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DECEMBER 31, 1999
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
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International Bond
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INTERNATIONAL BOND
(BEGBX)
---------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
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Our Message to You
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[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
U.S. investors who held international bonds generally endured a tough year
in 1999. Rising bond yields that were fueled by expectations of higher interest
rates provided one significant hurdle. A strong U.S. dollar relative to major
world currencies--particularly Europe's unified currency, the euro--provided
another. Together, these factors constricted the performance of American Century
International Bond.
Nevertheless, we remain committed to International Bond's basic objective
of providing investors with a relatively unhedged exposure to high-quality
overseas bonds. The diversification benefits of investing in international bonds
can be significant, as they were in 1998.
Turning to corporate matters, we are constantly looking for ways to lower
the costs of trading securities and generate better returns for shareholders. To
that end, we have made strategic investments in several companies that allow
buyers and sellers of securities to connect directly, efficiently, and
anonymously. Many of our trades are executed over alternative trading networks.
Savings in this area directly affect the performance of your funds.
We're also pleased to announce that American Century has been named by
Fortune magazine as one of its "100 Best Companies to Work For." In
addition, American Century's investor account statement is the first fund
company statement to win the Communications Seal from DALBAR, Inc., an
independent financial services research firm.
We do not take acknowledgements such as these lightly--they enable us to
recruit talented and dedicated people, from service representatives to
investment professionals. This "intellectual capital" is our most
valuable resource and an essential one in our effort to provide you with
excellent investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder 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 ................................................ 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 9
Statement of Operations ................................................ 10
Statements of Changes
in Net Assets ....................................................... 11
Notes to Financial
Statements .......................................................... 12
Financial Highlights ................................................... 15
Report of Independent
Accountants ......................................................... 17
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 18
Background Information
Investment Philosophy
and Policies ..................................................... 19
Comparative Indices ................................................. 19
Lipper Rankings ..................................................... 19
The Fund's Subadvisor ............................................... 19
Investment Team
Leaders .......................................................... 19
Glossary ............................................................... 20
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* Rising interest rates and the strength of the U.S. dollar played a
significant role in undermining the performance of international bonds in
1999 for U.S. investors.
* Europe's unified currency--the euro--sank roughly 15% against the dollar in
its lackluster first year.
* Corporate bond issuance within the euro zone in 1999 was more than double
1998 levels. This added supply weighed heavily on European bond performance.
* Japanese bonds posted positive returns that were amplified when translated
into U.S. dollars, due to the yen's rise against the U.S. currency.
MANAGEMENT Q&A
* The fund's disappointing performance reflected a strong U.S. dollar and a
difficult environment for overseas bonds. In general, 1999 was the exact
opposite of 1998, when many factors worked in the fund's favor.
* We shortened International Bond's duration (a measure of its sensitivity to
interest rate fluctuations) in the first quarter and maintained that
position throughout the year. By keeping duration short, we were able to
mitigate losses as interest rates rose around the world.
* High-quality corporate and asset-backed bonds were added to the portfolio,
which helped boost International Bond's yield.
* We will probably maintain the portfolio's underweight in Japanese bonds--and
likely the yen, too--compared with the benchmark for now. However, we will
be looking for opportunities to add European bond exposure when we think
that yields have risen enough to compensate investors for the risk of
sustained growth and rising inflation.
[left margin]
INTERNATIONAL BOND(1)
(BEGBX)
TOTAL RETURNS: AS OF 12/31/99
6 Months -0.19%(2)
1 Year -10.36%
INCEPTION DATE: 1/7/92
NET ASSETS: $113.7 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 20-21.
2 1-800-345-2021
Market Perspective from Randall W. Merk
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[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
PERFORMANCE SNAPSHOT
International bonds posted disappointing returns in 1999 for U.S.
investors. Interest rate concerns pushed global bond yields generally higher,
and a strong U.S. dollar further eroded returns. Unlike the favorable
environment of 1998, which produced a nearly ideal backdrop for investors in
unhedged, high-quality international bonds, conditions in 1999 were quite
different.
U.S. DEVELOPMENTS
Rising U.S. interest rates and the strength of the U.S. dollar played a
significant role in undermining international bond returns. Surprisingly robust
growth kept investors overseas focused on the U.S., as did confidence that the
Federal Reserve was keeping a vigilant eye on inflation. With those factors
coming into play, demand for U.S. assets remained high, boosting the dollar and
withdrawing support from bonds issued by the 11-nation euro zone.
THE EUROPEAN SCENE
Eventually, Europe's unified currency --the euro--may offer the U.S. dollar
significant competition. But 1999 wasn't the start of such a trend--the euro
sank roughly 15% against the dollar in its lackluster debut year. Hopes that the
euro would be quickly accepted as an international reserve currency to rival the
U.S. dollar failed to materialize, and the dollar remained the world's currency
of choice.
Part of the blame for the euro's weakness has been tied to the European
Central Bank (ECB). In spite of expressed concerns about accelerating economic
growth and higher inflation, the ECB maintained a largely hands-off approach
toward its fledgling currency. Rather than raise rates to keep inflation in
check and increase the overseas appeal of euro-denominated bonds, the ECB
elected to leave rates mostly unchanged in 1999, calling into question the
euro's viability as a major world currency.
A DEVELOPING BOND MARKET
Issuance was another factor weighing on European bond performance.
Corporate bond issuance within the euro zone in 1999 was more than double 1998
levels. Though Europe's corporate bond market is currently only about a third
the size of its U.S. counterpart, many expect the European market to continue
expanding as more and more companies issue bonds as a financing alternative to
stocks. The growing supply pushed European bond yields higher.
THE YEN COMEBACK
Despite signs of improving economic growth and an increasingly large budget
deficit, Japan's high domestic savings rate and falling levels of private credit
demand supported Japanese bonds, leading to positive returns that were amplified
when translated into U.S. dollars.
[right margin]
"RISING U.S. INTEREST RATES AND THE STRENGTH OF THE U.S. DOLLAR PLAYED A
SIGNIFICANT ROLE IN UNDERMINING INTERNATIONAL BOND RETURNS."
[line graph - data below]
EURO FALLS VS. THE DOLLAR
Value on 12/31/99
Euro's Value in Dollars $1.01
DATE Euro's Value in Dollars
12/31/98 $1.17
01/29/99 $1.14
02/28/99 $1.10
03/31/99 $1.08
04/30/99 $1.06
05/28/99 $1.04
06/30/99 $1.04
07/30/99 $1.07
08/31/99 $1.06
09/30/99 $1.07
10/29/99 $1.05
11/30/99 $1.01
12/31/99 $1.01
[line graph - data below]
JAPANESE YEN RISES VS. THE DOLLAR
Value on 12/31/99
Yen's Value in Dollars $0.0098
DATE Yen's Value in Dollars
12/31/98 $0.0088
01/29/99 $0.0086
02/28/99 $0.0084
03/31/99 $0.0084
04/30/99 $0.0084
05/28/99 $0.0082
06/30/99 $0.0083
07/30/99 $0.0087
08/31/99 $0.0091
09/30/99 $0.0094
10/29/99 $0.0096
11/30/99 $0.0098
12/31/99 $0.0098
Source: FactSet
www.americancentury.com 3
International Bond--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF DECEMBER 31, 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
===============================================================================================================
6 MONTHS(1) -0.19% 0.42% 1.22% -- -0.38% 0.42%
1 YEAR -10.36% -9.61% -4.60% 50 OUT OF 57 -10.61% -9.61%
===============================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS -0.19% 0.46% 2.29% 34 OUT OF 40 -- --
5 YEARS 5.64% 6.19% 6.45% 18 OUT OF 29 -- --
LIFE OF FUND 6.06% 6.07%(3) 6.12%(4) 6 OUT OF 10(4) -7.45% -7.11%(5)
(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.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/99
Fund Benchmark $16,018
Fund $15,992
Fund Fund Benchmark
DATE VALUE VALUE
1/7/92 $10,000 $10,000
3/31/92 $9,736 $9,386
6/30/92 $10,731 $10,391
9/30/92 $11,502 $11,050
12/31/92 $10,708 $10,120
3/31/93 $11,179 $10,610
6/30/93 $11,115 $10,548
9/30/93 $11,992 $11,218
12/31/93 $11,971 $11,200
3/31/94 $11,871 $11,317
6/30/94 $11,971 $11,528
9/30/94 $12,050 $11,749
12/31/94 $12,153 $11,863
3/31/95 $13,834 $13,543
6/30/95 $14,202 $13,906
9/30/95 $14,394 $14,188
12/31/95 $15,118 $14,906
3/31/96 $14,834 $14,633
6/30/96 $14,881 $14,700
9/30/96 $15,492 $15,256
12/31/96 $16,082 $15,798
3/31/97 $14,990 $14,759
6/30/97 $14,936 $14,735
9/30/97 $15,100 $14,833
12/31/97 $15,136 $14,957
3/31/98 $15,258 $15,056
6/30/98 $15,593 $15,424
9/30/98 $17,213 $17,012
12/31/98 $17,840 $17,722
3/31/99 $16,794 $16,763
6/30/99 $16,022 $15,952
9/30/99 $16,507 $16,566
12/31/99 $15,992 $16,018
$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. 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 ENDED DECEMBER 31)
Fund 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%
12/31/99 -10.36% -9.61%
* From 1/7/92 (the fund's inception date) to 12/31/92.
4 1-800-345-2021
International Bond--Q&A
--------------------------------------------------------------------------------
[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 1999?
The fund's disappointing performance reflected a strong U.S. dollar and a
difficult environment for overseas bonds, which were hampered by rising interest
rates across the globe. The fund's total return for the year was -10.36%,*
which, before expenses (0.85% as of December 31, 1999), slightly outpaced the
-9.61% return of its benchmark, the J.P. Morgan Global Traded Government Bond
Index. (See page 4 for other fund performance comparisons.)
YOU MENTIONED THAT THE U.S. DOLLAR'S STRENGTH IMPACTED RETURNS. CAN YOU
ELABORATE?
International Bond's basic objective is to provide shareholders with a fund
that invests in high-quality international bonds denominated in foreign
currencies. But the fund is also designed in part to provide a hedge against the
dollar--to be an effective diversifier when the dollar is weak. That
diversification effect can be neutralized, however, if the currencies in the
fund are hedged. So we tend to use hedging strategies sparingly. The result is
that when foreign currencies weaken against the U.S. dollar, fund performance
often suffers. But the reverse is also true--when foreign currencies strengthen
relative to the U.S. dollar, returns can be quite impressive.
In 1998, for example, International Bond turned in a stellar performance.
The appreciation of the German mark, French franc, and many other major foreign
currencies relative to the U.S. dollar, along with falling interest rates,
fueled a remarkable 17.87% return for International Bond--that's nearly three
times its five-year average.
However, 1999 was a very different story (see page 3). In spite of that
recent performance, though, we remain committed to International Bond's basic
objective because in years such as 1998, the benefits for investors can be
significant.
GIVEN 1999'S CHALLENGING ENVIRONMENT, HOW DID YOU MANAGE INTERNATIONAL BOND'S
INTEREST RATE SENSITIVITY?
We significantly shortened the fund's duration--a measure of its
sensitivity to interest rate fluctuations--in the first quarter, and maintained
that position throughout the year. We chose that position because early in 1999,
global industrial production showed signs of recovery, with Southeast Asia
demonstrating particularly strong momentum. Based on that developing rebound, we
felt that market participants would begin to expect higher prices on global
goods. And since rising inflation generally translates into higher interest
rates, we repositioned the portfolio accordingly.
That meant keeping duration in a relatively narrow band around 4.7 years,
compared with the benchmark's duration of roughly 5.5 years. Remember, the
longer a fund's duration when interest rates are rising, the more returns are
diminished. So by keeping duration short, we were able to mitigate losses as
interest rates rose around the world.
[right margin]
"THE FUND'S DISAPPOINTING PERFORMANCE REFLECTED A STRONG U.S. DOLLAR AND A
DIFFICULT ENVIRONMENT FOR OVERSEAS BONDS."
PORTFOLIO AT A GLANCE
12/31/99 12/31/98
NUMBER OF SECURITIES 32 25
WEIGHTED AVERAGE
MATURITY 6.6 YRS 7.3 YRS
AVERAGE DURATION 4.7 YRS 5.7 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.85% 0.84%
Investment terms are defined in the Glossary on pages 20-21.
* All fund returns referenced in this interview are for Investor Class shares.
www.americancentury.com 5
International Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
WHAT OTHER CHANGES DID YOU MAKE TO THE PORTFOLIO?
We increased corporate bond holdings from about 19% in June to nearly 29%
in December. Non-government bonds in general were under pressure in 1999.
Increased investor demand for the perceived safety and liquidity of government
securities, particularly toward year-end, caused the yield difference between
corporate and government bonds to widen. That created what we felt was an
opportunity to pick up some securities at attractive prices and yields.
Along those lines, we added some high-quality corporate and asset-backed
bonds, which helped boost the fund's yield. For example, we purchased AAA-rated
euro-denominated bonds issued by General Motors and backed by European
automobile loans. We also increased exposure to the European financial sector,
principally through the purchase of German Landesbank debt.
HOW DID THOSE ADDITIONS IMPACT THE PORTFOLIO'S COUNTRY ALLOCATIONS?
Actually, we tend to place a greater emphasis on regions than on specific
countries. In Europe, specifically, Economic and Monetary Union (EMU) has helped
to homogenize the outlook for euro zone members. That allows us to concentrate
more on finding the best relative values in the region as a whole, rather than
emphasizing country weightings.
For example, the percentage of German bonds in the portfolio rose, while
the percentage of bonds from France and Italy fell (see the chart at left). In
spite of those adjustments, the fund's overall exposure to Europe was little
changed.
SPEAKING OF EUROPE, THERE HAS RECENTLY BEEN TALK ABOUT THE CHANCE FOR A EURO
RALLY IN 2000. WHAT'S YOUR VIEW?
We believe there's some merit in that outlook. Overall, we think that
European growth will remain solid, although the acceleration we saw in 1999 is
unlikely to be repeated. Increasing synchronization of regional economies thanks
to EMU should be positive for the euro going forward.
But in the near term, there are factors that are likely to weigh on
Europe's unified currency. The European bond market has yet to benefit
significantly from international demand. In fact, European investors have been
significant buyers of U.S. corporate bonds, and money flowing out of Europe was
a factor behind 1999's euro weakness.
We don't see a reversal of this trend in the coming months, and think that
the short-term outlook for the euro could be further weakness. It may take until
the latter half of 2000 before we see any real appreciation in the currency.
GIVEN YOUR OUTLOOK, HOW DO YOU PLAN TO MANAGE THE PORTFOLIO?
We may add to the portfolio's European bond exposure when we think that
yields have risen enough to compensate for the risk of sustained growth and
rising inflation. In addition, we will probably maintain the fund's underweight
in Japanese bonds--and likely the yen, too. Though Japanese bond prices have
been stubbornly firm, we think that the country's bonds are currently a bit
overvalued.
From a duration standpoint, we plan to keep the portfolio's interest rate
sensitivity on the short side in case global interest rates continue to rise.
[left margin]
"WE INCREASED CORPORATE BOND HOLDINGS FROM ABOUT 19% IN JUNE TO NEARLY 29%
IN DECEMBER."
BOND HOLDINGS BY COUNTRY
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
GERMANY 25% 15%
ITALY 13% 14%
UNITED KINGDOM 13% 13%
FRANCE 9% 15%
JAPAN 7% 4%
U.S. (INCLUDING
TEMPORARY CASH
INVESTMENTS) 5% 10%
NETHERLANDS 5% 5%
DENMARK 5% 4%
SWEDEN 5% 3%
SPAIN 4% 4%
CANADA 4% 11%
FINLAND 3% --
BELGIUM 2% 2%
6 1-800-345-2021
International Bond--Schedule of Investments
--------------------------------------------------------------------------------
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 the
reporting period.
DECEMBER 31, 1999
Principal Amount Value
--------------------------------------------------------------------------------
GOVERNMENT BONDS -- 67.6%
BELGIUM -- 2.1%
EURO 2,150,000 Kingdom of Belgium,
8.75%, 6/25/02 $ 2,376,672
------------
CANADA -- 4.3%
CAD 6,630,000 Government of Canada,
7.00%, 12/1/06 4,776,170
------------
DENMARK -- 4.5%
DKK 19,600,000 Kingdom of Denmark,
4.00%, 2/15/01 2,642,572
15,600,000 Kingdom of Denmark,
8.00%, 3/15/06 2,385,227
------------
5,027,799
------------
FINLAND -- 2.7%
EURO 2,800,000 Republic of Finland, 8.75%,
10/17/01 3,031,164
------------
FRANCE -- 5.8%
EURO 2,010,000 Government of France,
3.00%, 7/12/01 1,990,648
4,460,000 Government of France,
6.00%, 10/25/25 4,506,930
------------
6,497,578
------------
GERMANY -- 10.1%
EURO 4,440,823 German Federal Republic,
4.50%, 8/19/02 4,480,840
1,641,246 German Federal Republic,
6.00%, 7/4/07 1,725,485
5,600,000 German Federal Republic,
3.75%, 1/4/09 5,012,916
------------
11,219,241
------------
ITALY -- 12.8%
EURO 7,970,000 Republic of Italy, 4.75%,
5/1/03 8,016,123
4,340,000 Republic of Italy, 4.50%,
4/15/01 4,394,849
1,550,000 Republic of Italy, 7.25%,
11/1/26 1,777,129
------------
14,188,101
------------
JAPAN -- 7.1%
JPY 626,400,000 Government of Japan,
1.90%, 3/20/09 6,287,829
150,000,000 Government of Japan,
3.00%, 9/20/05 1,618,257
------------
7,906,086
------------
Principal Amount Value
--------------------------------------------------------------------------------
NETHERLANDS -- 4.8%
EURO 5,000,000 Government of Netherlands,
6.50%, 4/15/03 $ 5,301,968
------------
SPAIN -- 4.5%
EURO 3,000,000 Government of Spain,
7.90%, 2/28/02 3,231,052
1,572,007 Government of Spain,
7.35%, 3/31/07 1,762,766
------------
4,993,818
------------
SWEDEN -- 5.0%
SEK 36,000,000 Kingdom of Sweden,
5.50%, 4/12/02 4,267,172
10,200,000 Kingdom of Sweden,
6.50%, 5/5/08 1,258,654
------------
5,525,826
------------
UNITED KINGDOM -- 3.9%
GBP 700,000 U.K. Treasury Bonds,
6.00%, 12/7/28 1,385,821
1,780,000 U.K. Treasury Bonds,
7.00%, 11/6/01 2,910,459
------------
4,296,280
------------
TOTAL GOVERNMENT BONDS 75,140,703
------------
(Cost $84,933,696)
CORPORATE BONDS -- 28.8%
FRANCE -- 3.4%
EURO 3,620,000 Credit Local de France,
6.00%, 9/24/01 3,735,410
------------
GERMANY -- 14.8%
DEM 4,600,000 DSL Finance NV, 5.375%,
1/21/08 2,311,527
5,820,000 LKB Baden Wurttemberg
Finance BV, 6.50%,
9/15/08 3,150,936
EURO 2,000,000 European Investment Bank,
4.00%, 4/15/09 1,790,327
5,750,000 Hypothekenbank in Essen
AG, Series 533, 4.25%,
7/6/09 5,182,905
4,100,000 Rheinische Hypothekenbank
AG, 4.50%, 9/9/04 4,019,219
------------
16,454,914
------------
See Notes to Financial Statements www.americancentury.com 7
International Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Principal Amount Value
--------------------------------------------------------------------------------
UNITED KINGDOM -- 8.9%
GBP 1,600,000 European Investment Bank,
7.625%, 12/7/07 $ 2,758,536
1,745,000 General Electric Capital
Corp., 7.25%, 8/6/07 2,913,938
2,500,000 International Bank
Reconstruction &
Development, 7.125%,
7/30/07 4,188,855
------------
9,861,329
------------
UNITED STATES -- 1.7%
EURO 1,900,000 GMAC Swift Trust, Series
1999-1, 5.00%,
1/18/05 1,877,905
------------
TOTAL CORPORATE BONDS 31,929,558
------------
(Cost $30,494,407)
TEMPORARY CASH INVESTMENS -- 3.6%
USD 4,000,000 FHLB Discount Notes,
1.50%, 1/3/00(1) 3,999,667
------------
(Cost $3,999,667)
TOTAL INVESTMENT SECURITIES -- 100.0% $111,069,928
============
(Cost $119,427,770)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Settlement Unrealized
Contracts to Sell Dates Value Gain (Loss)
-------------------------------------------------------------------------------
19,930,587 DKK 2/24/00 $2,707,469 $15,289
11,873,463 EURO 2/24/00 12,011,365 61,737
2,096,845 GBP 2/24/00 3,387,128 14,565
85,728,970 JPY 2/24/00 846,628 (1,628)
22,984,961 SEK 2/24/00 2,711,651 (17,714)
----------------------------------
$21,664,241 $72,249
==================================
(Value on Settlement Date $21,736,490)
Settlement Unrealized
Contracts to Buy Dates Value Gain (Loss)
-------------------------------------------------------------------------------
2,354,707 AUD 2/24/00 $1,547,026 $49,549
792,912 CAD 2/24/00 550,030 12,097
12,114,195 EURO 2/24/00 12,254,894 (25,669)
1,516,300 GBP 2/24/00 2,449,347 10,521
793,507,065 JPY 2/24/00 7,836,386 18,583
----------------------------------
$24,637,683 $65,081
==================================
(Value on Settlement Date $24,572,602)
Forward foreign currency exchange contracts are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the
fund to exchange a foreign currency for U.S. dollars on a specific date in the
future--and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
AUD = Australian Dollar
CAD = Canadian Dollar
DEM = German Mark
DKK = Danish Krone
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.
8 1-800-345-2021 See Notes to Financial Statements
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).
DECEMBER 31, 1999
ASSETS
Investment securities, at value
(identified cost of $119,427,770)
(Note 3) .............................................. $ 111,069,928
Cash .................................................... 330,636
Receivable for forward foreign
currency exchange contracts ........................... 182,341
Interest receivable ..................................... 2,524,884
-------------
114,107,789
-------------
LIABILITIES
Payable for forward foreign
currency exchange contracts ........................... 45,011
Payable for capital shares redeemed ..................... 285,446
Accrued management fees (Note 2) ........................ 82,066
Distribution and service fees
payable (Note 2) ...................................... 294
Payable for trustees' fees and expenses ................. --
-------------
412,817
-------------
Net Assets .............................................. $ 113,694,972
=============
NET ASSETS CONSIST OF:
Capital paid in ......................................... $ 122,766,814
Undistributed net investment income ..................... (818,935)
Accumulated net realized loss on
investments and foreign
currency transactions ................................. 43,768
Net unrealized depreciation on
investments and translation
of assets and liabilities in
foreign currencies (Note 3) ........................... (8,296,675)
-------------
$ 113,694,972
=============
Investor Class
Net assets .............................................. $ 112,968,289
Shares outstanding ...................................... 10,712,230
Net asset value per share ............................... $ 10.55
Advisor Class
Net assets .............................................. $ 726,683
Shares outstanding ...................................... 69,060
Net asset value per share ............................... $ 10.52
See Notes to Financial Statements www.americancentury.com 9
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.
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME
Income:
Interest (net of foreign taxes
withheld of $86,409) .................................... $ 5,492,629
------------
Expenses (Note 2):
Management fees ........................................... 1,112,611
Distribution fees ......................................... 843
Service fees .............................................. 843
Trustees' fees and expenses ............................... 23,748
------------
1,138,045
------------
Net investment income ..................................... 4,354,584
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
Net realized gain (loss) on:
Investments ............................................... 70,280
Foreign currency transactions ............................. (4,376,366)
------------
(4,306,086)
------------
Change in net unrealized appreciation on:
Investments ............................................... (7,472,818)
Translation of assets and liabilities
in foreign currencies ................................... (8,272,192)
------------
(15,745,010)
------------
Net realized and unrealized loss on
investments and foreign currency ........................ (20,051,096)
------------
Net Decrease in Net Assets
Resulting from Operations ............................... $(15,696,512)
============
10 1-800-345-2021 See Notes to Financial Statements
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.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Decrease in Net Assets 1999 1998
OPERATIONS
Net investment income ........................ $ 4,354,584 $ 6,205,025
Net realized gain (loss) on investments
and foreign currency transactions .......... (4,306,086) 6,392,408
Change in net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currencies ...................... (15,745,010) 11,657,485
------------- -------------
Net increase (decrease) in net
assets resulting from operations ........... (15,696,512) 24,254,918
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ............................. (5,282,666) (2,151,681)
Advisor Class .............................. (5,126) (442)
From net realized gains on
investment transactions:
Investor Class ............................. -- (3,258,320)
Advisor Class .............................. -- (425)
In excess of net realized
gains on investments:
Investor Class ............................. (2,487,639) (3,258,320)
Advisor Class .............................. (1,585) (425)
------------- -------------
Decrease in net assets from distributions .... (7,777,016) (5,410,868)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net decrease in net assets
from capital share transactions ............ (20,276,787) (27,129,919)
------------- -------------
Net decrease in net assets ................... (43,750,315) (8,285,869)
NET ASSETS
Beginning of period .......................... 157,445,287 165,731,156
------------- -------------
End of period ................................ $ 113,694,972 $ 157,445,287
============= =============
Undistributed net investment income .......... $ (818,935) $ 4,463,061
============= =============
See Notes to Financial Statements www.americancentury.com 11
Notes to Financial Statements
--------------------------------------------------------------------------------
DECEMBER 31, 1999
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 (the 1940 Act) as an
open-end management investment company. International Bond Fund (the fund) is
the sole fund issued by the trust. The fund is non-diversified under the 1940
Act. The fund's investment objective is to provide high current income and
capital appreciation by investing in high-quality, nondollar-denominated
government and corporate debt securities issued outside the United States. The
following significant accounting policies are in accordance with generally
accepted accounting principles; these policies may require the use of estimates
by fund management.
MULTIPLE CLASS -- 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.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at 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 net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. 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.
For the two months ended December 31, 1999, the fund incurred net capital
and currency losses of $2,028,833. The fund has elected to treat such losses as
having been incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
12 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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 1940 Act (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 year ended December 31, 1999, the effective annual Investor Class management
fee was 0.83%.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the 1940 Act.
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 year ended December 31, 1999 were $1,686.
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
$293,235,744 and $308,841,192, respectively. On December 31, 1999, accumulated
net unrealized depreciation was $8,718,227, based on the aggregate cost of
investments of $119,788,155 for federal income tax purposes, which consisted of
unrealized appreciation of $88,823 and unrealized depreciation of $8,807,050.
The aggregate cost of investments for federal income tax purposes was the same
as the cost for financial reporting purposes.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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, 1999
Sold ....................................... 6,237,612 $ 70,918,968
Issued in reinvestment of distributions .... 646,211 7,233,924
Redeemed ................................... (8,824,153) (99,153,043)
------------- -------------
Net decrease ............................... (1,940,330) $ (21,000,151)
============= =============
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
Year ended December 31, 1999
Sold ....................................... 79,694 $ 868,056
Issued in reinvestment of distributions .... 495 5,503
Redeemed ................................... (13,844) (150,195)
------------- -------------
Net increase ............................... 66,345 $ 723,364
============= =============
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 $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended December 31, 1999.
14 1-800-345-2021
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).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31
Investor Class
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value, Beginning of Period ..... $12.44 $10.92 $11.79 $11.95 $10.36
--------- ---------- ---------- ---------- ---------
Income From Investment Operations
Net Investment Income .................. 0.36(1) 0.47(1) 0.65 0.69 0.61
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ................ (1.62) 1.47 (1.34) 0.03 1.88
--------- ---------- ---------- ---------- ---------
Total From Investment Operations ....... (1.26) 1.94 (0.69) 0.72 2.49
--------- ---------- ---------- ---------- ---------
Distributions
From Net Investment Income ............. (0.43) (0.17) (0.04) (0.71) (0.90)
In Excess of Net Investment Income ..... -- -- -- (0.02) --
From Net Realized Gains on
Investment Transactions ................ -- (0.25) (0.14) (0.15) --
In Excess of Net Realized
Gains on Investments ................... (0.20) -- -- -- --
--------- ---------- ---------- ---------- ---------
Total Distributions .................... (0.63) (0.42) (0.18) (0.88) (0.90)
--------- ---------- ---------- ---------- ---------
Net Asset Value, End of Period ........... $10.55 $12.44 $10.92 $11.79 $11.95
========= ========== ========== ========== =========
Total Return(2) ........................ (10.36)% 17.87% (5.88)% 6.38% 24.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.85% 0.84% 0.84% 0.83% 0.82%
Ratio of Net Investment Income
to Average Net Assets .................. 3.27% 4.11% 4.82% 5.48% 6.14%
Portfolio Turnover Rate .................. 239% 322% 163% 242% 167%
Net Assets, End of Period
(in thousands) ......................... $112,968 $157,412 $165,731 $252,456 $252,247
(1) Calculated using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return for periods less than one year are not
annualized.
See Notes to Financial Statements www.americancentury.com 15
International Bond--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED DECEMBER 31 (EXCEPT AS NOTED)
Advisor Class
1999 1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ....... $12.44 $12.50
---------- ---------
Income From Investment Operations
Net Investment Income(2) ................. 0.45 0.08
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ........ (1.74) 0.19
---------- ---------
Total From Investment Operations ......... (1.29) 0.27
---------- ---------
Distributions
From Net Investment Income ............... (0.43) (0.17)
From Net Realized Gains on
Investment Transactions .................. -- (0.16)
In Excess of Net Realized
Gains on Investments ..................... (0.20) --
---------- ---------
Total Distributions ...................... (0.63) (0.33)
---------- ---------
Net Asset Value, End of Period ............. $10.52 $12.44
========== =========
Total Return(3) .......................... (10.61)% 2.12%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................... 1.10% 1.08%(4)
Ratio of Net Investment Income
to Average Net Assets .................... 3.02% 3.71%(4)
Portfolio Turnover Rate .................... 239% 322%
Net Assets, End of Period
(in thousands) ........................... $727 $34
(1) October 27, 1998 (commencement of sale) through December 31, 1998.
(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.
16 1-800-345-2021 See Notes to Financial Statements
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of the American Century International Bond Funds and
Shareholders of the 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 International Bond Fund
(hereafter referred to as the "Fund") at December 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the three years in the period then ended, in conformity with
accounting principles generally accepted in the United States. The financial
highlights for each of the two 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 auditing
standards generally accepted in the United States, 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, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 3, 2000
www.americancentury.com 17
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the funds: 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
is 0.25% higher than the total expense ratio of the Investor Class.
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 tax 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
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each 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
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies
INTERNATIONAL BOND seeks current income and capital appreciation by
investing in high-quality, non-dollar-denominated government and corporate debt
securities outside the U.S. Under normal market conditions, the fund will invest
at least 65% of its total assets in foreign government bonds, and it may invest
up to 35% of its total assets in high-quality foreign corporate bonds. The fund
typically maintains a weighted average maturity of 2-10 years.
The fund normally remains fully invested in foreign bonds; however, the
fund may invest up to 25% of its assets in U.S. securities when the U.S. dollar
appears to be strengthening.
International investing involves special risks, such as political
instability and currency fluctuations. The fund is not intended to serve as a
complete investment program by itself.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
The International Bond fund benchmark was the J.P. Morgan ECU-Weighted
European Index from inception through December 1997. Since January 1998, 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.
Lipper's INTERNATIONAL INCOME FUNDS category consists of 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 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 15-16.
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 -- a basis point equals one one-hundredth of a percentage point
(or 0.01%). Therefore, 100 basis points equals 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
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.
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.
* 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]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
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 Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[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
Funds Distributor, Inc.
0002 is the distributor for American Century funds
SH-ANN-19624 (c)2000 American Century Services Corporation
