151,681)
Advisor Class ........................................................ (5,126) (442)
From net realized gains on investment transactions
Investor Class ....................................................... (2,487,639) (3,258,320)
Advisor Class ........................................................ (1,585) (425)
------------- -------------
Decrease in net assets from distributions ............................... (7,777,017) (5,410,868)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net decrease in net assets from capital share transactions .............. (9,168,743) (27,129,919)
------------- -------------
NET DECREASE IN NET ASSETS .............................................. (32,518,689) (8,285,869)
NET ASSETS
Beginning of period ..................................................... 157,445,287 165,731,156
------------- -------------
End of period ........................................................... $ 124,926,598 $ 157,445,287
============= =============
Undistributed net investment income ..................................... $ 1,412,095 $ 4,463,061
============= =============
</TABLE>
See Notes to Financial Statements
12 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
JUNE 30, 1999 (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. 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 fund is authorized to issue two classes of
shares: the Investor Class and Advisor Class. The two classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of the fund represent an equal pro rata interest in
the assets of the class to which such shares belong, and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
for class specific expenses and exclusive rights to vote on matters affecting
only individual classes. The following significant accounting policies are in
accordance with generally accepted accounting principles; these principles may
require the use of estimates by fund management.
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 -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Realized
and unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment 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 to facilitate transactions of
securities denominated in a foreign currency or to hedge the fund's exposure to
foreign currency exchange rate fluctuations. In addition, the fund may hold
investments in forward foreign currency exchange contracts for purposes of
gaining currency exposure in certain countries.
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 fund's policy 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 gains are
generally declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with ACIM, under which
ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the fund, except brokerage commissions, taxes, portfolio
insurance, interest, fees and expenses of those trustees 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 fee is
calculated daily and paid monthly. It consists of an Investment Category Fee
based on the average net assets of the funds in a specific fund's investment
category and a Complex Fee based on the average net assets of all the funds
managed by ACIM. The rates for the Investment Category Fee range from 0.4925% to
0.6100% and the rates for the Complex Fee (Investor Class) range from 0.2900% to
0.3100%. The Advisor Class is 0.2500% less at each point within the Complex Fee
range. For the six months ended June 30, 1999, the effective annual Investor
Class management fee was 0.86%.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plan provides that the fund will pay ACIM an annual
distribution fee equal to 0.25% and service fee equal to 0.25%. The fees are
computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred by
the fund under the plan for the six months ended June 30, 1999 were $410.
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
$229,110,731 and $244,860,325, respectively. On June 30, 1999, accumulated net
unrealized depreciation was $7,993,704, which consisted of unrealized
appreciation of $15,274 and unrealized depreciation of $8,008,978. The aggregate
cost of investments for federal income tax purposes was the same as the cost for
financial reporting purposes.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
The trust has an unlimited number of shares authorized. Transactions in shares
of the fund were as follows:
SHARES AMOUNT
INVESTOR CLASS
SIX MONTHS ENDED JUNE 30, 1999
Sold ....................................... 3,999,818 $ 46,948,127
Issued in reinvestment of distributions .... 646,211 7,233,923
Redeemed ................................... (5,509,018) (63,664,745)
------------- -------------
Net decrease ............................... (862,989) $ (9,482,695)
============= =============
YEAR ENDED DECEMBER 31,1998
Sold ....................................... 8,134,417 $ 97,172,379
Issued in reinvestment of distributions .... 410,096 4,992,185
Redeemed ................................... (11,068,209) (129,328,345)
------------- -------------
Net decrease ............................... (2,523,696) $ (27,163,781)
============= =============
ADVISOR CLASS
SIX MONTHS ENDED JUNE 30, 1999
Sold ....................................... 30,352 $ 339,870
Issued in reinvestment of distributions .... 495 5,503
Redeemed ................................... (2,831) (31,421)
------------- -------------
Net decrease ............................... 28,016 $ 313,952
============= =============
PERIOD ENDED DECEMBER 31, 1998(1)
Sold ....................................... 2,646 $ 32,995
Issued in reinvestment of distributions .... 69 867
------------- -------------
Net increase ............................... 2,715 $ 33,862
============= =============
(1) October 27, 1998 (commencement of sale) through December 31, 1998.
- --------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank.
Borrowings under the agreement bear interest at the Federal Funds rate plus
0.40%. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. The fund did not borrow from the line during the six
months ended June 30, 1999.
- --------------------------------------------------------------------------------
6. FUND EVENTS
The following name change became effective March 1, 1999:
NEW NAME FORMER NAME
FUND: International Bond Fund American Century - Benham
International Bond Fund
www.americancentury.com 15
International Bond--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 12.44 $ 10.92 $ 11.79 $ 11.95 $ 10.36 $ 10.82
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income .................... 0.18(2) 0.47 0.65 0.69 0.61 0.78
Net Realized and Unrealized Gain (Loss) on
Investment Transactions .................. (1.42) 1.47 (1.34) 0.03 1.88 (0.63)
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations ......... (1.24) 1.94 (0.69) 0.72 2.49 0.15
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ............... (0.43) (0.17) (0.04) (0.71) (0.90) (0.60)
In Excess of Net Investment Income ....... -- -- -- (0.02) -- --
From Net Realized Gains on
Investment Transactions .................. (0.20) (0.25) (0.14) (0.15) -- (0.01)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ...................... (0.63) (0.42) (0.18) (0.88) (0.90) (0.61)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ............. $ 10.57 $ 12.44 $ 10.92 $ 11.79 $ 11.95 $ 10.36
=========== =========== =========== =========== =========== ===========
Total Return(3) .......................... (10.19)% 17.87% (5.88)% 6.38% 24.40% 1.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average
Net Assets ................................. 0.86%(4) 0.84% 0.84% 0.83% 0.82% 0.86%
Ratio of Net Investment Income to Average
Net Assets ................................. 3.14%(4) 4.11% 4.82% 5.48% 6.14% 6.09%
Portfolio Turnover Rate .................... 177% 322% 163% 242% 167% 166%
Net Assets, End of Period (in thousands) ... $ 124,602 $ 157,412 $ 165,731 $ 252,456 $ 252,247 $ 194,301
</TABLE>
(1) Six months ended June 30, 1999 (unaudited).
(2) Calculated using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements
16 1-800-345-2021
International Bond--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED DECEMBER 31(EXCEPT AS NOTED)
Advisor Class
1999(1) 1998(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ..................$ 12.44 $ 12.50
------- -------
Income From Investment Operations
Net Investment Income ............................... 0.14(3) 0.08
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .......................... (1.39) 0.19
------- -------
Total From Investment Operations .................... (1.25) 0.27
------- -------
Distributions
From Net Investment Income .......................... (0.43) (0.17)
From Net Realized Gains on Investment Transactions .. (0.20) (0.16)
------- -------
Total Distributions ................................. (0.63) (0.33)
------- -------
Net Asset Value, End of Period ........................$ 10.56 $ 12.44
======= =======
Total Return(4) ..................................... (10.27)% 2.12%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ..... 1.11%(5) 1.08%(5)
Ratio of Net Investment Income to Average Net Assets .. 2.89%(5) 3.71%(5)
Portfolio Turnover Rate ............................... 177% 322%
Net Assets, End of Period (in thousands) ..............$ 324 $ 34
(1) Six months ended June 30, 1999 (unaudited).
(2) October 27, 1998 (commencement of sale) through December 31, 1998.
(3) Calculated using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements
www.americancentury.com 17
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
INVESTOR CLASS shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
ADVISOR CLASS shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
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)
account] 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 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 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 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.
18 1-800-345-2021
Background Information
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PORTFOLIO MANAGERS
International Bond
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DAVID M. GIBBON (J.P. MORGAN)
DOMINIC PEGLER (J.P. MORGAN)
DAVE SCHROEDER
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 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-U.S. dollar denominated government and corporate
debt securities outside the United States. 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 International Bond fund benchmark was the J.P. Morgan ECU-Weighted
European Index from inception through December 1997. From January 1998 to
present, the benchmark has been the J.P. Morgan Global Traded Government Bond
Index.
The J.P. MORGAN GLOBAL TRADED GOVERNMENT BOND INDEX (excluding the United
States and with Japan weighted at 15%) consists of foreign bonds from 21
developed nations in North America, Europe, Asia, and Australia.
LIPPER RANKINGS
LIPPER 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 denominated debt securities of issuers located in at least three
countries (excluding the United States, 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.
www.americancentury.com 19
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 total returns, please refer to the "Financial
Highlights" on pages 16-17.
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.
* FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate.
20 1-800-345-2021
Glossary
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(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income,
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 21
Notes
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22 1-800-345-2021
Notes
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www.americancentury.com 23
Notes
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24 1-800-345-2021
[inside back cover]
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INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
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RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE - INCOME
- --------------------------------------------------------------------------------
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE - GROWTH AND INCOME
- --------------------------------------------------------------------------------
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation: Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation: Income & Growth
Moderate Value
Strategic Allocation: Equity Income
Conservative
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE - GROWTH
- --------------------------------------------------------------------------------
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
- --------------------------------------------------------------------------------
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS,
INSURANCE COMPANIES
1-800-345-6488
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.
- --------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9908 Funds Distributor, Inc.
SH-SAN-17193 (c)1999 American Century Services Corporation
