[front cover] DECEMBER 31, 1998
ANNUAL REPORT
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AMERICAN CENTURY
[graphic of stairs]
BENHAM GROUP
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INTERNATIONAL BOND
[american century logo(reg.sm)]
American
Century
[inside front cover]
AMERICAN CENTURY BROKERAGE
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We're pleased to introduce American Century's new brokerage service, which
offers a wide range of investment options and features:
* FundChoice Service--Invest in over 8,000 no-load and load mutual funds
from hundreds of different fund companies, many with no transaction fees
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To talk with a Brokerage Associate, call 1-888-345-2071.
WHAT'S NEW . . .
AMERICAN CENTURY CATALOG OF TOOLS & SERVICES lists all the free educational
materials available to investors.
We now have FOUR-PAGE PROFILES of many of our funds. The profiles follow a
standard SEC format and are intended to allow investors to compare funds easily.
You can request a profile or the full prospectus. Full prospectuses contain more
detailed fund information and you will continue to receive one after investing.
In 1999, we will provide SIMPLIFIED PROSPECTUSES that highlight important
information about our funds, including fees and expenses. More detailed data
will be in the Statement of Additional Information.
To order any of these materials, please call 1-800-345-2021.
[left margin]
BENHAM GROUP
INTERNATIONAL BOND
(BEGBX)
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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.
On the whole, 1998 was a volatile year in the global financial markets, but
it created an environment that generally benefited bond investors. Weakening
economic and financial conditions, brought on by problems in Asia, Russia, and
Latin America, led to dramatic declines in interest rates. Falling rates and
yields (and corresponding increases in bond values), combined with the U.S.
dollar's weakness versus foreign currencies, produced strong returns for U.S.
investors who held international bonds in their portfolios.
In this bond-friendly environment, American Century International Bond
enjoyed one of its best performance years since its inception in 1992. Its
return was enhanced by the investment team's "pure play" policy of not hedging
against foreign currencies, which gave the fund full exposure to favorable
foreign currency movements.
As eventful as the past year was, the coming year promises to be an equally
exciting time for diversified investors who own international and domestic
securities. Europe begins a new era as 11 nations unite under a single economy
and currency; emerging markets around the globe attempt to start the healing
process after financial catastrophe; and the U.S. economic expansion enters its
ninth year, approaching the record for the longest expansion since World War II.
Another interesting development in 1999 is the preparation of the world's
computer systems for the year 2000. At American Century, we're devoting
substantial resources to this endeavor. Our technology team modified the
computer code in our critical systems in 1998 and will be extensively testing
the systems in 1999, including those involved with fund performance and dividend
payments. In addition, our investment management team is busy gathering publicly
available information about the year-2000 readiness of the issuers of securities
owned by American Century funds.
Finally, we want to remind you about American Century International Bond's
distribution policy. The fund will pay a capital gains distribution in March in
addition to the distribution paid in December. 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 appreciate your confidence in American Century. Please share with us our
belief that, "The best is yet to be."
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 .... 5
Management Q&A ............. 6
Portfolio at a Glance ...... 6
Bond Holdings
by Country ................. 7
Schedule of Investments .... 9
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ................ 11
Statement of Operations .... 12
Statements of Changes
in Net Assets .............. 13
Notes to Financial
Statements ................. 14
Financial Highlights ....... 17
Report of Independent
Accountants ................ 19
OTHER INFORMATION
Share Class and Retirement
Account Information ........ 20
Background Information
Investment Philosophy
and Policies ............ 21
Comparative Indices ..... 21
Lipper Rankings ......... 21
The Fund's Subadvisor ... 21
Investment Team
Leaders ................. 21
Glossary ................... 22
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* A global decline in interest rates and the appreciation of world currencies
relative to the dollar provided a perfect environment for investors in
unhedged, high-quality international bonds in 1998.
* Worried by the continued downshifting of the global economy, the Federal
Reserve--the U.S. central bank--cut short-term interest rates three times
between September and November.
* On December 3, Economic and Monetary Union (EMU) countries followed suit,
dropping rates in lock step to 3.0% (with the exception of Italy, which
dropped rates to 3.0% by year-end).
* The rate cuts were welcomed by bond holders, who saw the price of their
bonds rise as interest rates fell.
A UNIFIED CURRENCY
* The European Economic Community, and later the European Union (EU), were
created with the aim of achieving economic and political union in Europe.
* EMU was designed to aid that effort by eliminating trade and employment
barriers between EU countries.
* With much of Europe no longer segmented by multiple currencies, euro zone
bond and stock markets are expected to thrive.
* Although EMU's single currency--the euro--is unlikely to challenge the U.S.
dollar as the world's international reserve currency of choice anytime soon,
we believe the euro may become a competitor in the years to come.
MANAGEMENT Q&A
* International Bond performed very well, reflecting a year in which bond
yields fell sharply in all major markets and the value of world currencies
appreciated relative to the U.S. dollar.
* International Bond's pure play on the international bond market gave the
fund greater exposure to foreign currency fluctuations, enhancing returns.
* Our policies of investing the portfolio in high-quality bonds and avoiding
lower-rated or emerging-market debt added to the fund's gains--lower-rated
securities performed very poorly in 1998 because of global economic crises
* Early in the second half of the year, we bought intermediate-maturity bonds
from Germany and the Netherlands.
* We sold the fund's Japanese bonds in July because we felt that Japan's
latest economic initiative would not find sufficient support.
* We will probably favor core-European bonds for the near future because we
believe that the bulk of interest rate convergence among EMU countries has
already occurred.
[left margin]
"INTERNATIONAL BOND PERFORMED VERY WELL, REFLECTING A YEAR IN WHICH BOND YIELDS
FELL SHARPLY IN ALL MAJOR MARKETS AND THE VALUE OF WORLD CURRENCIES APPRECIATED
RELATIVE TO THE U.S. DOLLAR."
INTERNATIONAL BOND(1)
(BEGBX)
TOTAL RETURNS: AS OF 12/31/98
6 Months 14.42%(2)
1 Year 17.87%
NET ASSETS: $157.4 million
INCEPTION DATE: 1/7/92
(1) Investor Class.
(2) Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on page 22.
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
INTERNATIONAL BONDS POST IMPRESSIVE RETURNS
A global decline in interest rates helped international bonds post solid
gains in 1998. Returns were particularly notable for U.S. investors--the J.P.
Morgan Non-U.S. Government Bond Index returned 9.95% in local currencies and a
sizable 18.28% when translated into U.S. dollars. The appreciation of world
currencies relative to the dollar helped to make 1998 an ideal year for U.S.
investors in unhedged, high-quality international bonds.
A VOLATILE YEAR FOR THE JAPANESE YEN
As shown in the accompanying graph, the Japanese yen had its ups and downs
against the U.S. dollar during 1998. By mid-June, the yen reached an eight-year
low versus the dollar after Japan announced that its economy had slipped into
recession for the first time in six years.
The yen's turning point came in August, when Russia's economy and financial
markets fell apart. The collapse sent shock waves through global financial
markets, causing demand for the safety and liquidity of U.S. Treasurys and bonds
from "core" Europe (Germany, Belgium, and the Netherlands) to soar.
Ultimately, that trend spelled bad news for the U.S. dollar--many hedge
funds were forced to repay low-cost yen loans used to finance speculative
investments in emerging debt markets such as Russia and Latin America. To do so,
they sold dollars and bought back yen. The effect of those sales was dramatic.
On October 8, massive hedge fund dollar sales caused the yen to rise roughly 5%
in only two minutes--the fastest rally in the history of floating exchange
rates.
With the Federal Reserve--the U.S. central bank--lowering short-term
interest rates and Japan unveiling its latest plan for economic recovery in
December, the yen appreciated further, finishing 13% higher against the dollar
in 1998.
STEADY GAINS FOR THE GERMAN MARK
By comparison, the German mark's path of appreciation relative to the U.S.
dollar was far less volatile. The mark rose roughly 1% against the dollar during
the first half of 1998. Although Russia's troubles were felt throughout
Europe--especially in Germany due to the country's close trading
ties--core-European currencies were remarkably stable during the ensuing
turmoil. With economic growth in core Europe fairly solid, inflation running
low, presidential impeachment hearings in the U.S. reaching a fevered pitch, and
improving prospects for Economic and Monetary Union (EMU) to succeed, the mark
finished 1998 roughly 7% higher against the dollar.
[right margin]
"A GLOBAL DECLINE IN INTEREST RATES HELPED INTERNATIONAL BONDS POST SOLID GAINS
IN 1998."
[line chart - data below]
GERMAN MARK AND JAPANESE YEN
VS. U.S. DOLLAR
German Mark Japanese Yen
Month (left scale) (right scale)
Dec-97 1.7987 130.58
Jan-98 1.8299 127.05
Feb-98 1.8155 126.10
Mar-98 1.8478 133.07
Apr-98 1.7947 132.86
May-98 1.7866 138.80
Jun-98 1.8075 138.77
Jul-98 1.7774 144.66
Aug-98 1.7465 139.30
Sep-98 1.6683 136.45
Oct-98 1.6540 115.97
Nov-98 1.6935 122.93
Dec-98 1.6767 113.60
Source: Bloomberg Financial Markets
This graph depicts the number of German marks or Japanese yen needed to equal
one U.S. dollar.
www.americancentury.com 3
Market Perspective from Randall W. Merk
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(Continued)
SLOWING GROWTH AND DOCILE INFLATION . . .
Interest rates fell to historic lows in Europe in 1998, allowing most
European markets to perform fairly well overall. Thanks to tough guidelines to
qualify for EMU, government budgets were in better shape than they had been in
decades. For much of the year, Europe was a relative island of calm, although
the Asian turmoil and Russia's meltdown had a modest impact on European
consumers, especially on export-heavy countries such as Sweden. By summer,
consumer sentiment hit its highest level since 1979. Even the continent's
unemployment saw a modest turnaround--for all of Europe, the jobless rate edged
down to 10.6% in 1998. But by December, some European economies were slowing,
especially in Belgium, Britain, and Germany, where inventory levels became
uncomfortably high.
. . . LED TO INTEREST RATE CUTS BY CENTRAL BANKS.
Worried by the continued downshifting of the global economy, the Federal
Reserve--the U.S. central bank--cut short-term interest rates three times
between September and November to provide needed liquidity to global credit
markets. On December 3, in preparation for fixed exchange rates and in response
to signs of slowing growth in Europe's core economies, EMU countries followed
suit, dropping rates in lock step to 3% (with the exception of Italy, which
dropped rates to 3% by year-end). The rate cuts were welcomed by bond holders,
who saw the price of their bonds rise as interest rates fell.
FORGING A COMMUNITY
The pathway to the coordinated rate cut, and to a unified Europe, was
forged from the carnage wrought by the First and Second World Wars. The European
Economic Community, and later the European Union (EU), were created with the
hopes of achieving economic and political union in Europe. EMU was designed to
aid that effort by eliminating trade and employment barriers between EU
countries. The launch of the euro--EMU's unified currency--erased most of
Western Europe's monetary borders--the last big hurdle to a unified European
economy.
With much of Europe no longer segmented by multiple currencies, analysts
expect the euro zone bond market to thrive. On the corporate front, companies
may find borrowing in the capital markets easier than borrowing from banks,
which have traditionally been the source of European lending. Stock markets are
also expected to benefit--the fiscal restraint necessary for countries to
qualify for EMU has already made Europe an attractive equity market by most
standards.
TIDINGS OF A UNIFIED CURRENCY
The potential economic stability in Europe resulting from a single currency
should generally benefit the new euro, which may one day compete with the U.S.
dollar as the world's international reserve currency of choice. Although we feel
that's unlikely anytime soon, inevitably, some countries will shift some of
their cash reserves from dollars to euros.
[left margin]
"THE LAUNCH OF THE EURO--EMU'S UNIFIED CURRENCY--ERASED MOST OF WESTERN EUROPE'S
MONETARY BORDERS--THE LAST BIG HURDLE TO A UNIFIED EUROPEAN ECONOMY."
EMU MEMBER COUNTRIES
AUSTRIA ITALY
BELGIUM LUXEMBOURG
FINLAND NETHERLANDS
FRANCE PORTUGAL
GERMANY SPAIN
IRELAND
4 1-800-345-2021
International Bond--Performance
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<TABLE>
<CAPTION>
TOTAL RETURNS AS OF DECEMBER 31, 1998
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) ..... 14.42% 14.90% 2.53% -- -- --
1 YEAR .......... 17.87% 18.49% 5.19% 3 OUT OF 51 -- --
- ---------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
RETURNS
3 YEARS ......... 5.67% 5.94% 5.22% 24 OUT OF 35 -- --
5 YEARS ......... 8.31% 9.61% 5.06% 7 OUT OF 18 -- --
LIFE OF FUND .... 8.65% 8.52%(3) 7.85%(4) 4 OUT OF 10(4) 2.12% 1.51%(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 20-22 for more information about share classes, returns, the fund's
benchmark, and Lipper fund rankings.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/98
Fund Benchmark+ $17,869
International Bond $17,841
International Bond Fund Benchmark+
DATE VALUE VALUE
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 $17,841 $17,869
$10,000 investment made 1/7/92
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
fund's benchmark is provided for comparison in each graph. International Bond's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the index do
not. These graphs are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see 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.
[bar chart - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED DECEMBER 31)
International Bond Fund Benchmark+
DATE RETURN RETURN
12/31/92* 7.08% 1.20%
12/31/93 11.79% 10.67%
12/31/94 1.52% 5.92%
12/31/95 24.40% 25.65%
12/31/96 6.38% 5.98%
12/31/97 -5.88% -5.33%
12/31/98 17.87% 18.49%
(+) 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 1/7/92 (the fund's inception date) to 12/31/92.
www.americancentury.com 5
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 fund investment team.
HOW DID INTERNATIONAL BOND PERFORM IN 1998?
The fund performed very well, reflecting a year in which bond yields fell
sharply in all major markets and the value of world currencies appreciated
relative to the U.S. dollar. For 1998, International Bond returned a sizable
17.87%* and ranked third among the 51 "International Income Funds" tracked by
Lipper Inc., which returned an average of 5.19%. (See the previous page for fund
performance comparisons.) The fund slightly underperformed the 18.49% return of
its benchmark, the J.P. Morgan Global Traded Government Bond Index (excluding
the U.S. and with Japan weighted at 15%).
WHAT FUELED INTERNATIONAL BOND'S IMPRESSIVE PERFORMANCE?
The main driver was the fund's basic strategy. To provide shareholders with
a pure play on the international bond market, we make very limited use of
currency-hedging strategies, which gives International Bond greater exposure to
foreign currency fluctuations. Last year was a good environment for such an
approach because of the decline of the U.S. dollar. When the dollar is weak,
International Bond typically outperforms the average international income fund,
although the fund often underperforms during dollar rallies.
To keep International Bond's currency exposure closely aligned with that of
its benchmark, we often use forward currency contracts. Basically, these
contracts are agreements to buy or sell a currency at a prearranged price on a
specific future date. (Please read International Bond's June 1998 semiannual
report for a more detailed explanation.) Through the use of these contracts, we
are able to gain currency exposure without holding a country's bonds. This
strategy helped in the fourth quarter of 1998--by maintaining a 15% exposure to
the Japanese yen, the fund benefited from a roughly 21% rise in the currency's
value relative to the U.S. dollar.
Our policies of investing the portfolio in high-quality bonds and avoiding
lower-rated or emerging-market debt helped returns--lower-rated securities
performed very poorly in 1998 because of global economic crises.
August was a particularly good month for high-quality bonds. The Russian
currency devaluation, worries over the possibility of presidential impeachment
hearings in the U.S., and ongoing concern about the outlook for Japan's economy
caused investors to favor the most secure investments. The flight to
high-quality bonds became even more pronounced in late August, when hedge funds
began dumping mass quantities of risky bonds, such as mortgage-backed securities
and emerging-market debt.
* All fund returns referenced in this interview are for Investor Class shares.
[left margin]
"TO KEEP INTERNATIONAL BOND'S CURRENCY EXPOSURE CLOSELY ALIGNED WITH THAT OF
ITS BENCHMARK, WE OFTEN USE FORWARD CURRENCY CONTRACTS."
PORTFOLIO AT A GLANCE
12/31/98 12/31/97
NUMBER OF SECURITIES 25 25
WEIGHTED AVERAGE
MATURITY 7.3 YRS 6.3 YRS
AVERAGE DURATION 5.7 YRS 4.3 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.84% 0.84%
Investment terms are defined in the Glossary on page 22.
6 1-800-345-2021
International Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
GIVEN THAT ENVIRONMENT, WHAT ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO?
Early in the second half of the year, we bought intermediate-maturity bonds
from Germany and the Netherlands, increasing the portfolio's weighting in "core"
Europe. Part of the reason behind this change was our belief that short-term
interest rates were likely to fall as European central banks cut rates to
stimulate economic growth and prepared for fixed exchange rates for the Economic
and Monetary Union (EMU). To take advantage of the anticipated decline in
short-term rates, we chose intermediate-term bonds, which stood to benefit the
most from the cuts.
WHILE ADDING TO YOUR HOLDINGS IN CORE EUROPE, IT LOOKS LIKE YOU PARED DOWN YOUR
JAPANESE BONDS. WHY THE CHANGE?
Last year was similar to many years in the 1990s--filled with hopes for an
economic turnaround in Japan that failed to materialize. Japan developed a
rescue package for its troubled banks in the first quarter that sparked a rally
in its financial markets. But as the year progressed, we became increasingly
convinced that the new debt issuance required to fund Japan's latest economic
initiative would not find sufficient support, either from government
institutions or from domestic investors. As such, we sold the portfolio's
Japanese securities around July. By October, remaining market enthusiasm over
Japan's first-quarter plan had largely evaporated.
In November, Japan offered a new economic stimulus package and bank plan.
But just like the country's previous plan, investors' hopes were dashed as the
country's interest rates tripled, largely in response to the government
borrowing needed to finance the new package. There's still hope for Japan,
though--the country seems to have finally focused on stimulating economic growth
through increased spending and additional tax cuts, which, if used correctly,
could help finally turn Japan's troubled economy around.
SPEAKING OF TROUBLED ECONOMIES, ON JANUARY 15, 1999, BRAZIL--THE WORLD'S
EIGHTH-LARGEST ECONOMY--BECAME THE LATEST CASUALTY OF THE SPREADING TURMOIL.
WHAT WERE SOME OF THE FACTORS LEADING TO THAT EVENT?
The problems in Russia hit Brazil's economy hard, especially in late summer
when Russia's currency collapsed, triggering sharp declines in Brazil's
financial markets. Investors dumped Brazilian shares and rushed to convert their
Brazilian currency (the real) to U.S. dollars amid an exodus from
emerging-market debt and fears that the real would topple.
In response to the market turmoil, Brazil's government chose the prospect
of a recession over currency devaluation. The government took the drastic step
of raising domestic interest rates to nearly 50%, and used much of Brazil's
foreign currency reserves to defend the real. When the International Monetary
Fund and others responded by promising a $41.5 billion aid package for Brazil,
the market soared.
But even that assistance ultimately proved insufficient, and on January 15,
Brazil stopped defending the real, effectively devaluing its currency. In other
words, Brazil decided to let the market determine the value of the real, rather
than using the country's remaining foreign currency reserves to keep its value
tied to that of the U.S. dollar.
[right margin]
"LAST YEAR WAS SIMILAR TO MANY YEARS IN THE 1990S--FILLED WITH HOPES FOR AN
ECONOMIC TURNAROUND IN JAPAN THAT FAILED TO MATERIALIZE."
BOND HOLDINGS BY COUNTRY
% OF FUND INVESTMENTS
AS OF AS OF
12/31/98 6/30/98
GERMANY 34% 24%
FRANCE 27% 28%
UNITED KINGDOM 13% 10%
CANADA 6% 5%
U.S. (TEMPORARY
CASH INVESTMENTS) 6% 21%
NETHERLANDS 5% -
DENMARK 5% 5%
SWEDEN 2% -
SPAIN 2% 2%
JAPAN -- 5%
"THE PROBLEMS IN RUSSIA HIT BRAZIL'S ECONOMY HARD, ESPECIALLY IN LATE SUMMER
WHEN RUSSIA'S CURRENCY COLLAPSED, TRIGGERING SHARP DECLINES IN BRAZIL'S
FINANCIAL MARKETS."
www.americancentury.com 7
International Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHY DID BRAZIL DEVALUE ITS CURRENCY?
Devaluation can be used to accomplish a number of different goals. In
Brazil's case, the government devalued the real to turn its economy around;
Brazil finally realized that the high value of the real relative to other world
currencies kept Brazil's goods from being globally price competitive. To make
the country's goods cheaper on the international market, Brazil let the value of
the real fall, hoping that increased demand for its exports would fuel economic
growth.
However, there is a downside to devaluation. For one thing, devaluation
decreases the value of savings accounts, stealing purchasing power from
citizens. Devaluation can also scare off foreign investors. But the biggest
potential problem a country faces after devaluing its currency is runaway
inflation, which is exactly what occurred in Russia--after Russia devalued its
currency in August, the country's citizens found foreign goods unaffordable.
WHAT'S YOUR GLOBAL OUTLOOK FOR BOND RETURNS FOR THE NEXT SIX MONTHS?
Despite some concerns, we maintain a generally positive outlook for bond
returns in 1999. Although it hasn't shown any signs of doing so yet, the U.S.
economy is expected to slow in 1999. The situation in the euro zone (the region
comprised of the countries involved in EMU) is much the same--with inflation and
economic growth low, it's entirely possible that the European Central Bank (or
ECB--the central bank for EMU countries) will be forced to lower interest rates
further in an attempt to stimulate growth. Continued slow growth would hurt
lower-quality bonds because it would dampen corporate profits and lead to
further defaults. The combination would likely be positive for high-quality
European bonds because falling interest rates increase the value of outstanding
securities.
Another potential positive for International Bond is that many global
uncertainties remain that could again spark a flight to high-quality bonds.
Among the issues that worry bond investors are a slowdown in China, continued
economic weakness in Japan and Asia, the sharp economic downturn in Brazil, and
slow growth in Europe.
With all of these factors suggesting slower economic growth globally, it
seems unreasonable to assume that U.S. growth will remain robust.
WITH THAT OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
We will continue to focus on keeping International Bond's credit quality
very high. In addition, we will probably favor euro zone bonds for the near
future because we believe that the bulk of interest rate convergence among EMU
countries has already occurred. We also intend to continue avoiding Japanese
government bonds for now because yields will probably rise as the government
steps up its bond issuance in an effort to stimulate economic growth.
We believe market expectations for lower interest rates in the U.K. are
overblown, so we are likely to keep our holdings of the country's bonds to a
minimum for now. We like the outlook for Scandinavian bonds currently. Global
problems have also caused some highly rated corporate bonds to become
attractive, so we may add some of those to the portfolio.
[left margin]
"DESPITE SOME CONCERNS, WE MAINTAIN A GENERALLY POSITIVE OUTLOOK FOR BOND
RETURNS IN 1999."
"ANOTHER POTENTIAL POSITIVE FOR INTERNATIONAL BOND IS THAT MANY GLOBAL
UNCERTAINTIES REMAIN THAT COULD AGAIN SPARK A FLIGHT TO HIGH-QUALITY BONDS."
8 1-800-345-2021
International Bond--Schedule of Investments
- --------------------------------------------------------------------------------
DECEMBER 31, 1998
Principal Amount Value
- --------------------------------------------------------------------------------
GOVERNMENT BONDS--83.6%
CANADA--5.9%
CAD 9,500,000 Government of Canada,
7.00%, 12/1/06 $ 7,059,838
2,180,000 Government of Canada,
8.00%, 6/1/23 1,965,959
------------
9,025,797
------------
DENMARK--4.6%
DKK 36,700,000 Kingdom of Denmark,
8.00%, 3/15/06 7,115,912
------------
FRANCE--19.8%
FRF 42,500,000 Government of France,
4.00%, 1/12/00 7,671,563
50,000,000 Government of France,
5.50%, 10/12/01 9,477,083
9,430,000 Government of France,
5.50%, 10/25/07 1,890,285
15,600,000 Government of France,
5.25%, 4/25/08 3,076,854
39,270,000 Government of France,
6.00%, 10/25/25 8,353,077
------------
30,468,862
------------
GERMANY--34.3%
DEM 11,700,000 DSL Finance NV, 5.375%,
1/21/08 7,516,210
11,300,000 German Federal Republic,
4.75%, 11/20/01 7,072,677
10,700,000 German Federal Republic,
4.50%, 8/19/02 6,687,500
6,020,000 German Federal Republic,
6.75%, 4/22/03 4,100,438
3,210,000 German Federal Republic,
6.00%, 7/4/07 2,215,355
20,400,000 German Federal Republic,
5.25%, 1/4/08 13,527,738
7,500,000 Kredit Fuer Wiederaufbau
International Finance,
5.00%, 1/4/09 4,818,084
10,000,000 LKB Baden Wurttemberg
Finance BV, 6.50%,
9/15/08 6,958,453
------------
52,896,455
------------
Principal Amount Value
- --------------------------------------------------------------------------------
NETHERLANDS--5.0%
NLG 13,050,000 Government of Netherlands,
6.50%, 4/15/03 $ 7,761,411
------------
SPAIN--1.5%
ESP 261,560,000 Government of Spain,
7.35%, 3/31/07 2,274,034
------------
SWEDEN--2.5%
SEK 26,200,000 Kingdom of Sweden,
6.50%, 5/5/08 3,795,466
------------
UNITED KINGDOM--10.0%
GBP 4,000,000 Bank Nederlandse
Gemeenten, 7.375%,
8/6/07 7,604,512
1,600,000 European Investment Bank,
7.625%, 12/7/07 3,122,761
2,500,000 International Bank
Reconstruction &
Development, 7.125%,
7/30/07 4,715,494
------------
15,442,767
------------
TOTAL GOVERNMENT BONDS 128,780,704
------------
(Cost $121,692,142)
CORPORATE BONDS--10.7%
FRANCE--7.6%
FRF 41,000,000 CETELEM EOS, 6.30%,
11/24/99 7,532,828
21,000,000 General Electric Capital
Corp., 5.625%, 8/20/09 4,155,068
------------
11,687,896
------------
UNITED KINGDOM--3.1%
GBP 2,500,000 General Electric Capital
Corp., 7.25%, 8/6/07 4,721,715
------------
TOTAL CORPORATE BONDS 16,409,611
------------
(Cost $16,686,905)
TEMPORARY CASH INVESTMENTS(1)--5.7%
$8,800,000 FHLB Discount Note,
4.30%, 1/4/99
(Cost $8,796,821) 8,796,821
------------
TOTAL INVESTMENT SECURITIES--100.0% $153,987,136
============
(Cost $147,175,868)
See Notes to Financial Statements
www.americancentury.com 9
International Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1998
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Settlement Unrealized
Contracts to Sell Dates Value Gain (Loss)
- ------------------------------------------------------------------------------
558,610 AUD 2/23/99 $ 342,468 $ 3,032
4,236,617 CAD 2/23/99 2,772,040 (38,033)
46,272,787 DEM 2/23/99 27,839,235 104,422
20,426,581 DKK 2/23/99 3,214,287 24,465
117,207,605 FRF 2/23/99 21,019,861 32,887
1,852,766 GBP 2/23/99 3,072,830 41,290
541,629,820 ITL 2/23/99 328,452 1,448
29,725,936 SEK 2/23/99 3,667,332 62,397
-------------------------------
$62,256,505 $231,908
===============================
(Value on Settlement Date $62,488,413)
Settlement Unrealized
Contracts to Buy Dates Value Gain (Loss)
- ------------------------------------------------------------------------------
4,004,914 AUD 2/23/99 $ 2,455,302 $(45,006)
276,201,121 BEF 2/23/99 8,014,706 (86,458)
648,138 CAD 2/23/99 424,080 4,219
1,004,947,275 ESP 2/23/99 7,090,616 (62,543)
9,265,212 FRF 2/23/99 1,661,611 (4,165)
541,635 GBP 2/23/99 898,306 (8,195)
33,871,099,194 ITL 2/23/99 20,539,941 (137,719)
2,722,061,566 JPY 2/23/99 24,251,265 732,187
1,965,651 NLG 2/23/99 1,049,087 (4,847)
32,201,898 SEK 2/23/99 3,972,795 (35,906)
-------------------------------
$70,357,709 $351,567
===============================
(Value on Settlement Date $70,006,142)
NOTES TO SCHEDULE OF INVESTMENTS
AUD = Australian Dollar
BEF = Belgian Franc
CAD = Canadian Dollar
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
SEK = Swedish Krona
(1) The rate for U.S. Government agency discount notes are the yield to
maturity at purchase.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule shows 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, as applicable
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
10 1-800-345-2021
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
DECEMBER 31, 1998
ASSETS
Investment securities, at value (identified
cost of $147,175,868) (Note 3) ........................... $153,987,136
Cash ....................................................... 518,879
Receivable for forward foreign currency
exchange contracts ....................................... 1,006,347
Interest and other receivables ............................. 3,835,033
------------
159,347,395
------------
LIABILITIES
Disbursements in excess of
demand deposit cash ...................................... 158,951
Payable for forward foreign currency
exchange contracts ....................................... 422,872
Payable for capital shares redeemed ........................ 1,206,466
Accrued management fees (Note 2) ........................... 111,153
Distribution and service fee payable
(Note 2) ................................................. 2,666
------------
1,902,108
------------
Net Assets ................................................. $157,445,287
============
NET ASSETS CONSIST OF:
Capital paid in ............................................ $143,043,601
Undistributed net investment income ........................ 4,463,061
Accumulated undistributed net realized
gain from investments and foreign
currency transactions .................................... 2,490,290
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies (Note 3) .......................... 7,448,335
------------
$157,445,287
============
Investor Class
Net assets ................................................. $157,411,525
Shares outstanding ......................................... 12,652,560
Net asset value per share .................................. $ 12.44
Advisor Class
Net assets ................................................. $ 33,762
Shares outstanding ......................................... 2,715
Net asset value per share .................................. $ 12.44
- --------------------------------------------------------------------------------
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. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses, if any;
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 breakdown 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
www.americancentury.com 11
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME
Income:
Interest (net of foreign taxes
withheld of $9,897) .................................... $ 7,479,813
------------
Expenses (Note 2):
Management fees .......................................... 1,263,355
Distribution fees -- Advisor Class ....................... 15
Service fees -- Advisor Class ............................ 15
Trustees' fees and expenses .............................. 11,403
------------
1,274,788
------------
Net investment income .................................... 6,205,025
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
(NOTE 3)
Net realized gain (loss) on:
Investments ............................................ 9,159,315
Foreign currency transactions .......................... (2,766,907)
------------
6,392,408
------------
Change in net unrealized
depreciation on:
Investments ............................................ 767,262
Translation of assets and liabilities
in foreign currencies ................................ 10,890,223
------------
11,657,485
------------
Net realized and unrealized gain
on investments and foreign currency .................... 18,049,893
------------
Net Increase in Net Assets
Resulting from Operations .............................. $ 24,254,918
============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down 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
12 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Decrease in Net Assets 1998 1997
OPERATIONS
Net investment income ........................ $ 6,205,025 $ 9,944,104
Net realized gain (loss) on investments
and foreign currency transactions .......... 6,392,408 (13,266,841)
Change in net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currencies ...................... 11,657,485 (12,346,528)
------------- -------------
Net increase (decrease) in net assets
resulting from operations .................. 24,254,918 (15,669,265)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ............................. (2,151,681) (559,851)
Advisor Class .............................. (442) --
From net realized gains on
investment transactions:
Investor Class ............................. (3,258,320) (2,182,275)
Advisor Class .............................. (425) --
------------- -------------
Decrease in net assets from distributions .... (5,410,868) (2,742,126)
------------- -------------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net decrease in net assets
from capital share transactions ............ (27,129,919) (68,313,179)
------------- -------------
Net decrease in net assets ................... (8,285,869) (86,724,570)
NET ASSETS
Beginning of year ............................ 165,731,156 252,455,726
------------- -------------
End of year .................................. $ 157,445,287 $ 165,731,156
============= =============
Undistributed (distributions
in excess of) net investment income ........ $ 4,463,061 $ (1,481,465)
============= =============
- --------------------------------------------------------------------------------
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
* capital 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
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
DECEMBER 31, 1998
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 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. Sale of
the Advisor Class commenced on October 27, 1998. The following significant
accounting policies are in accordance with generally accepted accounting
principles.
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 translated 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.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1998
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 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 capital 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.
- --------------------------------------------------------------------------------
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 per class. 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 Fund is
included in the Bond 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
the Fund based on the 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 Fund 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
The Complex Fee schedule for the Advisor Class is lower by 0.2500% at each
graduated step. For example, if the Investor Class Complex Fee is 0.3100% for
the first $2.5 billion, the Advisor Class Complex Fee is 0.600% (0.3100% minus
0.2500%) for the first $2.5 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.
The Board of Directors 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
www.americancentury.com 15
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1998
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
under the Plan during the period ended December 31, 1998, were $30.
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
$438,917,215 and $427,268,139, respectively. On December 31, 1998, accumulated
net unrealized appreciation was $6,811,268, which consisted of unrealized
appreciation of $7,540,555 and unrealized depreciation of $729,287. The
aggregate cost of investments for federal income tax purposes was the same as
the cost for financial reporting purposes.
- --------------------------------------------------------------------------------
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
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)
============= =============
Year ended December 31, 1997
Sold ....................................... 8,534,948 $ 93,135,669
Issued in reinvestment of distributions .... 230,124 2,542,647
Redeemed ................................... (15,004,608) (163,991,495)
------------- -------------
Net decrease ............................... (6,239,536) $ (68,313,179)
============= =============
ADVISOR CLASS
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
Effective December 18, 1998, the Fund, along with certain other funds
managed by ACIM entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan. Borrowings under the agreement bear interest at
the Federal Funds rate plus 0.40%. The Fund may borrow money for temporary or
emergency purposes to fund shareholder redemptions. The Fund had not borrowed
from the line during the period ended December 31, 1998.
16 1-800-345-2021
International Bond--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31
Investor Class
1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ....$ 10.92 $ 11.79 $ 11.95 $ 10.36 $ 10.82
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.47 0.65 0.69 0.61 0.78
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ... 1.47 (1.34) 0.03 1.88 (0.63)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .... 1.94 (0.69) 0.72 2.49 0.15
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (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 ............. (0.25) (0.14) (0.15) -- (0.01)
----------- ----------- ----------- ----------- -----------
Total Distributions ................. (0.42) (0.18) (0.88) (0.90) (0.61)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year ..........$ 12.44 $ 10.92 $ 11.79 $ 11.95 $ 10.36
=========== =========== =========== =========== ===========
Total Return(1) ..................... 17.87% (5.88)% 6.38% 24.40% 1.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.84% 0.84% 0.83% 0.82% 0.86%
Ratio of Net Investment Income
to Average Net Assets ............... 4.11% 4.82% 5.48% 6.14% 6.09%
Portfolio Turnover Rate ............... 322% 163% 242% 167% 166%
Net Assets, End of Year
(in thousands) ......................$ 157,412 $ 165,731 $ 252,456 $ 252,247 $ 194,301
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
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 17
International Bond--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED DECEMBER 31
Advisor Class
1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ................... $ 12.50
----------
Income From Investment Operations
Net Investment Income ................................ 0.08
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .................... 0.19
----------
Total From Investment Operations ..................... 0.27
----------
Distributions
From Net Investment Income ........................... (0.17)
From Net Realized Gains on
Investment Transactions .............................. (0.16)
----------
Total Distributions .................................. (0.33)
----------
Net Asset Value, End of Period ......................... $ 12.44
==========
Total Return(2) ...................................... 2.12%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................................ 1.08%(3)
Ratio of Net Investment Income
to Average Net Assets ................................ 3.71%(3)
Portfolio Turnover Rate ................................ 322%
Net Assets, End of Period .............................. $ 33,762
(1) October 27, 1998 (commencement of sale) through December 31, 1998.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
See Notes to Financial Statements
18 1-800-345-2021
Report of Independent Accountants
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To the Trustees of the American Century International Bond Funds and
Shareholders of the American Century - Benham International Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the American Century - Benham
International Bond Fund (hereafter referred to as the "Fund") at December 31,
1998, the results of its operations for the year then ended, the changes in its
net assets and the financial highlights for each of the two years in the period
then ended, in conformity with generally accepted accounting principles. The
financial highlights for each of the three years in the period ended December
31, 1996 were audited by other auditors, whose report dated February 7, 1997,
expressed an unqualified opinion on those statements. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 1, 1999
www.americancentury.com 19
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASS
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. THE PRICE AND PERFORMANCE OF THE INVESTOR CLASS
SHARES ARE LISTED IN NEWSPAPERS. NO OTHER CLASS IS CURRENTLY LISTED.
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
is 0.25% higher than the total expense ratio of the Investor Class.
Both classes of shares represent a pro rata interest in the fund 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)]
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.
20 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
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 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 Internationl 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 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 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.
[right margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS
DAVID M. GIBBON
(J.P. MORGAN)
DOMINIC PEGLER
(J.P. MORGAN)
DAVE SCHROEDER
www.americancentury.com 21
Glossary
- --------------------------------------------------------------------------------
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 pages 17-18.
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.
22 1-800-345-2021
Notes
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www.americancentury.com 23
Notes
- --------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
- -------------------------------------------------------------------------------
BENHAM GROUP(reg.sm)
TAXABLE BOND FUNDS
U.S. TREASURY & GOVERNMENT
Short-Term Treasury
Short-Term Government
GNMA
Intermediate-Term Treasury
Long-Term Treasury
Inflation-Adjusted Treasury
Target Maturities Trust: 2000
Target Maturities Trust: 2005
Target Maturities Trust: 2010
Target Maturities Trust: 2015
Target Maturities Trust: 2020
Target Maturities Trust: 2025
CORPORATE & DIVERSIFIED
Limited-Term Bond
Intermediate-Term Bond
Bond
Premium Bond
High-Yield Bond
INTERNATIONAL
International Bond
TAX-FREE & MUNICIPAL BOND FUNDS
MULTIPLE-STATE
Limited-Term Tax-Free
Intermediate-Term Tax-Free
Long-Term Tax-Free
High-Yield Municipal
SINGLE-STATE
Arizona Intermediate-Term Municipal
California High-Yield Municipal
California Insured Tax-Free
California Intermediate-Term Tax-Free
California Limited-Term Tax-Free
California Long-Term Tax-Free
Florida Intermediate-Term Municipal
MONEY MARKET FUNDS
TAXABLE
Capital Preservation
Government Agency Money Market
Premium Capital Reserve
Premium Government Reserve
Prime Money Market
TAX-FREE & MUNICIPAL
California Municipal Money Market
California Tax-Free Money Market
Florida Municipal Money Market
Tax-Free Money Market
AMERICAN CENTURY(reg.sm) GROUP
ASSET ALLOCATION
Strategic Allocation: Conservative
Strategic Allocation: Moderate
Strategic Allocation: Aggressive
BALANCED
Balanced
CONSERVATIVE EQUITY
Income and Growth
Equity Income
Value
Equity Growth
SPECIALTY
Utilities
Real Estate
Global Natural Resources
Global Gold
SMALL CAP
Small Cap Quantitative
Small Cap Value
TWENTIETH CENTURY GROUP
GROWTH
Select
Heritage
Growth
Ultra
AGGRESSIVE GROWTH
Vista
Giftrust
New Opportunities
INTERNATIONAL GROWTH
International Growth
International Discovery
Emerging Markets
GLOBAL
Global Growth
Please call 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.
[right margin]
[american century logo(reg.sm)]
American
Century
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.
FUNDS DISTRIBUTOR, INC.
(c) 1999 AMERICAN CENTURY SERVICES CORPORATION
[recycled logo]
Recycled
[back cover]
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9902 Funds Distributor, Inc.
SH-BKT-15569 (c)1999 American Century Services Corporation
