June 30, 2000
AMERICAN CENTURY(reg.sm)
SEMIANNUAL REPORT
International Bond
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American
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[left margin]
INTERNATIONAL BOND
(BEGBX)
--------------------------
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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 with unhedged exposure to foreign bonds experienced
difficult market conditions in the first half of 2000. Robust U.S. economic
growth and rising interest rates continued to make the U.S. a focal point for
overseas capital. As investors flocked to U.S. dollar-denominated assets, the
dollar strengthened at the expense of other major currencies, such as Europe's
unified currency--the euro--and the Japanese yen.
Rising interest rates in Europe and foreign currency weakness (relative to
the dollar) eroded the returns of foreign bonds for U.S. investors. Four
short-term interest rate hikes by the European Central Bank also weighed on the
overall performance of European bonds. Short-term Euroland bonds declined in
value, though longer-term bonds held up fairly well as investors took comfort
from the central bank's inflation-curtailing steps.
Japanese bonds lagged too. The Bank of Japan's policy of near-zero interest
rates led to a weak yen. That undermined the performance of Japanese bonds for
U.S. investors who were converting bond returns into dollars.
That environment helps explain why American Century International Bond
declined during the first half of 2000. Our investment professionals review the
period and the fund's performance in more detail beginning on page 3.
We're proud to announce that American Century's fund performance reports,
like this one, earned the Communications Seal from DALBAR, Inc., an independent
financial services research firm. DALBAR commended us for meeting investors'
needs with an attractive document that's easy to read and understand.
We're also pleased to provide investors with two new investment tools. Fund
Advisor,(1) an online advice engine, is designed to give impartial guidance in
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American Century investor newsletter provides more details on these tools.
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
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for recommending any fund, although it may receive management, service, or
other fees from funds recommended through Fund Advisor. These arrangements
are described in Acumation Inc.'s Form ADV Part II.
[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
Statement of Changes
in Net Assets ....................................................... 11
Notes to Financial
Statements .......................................................... 12
Financial Highlights ................................................... 15
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 17
Background Information
Investment Philosophy
and Policies ..................................................... 18
Comparative Indices ................................................. 18
Lipper Rankings ..................................................... 18
The Fund's Subadvisor ............................................... 18
Investment Team
Leaders .......................................................... 18
Glossary ............................................................... 19
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* U.S. dollar strength and rising interest rates in Europe undermined the
performance of international bonds in the first half of 2000, leading to
disappointing returns when converted to U.S. dollars.
* The robust economy kept capital flowing into the U.S. from overseas, helping
the dollar remain the world's foremost currency at the expense of Europe's
euro and Japan's yen, which fell around 4% and 3%, respectively.
* The European Central Bank hiked short-term interest rates four times to
temper economic growth and stave off rising inflation.
* Short-term Euroland bonds were poor performers in that environment, though
longer-term bonds held up fairly well.
* Since the Asian economic crisis in 1998, a recession and lack of consumer
demand has led to deflation in Japan and a very low interest rate policy by
the country's central bank. The result has been an ailing yen and low
Japanese bond yields.
MANAGEMENT Q&A
* U.S. dollar strength and rising short-term interest rates in Europe
translated into lackluster fund performance.
* About half of the fund's underperformance relative to its benchmark was due
to fund expenses not incurred by the benchmark. (For more information on
expenses and returns, see page 4.)
* International Bond tends to perform best when the U.S. dollar is weak
relative to other major currencies, especially the euro, but that wasn't the
case over the first six months of 2000.
* We kept the portfolio's Japanese bond holdings underweighted relative to the
benchmark, expecting them to perform poorly. However, that strategy dampened
returns slightly compared with the fund's benchmark as Japanese bonds held
up fairly well.
* We concentrated our European position in government-backed bonds with
maturities of two years or less and seven years or greater. That strategy
helped mitigate losses as short-term bond yields rose, while long-term bond
yields edged slightly lower.
* Going forward, high-quality European corporate bonds look attractive, so we
may shift into that sector.
* For now, we will probably maintain a slightly higher exposure to European
bonds, underexposure to Japanese bonds, and neutral exposure to other
regions, relative to the fund's benchmark.
[left margin]
INTERNATIONAL BOND(1)
(BEGBX)
TOTAL RETURNS: AS OF 6/30/00
6 Months -2.45%(2)
1 Year -2.64%
INCEPTION DATE: 1/7/92
NET ASSETS: $103.6 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 19-20.
2 1-800-345-2021
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
PERFORMANCE OVERVIEW
U.S. investors in international bonds didn't have much to celebrate during
the first half of 2000, and for investors with unhedged currency exposure,
returns were even more disappointing. European bonds generally suffered amid
continued euro weakness and rising interest rates, while the Bank of Japan's
zero-interest-rate policy and a weak yen weighed on the performance of Japanese
bonds.
STRONG DOLLAR MEANS LOW RETURNS
The robust economy kept capital flowing into the U.S. from overseas,
helping the dollar remain the world's foremost currency.
The dollar's gains came at the expense of Europe's euro and Japan's yen.
With investors overseas eagerly trading in their local currencies for the
greenbacks needed to buy American assets, the euro fell around 4% versus the
dollar, while the yen declined roughly 3% (see the graphs at right).
Three short-term interest rate hikes by the Federal Reserve also boosted
the dollar's appeal as investors took comfort in the Fed's perceived inflation
vigilance.
RISING EUROPEAN INTEREST RATES
Short-term rates also rose in Europe, where the European Central Bank (ECB)
hiked rates four times to temper economic growth and stave off rising inflation.
European economic growth accelerated to a surprising 3.8% (annualized) pace
during the first three months of 2000, thanks largely to increased demand for
European exports. The weak euro made European goods less expensive and therefore
more attractive to overseas consumers. As growth in the region surged, so too
did prices--by June, inflation had exceeded the ECB's 2% annualized growth
limit.
Short-term Euroland bonds were poor performers in that environment, though
longer-term bonds held up fairly well. Two-year Euroland bond yields rose 75
basis points, or three-quarters of a percent. However, 10-year Euroland bond
yields fell 15 basis points as investors took comfort from the fact that the ECB
was curtailing future inflation.
Overall, though, European bonds generally posted negative returns when
translated into U.S. currency.
JAPAN'S QUANDARY
Unlike the central banks in the U.S. and Euroland, Japan's central bank
held its short-term rate target at close to zero percent. Since the Asian
economic crisis in 1998, a recession and lack of consumer demand has led to
deflation in Japan and a very low interest rate policy by the country's central
bank.
The result has been an ailing yen and low bond yields. Ten-year Japanese
bond yields, for example, hovered between 1.6% and 1.8% over the six months,
translating into lackluster dollar-converted returns.
[right margin]
"THE ROBUST ECONOMY KEPT CAPITAL FLOWING INTO THE U.S. FROM OVERSEAS, HELPING
THE DOLLAR REMAIN THE WORLD'S FOREMOST CURRENCY."
[line graph - data below]
EURO'S VALUE IN DOLLARS
12/31/1999 $1.00
1/31/2000 $0.98
2/29/2000 $0.96
3/31/2000 $0.96
4/28/2000 $0.91
5/31/2000 $0.93
6/30/2000 $0.96
[line graph - data below]
YEN'S VALUE IN DOLLARS
12/31/1999 $0.0098
1/31/2000 $0.0093
2/29/2000 $0.0091
3/31/2000 $0.0097
4/28/2000 $0.0093
5/31/2000 $0.0093
6/29/2000 $0.0095
Source: FactSet
www.americancentury.com 3
International Bond--Performance
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF JUNE 30, 2000
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) -2.45% -1.59% -0.85% -- -2.51% -1.59%
1 YEAR -2.64% -1.18% 0.45% 46 OUT OF 58 -2.88% -1.18%
=================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 1.46% 2.28% 2.44% 31 OUT OF 48 -- --
5 YEARS 1.90% 2.54% 3.89% 23 OUT OF 33 -- --
LIFE OF FUND 5.39% 5.50%(3) 5.64%(4) 5 OUT OF 10(4) -6.73% -5.94%(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 17-19 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 6/30/00 Fund Benchmark $15,764
International Bond $15,600
International Bond Fund Benchmark
DATE VALUE VALUE
1/7/1992 $10,000 $10,000
3/31/1992 $9,736 $9,386
6/30/1992 $10,731 $10,391
9/30/1992 $11,502 $11,050
12/31/1992 $10,708 $10,120
3/31/1993 $11,179 $10,610
6/30/1993 $11,115 $10,548
9/30/1993 $11,992 $11,218
12/31/1993 $11,971 $11,200
3/31/1994 $11,871 $11,317
6/30/1994 $11,971 $11,528
9/30/1994 $12,050 $11,749
12/31/1994 $12,153 $11,863
3/31/1995 $13,834 $13,543
6/30/1995 $14,202 $13,906
9/30/1995 $14,394 $14,188
12/31/1995 $15,118 $14,906
3/31/1996 $14,834 $14,633
6/30/1996 $14,881 $14,700
9/30/1996 $15,492 $15,256
12/31/1996 $16,082 $15,798
3/31/1997 $14,990 $14,759
6/30/1997 $14,936 $14,735
9/30/1997 $15,100 $14,833
12/31/1997 $15,136 $14,957
3/31/1998 $15,258 $15,056
6/30/1998 $15,593 $15,424
9/30/1998 $17,213 $17,012
12/31/1998 $17,840 $17,722
3/31/1999 $16,794 $16,763
6/30/1999 $16,022 $15,952
9/30/1999 $16,507 $16,566
12/31/1999 $15,992 $16,018
3/31/2000 $15,661 $15,784
6/30/2000 $15,600 $15,764
$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.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED JUNE 30)
International Bond Fund Benchmark
DATE RETURN RETURN
6/30/92* 7.31% 3.91%
6/30/93 3.57% 1.51%
6/30/94 7.71% 9.29%
6/30/95 18.63% 20.63%
6/30/96 4.78% 5.71%
6/30/97 0.28% 0.18%
6/30/98 4.40% 4.68%
6/30/99 2.76% 3.42%
6/30/00 -2.64% -1.18%
* From 1/7/92 (the fund's inception date) to 6/30/92.
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 DURING THE FIRST HALF OF 2000?
U.S. dollar strength and rising short-term interest rates in Europe
translated into lackluster fund performance. International Bond's -2.45% return
trailed the -1.59% return of its benchmark, the J.P. Morgan Global Traded
Government Bond Index.* (See the previous page for other fund performance
comparisons.)
About half of the performance disparity can be attributed to fund expenses,
which were an annualized 0.85% at the end of June. The portfolio's underweight
in Japan also dampened performance when compared with the returns of the index.
YOU MENTIONED THAT THE U.S. DOLLAR'S STRENGTH REDUCED INTERNATIONAL BOND'S
RETURNS. HOW?
Since foreign bond returns are ultimately converted into U.S. dollars,
foreign currency exposure can be a double-edged sword. When overseas currencies
weaken--as they did during the first half of 2000 (see page 3)--they are worth
fewer dollars, thus reducing International Bond's dollar-converted returns. So
fund performance can be negative even when the bonds themselves may have
produced positive returns in local currencies.
CAN'T YOU PROTECT THE PORTFOLIO AGAINST CURRENCY LOSSES?
We can, by currency hedging, but that defeats the purpose of this fund.
International Bond is designed to be a "pure play" on the international bond
market and provide a measure of protection from U.S. dollar weakness.
We make only limited use of currency hedging strategies for those reasons.
But that also means that the currencies in which the portfolio's bonds are
denominated impact International Bond's returns.
WHAT FACTORS LED YOU TO UNDERWEIGHT JAPANESE BONDS COMPARED WITH THE FUND'S
BENCHMARK AND WHY DIDN'T THAT STRATEGY PAY OFF?
Record levels of new bond issuance and the Bank of Japan's low interest
rate policy have kept Japanese bond yields extremely low compared with bond
yields in the U.S. and Europe. Expecting Japanese bonds to be subdued performers
in that environment, we reduced the fund's holdings in the region.
However, large personal deposits allowed Japanese banks to remain big
purchasers of Japanese government bonds. And since most of the new government
bond supply was quickly absorbed, longer-term bonds in particular held up
reasonably well as yields stayed in a fairly narrow range.
So even though we focused on longer-maturity bonds in the region, the
portfolio's overall underweighting relative to the benchmark dampened
performance.
LET'S TALK ABOUT THE PORTFOLIO'S EUROPEAN POSITION. WHAT STRATEGIES DID YOU
EMPLOY THERE?
First, we concentrated the portfolio in bonds with maturities of two years
or less and in bonds with maturities of seven years or more. The relationship
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"U.S. DOLLAR STRENGTH AND RISING SHORT-TERM INTEREST RATES IN EUROPE TRANSLATED
INTO LACKLUSTER FUND PERFORMANCE."
PORTFOLIO AT A GLANCE
6/30/00 12/31/99
NUMBER OF SECURITIES 40 32
WEIGHTED AVERAGE
MATURITY 8.5 YRS 6.6 YRS
AVERAGE DURATION 5.1 YRS 4.7 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.85%* 0.85%
* Annualized.
Investment terms are defined in the Glossary on pages 19-20.
www.americancentury.com 5
International Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
between bond yields and maturities can be looked at on a graph called a yield
curve, and the difference in yields is referred to as the "spread."
With short-term bond yields rising and longer-term bond yields edging
slightly lower, the spread between longer- and shorter-term securities narrowed
as the yield curve flattened. By employing a "barbell" structure (with holdings
concentrated at the shorter and longer ends of the maturity spectrum, with
little in between), the higher and more stable yields of the longer-term bonds
helped to offset the losses experienced in the portfolio's shorter-term bonds.
Second, we lengthened the portfolio's duration, a measure of sensitivity to
interest rate fluctuations. The change reflected our expectations that European
economic growth would slow moderately while inflation remains in check. That
proved to be the case and drove up demand for long-term Euroland bonds.
WHAT OTHER STRATEGIES DID YOU FAVOR FOR YOUR EUROPEAN HOLDINGS?
We also looked for opportunities for relative value within Euroland,
specifically. In spite of European Economic and Monetary Union, not all Euroland
bonds are equally easy to buy and sell. Bonds from "core" countries such as
Germany and France are often more liquid, but they tend to yield a little less
than bonds from "non-core" countries such as Italy or Spain.
Early in the year, we focused on bonds from core Euroland countries. Toward
the end of the second quarter, we shifted some of the portfolio into non-core
bonds, because we thought their yields offered adequate compensation for their
lower liquidity.
In addition, we focused on adding government-backed bonds, rather than
high-credit corporates. Corporate bond issuance was fairly heavy, while demand
slackened some. At the same time, issuance of government-backed bonds stayed at
relatively normal levels, as did demand. So government-backed bonds generally
outperformed their corporate counterparts.
WHAT'S YOUR OUTLOOK FOR GLOBAL BONDS?
Our outlook for European bonds is favorable. We wouldn't be surprised to
see the European Central Bank raise short-term rates as much as 50 basis points
before the year winds down, but that should help keep economic growth manageable
and inflation in check. So longer-term bonds in the region should be reasonably
good performers. The only real obstacle we foresee is if consumer demand heats
up and creates a need for more aggressive rate hikes.
We're less enthusiastic about prospects in Japan. The Bank of Japan (BOJ)
appears to be ending its zero-interest-rate policy. However, an ill-timed rate
increase could send the nation's economy back into recession. So the BOJ will
need to carefully consider any rate increases.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
High-quality corporate bonds in Europe look attractive, so we may shift
some of the portfolio into that sector. We also plan to maintain a slightly
higher regional exposure to Europe relative to the benchmark.
For now, we also plan to keep the portfolio underweight in Japanese bonds
relative to the benchmark. We will probably maintain a fairly neutral exposure
to other regions for the near term.
[left margin]
"IN SPITE OF EUROPEAN ECONOMIC AND MONETARY UNION, NOT ALL EUROLAND BONDS ARE
EQUALLY EASY TO BUY AND SELL."
BOND HOLDINGS BY COUNTRY
% OF FUND INVESTMENTS
AS OF AS OF
6/30/00 12/31/99
FRANCE 22% 9%
GERMANY 22% 25%
UNITED KINGDOM 11% 13%
U. S. (INCLUDING
TEMPORARY CASH
INVESTMENTS) 11% 5%
SPAIN 7% 4%
ITALY 5% 13%
NETHERLANDS 5% 5%
DENMARK 5% 5%
SWEDEN 4% 5%
BELGIUM 4% 2%
CANADA 3% 4%
JAPAN 1% 7%
FINLAND -- 3%
6 1-800-345-2021
International Bond--Schedule of Investments
--------------------------------------------------------------------------------
JUNE 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
GOVERNMENT BONDS -- 63.2%
BELGIUM -- 3.7%
EURO 4,470,000 Kingdom of Belgium,
3.75%, 3/28/09 $ 3,754,378
------------
CANADA -- 2.9%
CAD 2,430,000 Government of Canada,
7.00%, 12/1/06 1,729,995
1,390,000 Government of Canada,
8.00%, 6/1/27 1,229,346
------------
2,959,341
------------
DENMARK -- 4.6%
DKK 19,600,000 Kingdom of Denmark,
4.00%, 2/15/01 2,482,072
15,600,000 Kingdom of Denmark,
8.00%, 3/15/06 2,212,621
------------
4,694,693
------------
FRANCE -- 15.0%
EURO 7,250,000 Government of France,
4.50%, 7/12/02 6,827,005
1,700,000 Government of France,
7.50%, 4/25/05 1,778,178
800,000 Government of France,
5.50%, 4/25/07 771,639
1,650,000 Government of France,
8.50%, 12/26/12 2,009,293
810,000 Government of France,
8.50%, 4/25/23 1,049,093
1,400,000 Government of France,
5.50%, 4/25/29 1,331,499
1,600,000 Republic of France,
3.50%, 7/12/04 1,441,804
------------
15,208,511
------------
GERMANY -- 8.4%
EURO 1,500,000 German Federal Republic,
6.00%, 1/5/06 1,491,126
3,891,246 German Federal Republic,
6.00%, 7/4/07 3,873,806
535,000 German Federal Republic,
4.50%, 7/4/09 485,351
950,000 German Federal Republic,
6.25%, 1/4/24 984,335
1,760,000 German Federal Republic,
5.625%, 1/4/28 1,703,998
------------
8,538,616
------------
ITALY -- 5.5%
EURO 1,300,000 Republic of Italy, 4.00%,
7/15/04 1,186,440
2,160,000 Republic of Italy, 4.25%,
11/1/09 1,872,212
2,300,000 Republic of Italy, 7.25%,
11/1/26 2,577,689
------------
5,636,341
------------
Principal Amount Value
--------------------------------------------------------------------------------
JAPAN -- 1.3%
JPY 129,450,000 Government of Japan,
2.40%, 3/20/20 $ 1,274,924
------------
NETHERLANDS -- 4.7%
EURO 4,850,000 Kingdom of Netherlands,
6.00%, 1/15/06 4,800,447
------------
SPAIN -- 3.9%
EURO 1,572,007 Government of Spain,
7.35%, 3/31/07 1,659,625
2,510,000 Government of Spain,
5.15%, 7/30/09 2,341,364
------------
4,000,989
------------
SWEDEN -- 4.5%
SEK 29,350,000 Kingdom of Sweden,
5.50%, 4/12/02 3,363,158
10,200,000 Kingdom of Sweden,
6.50%, 5/5/08 1,247,244
------------
4,610,402
------------
UNITED KINGDOM -- 8.7%
GBP 1,080,000 U.K. Treasury Bonds, 7.00%,
11/6/01 1,657,200
1,400,000 U.K. Treasury Bonds, 7.50%,
12/7/06 2,337,147
1,630,000 U.K. Treasury Bonds, 6.25%,
11/25/10 2,682,799
1,135,000 U.K. Treasury Bonds, 6.00%,
12/7/28 2,134,830
------------
8,811,976
------------
TOTAL GOVERNMENT BONDS 64,290,618
------------
(Cost $66,046,078)
CORPORATE BONDS -- 27.8%
FRANCE -- 6.9%
EURO 3,620,000 Credit Local de France,
6.00%, 9/24/01 3,484,399
3,550,000 Caisse d'Amortissement de
la Dette Sociale, 6.00%,
7/25/05 3,468,260
------------
6,952,659
------------
GERMANY -- 13.2%
EURO 3,400,000 Allgemeine
Hypothekenbank AG,
3.75%, 10/15/04 3,033,448
1,850,000 Kreditanstalt Fuer
Wiederaufbau, 5.50%,
3/12/07 1,763,902
2,730,000 Kreditanstalt Fuer
Wiederaufbau, 5.25%,
1/4/10 2,522,375
2,680,000 Deutsche Ausgleichsbank,
5.75%, 7/4/10 2,562,575
4,100,000 Rheinische Hypothekenbank
AG, 3.25%, 1/18/05 3,568,985
------------
13,451,285
------------
See Notes to Financial Statements www.americancentury.com 7
International Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
Principal Amount Value
--------------------------------------------------------------------------------
SPAIN -- 3.4%
EURO 3,850,000 Instituto de Credito Oficial,
3.875%, 7/30/04 $ 3,475,046
------------
UNITED KINGDOM -- 2.6%
GBP 1,600,000 European Investment Bank,
7.625%, 12/7/07 2,587,328
------------
UNITED STATES -- 1.7%
EURO 1,900,000 GMAC Swift Trust, Series
1999-1, 5.00%, 1/18/05 1,755,730
------------
TOTAL CORPORATE BONDS 28,222,048
------------
(Cost $28,907,710)
TEMPORARY CASH INVESTMENTS -- 9.0%
USD 3,000,000 Deutsche Bank CD, 6.62%,
7/31/00 2,999,994
2,000,000 Commerzbank AG, 6.56%,
7/31/00 2,000,000
4,100,000 Federal Home Loan Bank
Discount Notes, 6.20%,
7/3/00(1) 4,098,581
------------
TOTAL TEMPORARY CASH INVESTMENTS 9,098,575
------------
(Cost $9,098,581)
TOTAL INVESTMENT SECURITIES -- 100.0% $101,611,241
============
(Cost $104,052,369)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Settlement Unrealized
Contracts to Sell Dates Value Gain (Loss)
--------------------------------------------------------------------------------
18,682,587 DKK 8/21/00 $2,395,924 $(32,834)
3,989,290 EURO 8/21/00 3,820,813 (30,239)
482,000 GBP 8/21/00 730,017 (11,383)
23,280,961 SEK 8/21/00 2,649,921 33,980
----------------------------------
$9,596,675 $(40,476)
==================================
(Value on Settlement Date $9,556,199)
Settlement Unrealized
Contracts to Buy Dates Value Gain (Loss)
--------------------------------------------------------------------------------
2,007,707 AUD 8/21/00 $1,201,703 $(4,026)
3,448,257 CAD 8/21/00 2,332,802 (8,174)
892,638 EURO 8/21/00 854,939 11,665
758,212 GBP 8/21/00 1,148,358 1,539
1,215,691,433 JPY 8/21/00 11,565,716 (139,171)
6,783,968 SEK 8/21/00 772,175 (4,680)
----------------------------------
$17,875,693 $(142,847)
==================================
(Value on Settlement Date $18,018,540)
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
DKK = Danish Krone
GBP = British Pound
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).
JUNE 30, 2000 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of
$104,052,369) (Note 3) ................................ $ 101,611,241
Cash .................................................... 151,286
Foreign currency holdings,
at value (identified
cost $1,896,420) ...................................... 1,922,263
Receivable for investments sold ......................... 8,375,722
Receivable for forward foreign
currency exchange contracts ........................... 47,184
Interest receivable ..................................... 2,430,204
-------------
114,537,900
-------------
LIABILITIES
Payable for investments purchased ....................... 10,461,594
Payable for forward foreign
currency exchange contracts ........................... 230,507
Payable for capital shares redeemed ..................... 178,126
Accrued management fees (Note 2) ........................ 70,610
Distribution and service
fees payable (Note 2) ................................. 349
Payable for trustees' fees and expenses ................. 2,212
Accrued expenses and other liabilities .................. 8,934
-------------
10,952,332
-------------
Net Assets .............................................. $ 103,585,568
=============
NET ASSETS CONSIST OF:
Capital paid in ......................................... $ 117,070,394
Undistributed net investment income ..................... 42,487
Accumulated net realized loss on
investments and foreign
currency transactions ................................. (10,950,469)
Net unrealized depreciation on
investments and translation of
assets and liabilities in
foreign currencies (Note 3) ........................... (2,576,844)
-------------
$ 103,585,568
=============
Investor Class
Net assets .............................................. $ 102,769,436
Shares outstanding ...................................... 10,155,091
Net asset value per share ............................... $ 10.12
Advisor Class
Net assets .............................................. $ 816,132
Shares outstanding ...................................... 80,725
Net asset value per share ............................... $ 10.11
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.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest (net of foreign taxes
withheld of $12,829) ................................... $ 2,448,558
------------
Expenses (Note 2):
Management fees .......................................... 445,506
Distribution fees ........................................ 1,065
Service fees ............................................. 1,065
Trustees' fees and expenses .............................. 15,156
------------
462,792
------------
Net investment income .................................... 1,985,766
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
(NOTE 3) Net realized loss on:
Investments .............................................. (2,038,405)
Foreign currency transactions ............................ (8,312,126)
------------
(10,350,531)
------------
Change in net unrealized
depreciation on:
Investments .............................................. 2,553,978
Translation of assets and liabilities
in foreign currencies .................................. 3,165,853
------------
5,719,831
------------
Net realized and unrealized loss on
investments and foreign currency ....................... (4,630,700)
------------
Net Decrease in Net Assets
Resulting from Operations .............................. $ (2,644,934)
============
10 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement 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.
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1999
Decrease in Net Assets 2000 1999
OPERATIONS
<S> <C> <C>
Net investment income ............................. $ 1,985,766 $ 4,354,584
Net realized loss on investments and
foreign currency transactions ................... (10,350,531) (4,306,086)
Change in net unrealized depreciation
on investments and
translation of assets and
liabilities in foreign currencies ............... 5,719,831 (15,745,010)
------------- -------------
Net decrease in net assets
resulting from operations ....................... (2,644,934) (15,696,512)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class .................................. (1,117,380) (5,282,666)
Advisor Class ................................... (6,964) (5,126)
From net realized gains on investment transactions:
Investor Class .................................. (638,604) --
Advisor Class ................................... (5,102) --
In excess of net realized gains on investments:
Investor Class .................................. -- (2,487,639)
Advisor Class ................................... -- (1,585)
------------- -------------
Decrease in net assets from distributions ......... (1,768,050) (7,777,016)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net decrease in net assets
from capital share transactions ................. (5,696,420) (20,276,787)
------------- -------------
Net decrease in net assets ........................ (10,109,404) (43,750,315)
NET ASSETS
Beginning of period ............................... 113,694,972 157,445,287
------------- -------------
End of period ..................................... $ 103,585,568 $ 113,694,972
============= =============
Accumulated undistributed
net investment income (loss) .................... $ 42,487 $ (818,935)
============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 11
Notes to Financial Statements
--------------------------------------------------------------------------------
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century International Bond Funds (the trust) is
registered under the Investment Company Act of 1940 (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 collateral, represented by securities, received 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 the value, including accrued interest, of the securities
under each repurchase agreement is equal to or 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 a distributor of
the trust. Certain officers of FDI are also officers of the trust.
12 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with ACIM, under which
ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. Expenses excluded from
the agreement are brokerage commissions, taxes, interest, expenses of those
trustees who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses. The fee is calculated daily
and paid monthly. It consists of an Investment Category Fee based on the average
net assets of the funds in a specific fund's investment category and a Complex
Fee based on the average net assets of all the funds managed by ACIM. The rates
for the Investment Category Fee range from 0.4925% to 0.6100% and the rates for
the Complex Fee (Investor Class) range from 0.2900% to 0.3100%. The Advisor
Class is 0.2500% less at each point within the Complex Fee range. For the six
months ended June 30, 2000, the effective annual Investor Class management fee
was 0.86%.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the 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 six months ended June 30, 2000 were $2,130.
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. JPMIM is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated, an equity investor in American Century Companies, Inc.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the corporation.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments, totaled
$139,074,864 and $143,170,686, respectively. On June 30, 2000, accumulated net
unrealized depreciation was $2,801,514, based on the aggregate cost of
investments for federal income tax purposes of $104,412,755, which consisted of
unrealized appreciation of $793,375 and unrealized depreciation of $3,594,889.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
The trust has an unlimited number of shares authorized. Transactions in
shares of the fund were as follows:
SHARES AMOUNT
INVESTOR CLASS
Six months ended June 30, 2000
Sold ....................................... 2,889,253 $ 29,350,273
Issued in reinvestment of distributions .... 158,913 1,617,481
Redeemed ................................... (3,605,305) (36,786,731)
------------ ------------
Net decrease ............................... (557,139) $ (5,818,977)
============ ============
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)
============ ============
ADVISOR CLASS
Six months ended June 30, 2000
Sold ....................................... 24,767 $ 254,984
Issued in reinvestment of distributions .... 968 9,835
Redeemed ................................... (14,070) (142,262)
------------ ------------
Net increase ............................... 11,665 $ 122,557
============ ============
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
============ ============
--------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
six months ended June 30, 2000.
14 1-800-345-2021
International Bond--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
Investor Class
2000(1) 1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................$ 10.55 $ 12.44 $ 10.92 $ 11.79 $ 11.95 $ 10.36
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.20(2) 0.36(2) 0.47(2) 0.65 0.69 0.61
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ........................ (0.46) (1.62) 1.47 (1.34) 0.03 1.88
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations .... (0.26) (1.26) 1.94 (0.69) 0.72 2.49
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (0.11) (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 ............. (0.06) -- (0.25) (0.14) (0.15) --
In Excess of Net Realized Gains
on Investments ...................... -- (0.02) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ................. (0.17) (0.63) (0.42) (0.18) (0.88) (0.90)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........$ 10.12 $ 10.55 $ 12.44 $ 10.92 $ 11.79 $ 11.95
=========== =========== =========== =========== =========== ===========
Total Return(3) ..................... (2.45)% (10.36)% 17.87% (5.88)% 6.38% 24.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.88%(4) 0.85% 0.84% 0.84% 0.83% 0.82%
Ratio of Net Investment Income
to Average Net Assets ................. 3.88%(4) 3.27% 4.11% 4.82% 5.48% 6.14%
Portfolio Turnover Rate ............... 143% 239% 322% 163% 242% 167%
Net Assets, End of Period
(in thousands) ........................$ 102,769 $ 112,968 $ 157,412 $ 165,731 $ 252,456 $ 252,247
</TABLE>
(1) Six months ended June 30, 2000 (unaudited).
(2) Calculated using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 15
<TABLE>
<CAPTION>
International Bond--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
Advisor Class
2000(1) 1999 1998(2)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 10.52 $ 12.44 $ 12.50
------- ------- -------
Income From Investment Operations
Net Investment Income(3) ............. 0.18 0.45 0.08
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .... (0.44) (1.74) 0.19
------- ------- -------
Total From Investment Operations ..... (0.26) (1.29) 0.27
------- ------- -------
Distributions
From Net Investment Income ........... (0.09) (0.43) (0.17)
From Net Realized Gains on
Investment Transactions .............. (0.06) -- (0.16)
In Excess of Net Realized
Gains on Investments ................. -- (0.20) --
------- ------- -------
Total Distributions .................. (0.15) (0.63) (0.33)
------- ------- -------
Net Asset Value, End of Period ......... $ 10.11 $ 10.52 $ 12.44
======= ======= =======
Total Return(4) ...................... (2.51)% (10.61)% 2.12%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 1.13%(5) 1.10% 1.08%(5)
Ratio of Net Investment Income
to Average Net Assets .................. 3.63%(5) 3.02% 3.71%(5)
Portfolio Turnover Rate ................ 143% 239% 322%
Net Assets, End of Period
(in thousands) ....................... $ 816 $ 727 $ 34
</TABLE>
(1) Six months ended June 30, 2000 (unaudited).
(2) October 27, 1998 (commencement of sale) through December 31, 1998.
(3) Calculated using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
16 1-800-345-2021 See Notes to Financial Statements
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
INVESTOR CLASS shareholders do not pay any commissions or other fees for
purchase of fund shares directly from American Century. Investors who buy
Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
ADVISOR CLASS shares are sold through banks, broker-dealers, insurance
companies and financial advisors. Advisor Class shares are subject to a 0.50%
Rule 12b-1 service and distribution fee. Half of that fee is available to pay
for recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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.
www.americancentury.com 17
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.
[left margin]
INVESTMENT TEAM LEADERS
Portfolio Managers
DAVID M. GIBBON (J.P. MORGAN)
DOMINIC PEGLER (J.P. MORGAN)
DAVE SCHROEDER
18 1-800-345-2021
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 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.
www.americancentury.com 19
Glossary
--------------------------------------------------------------------------------
(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.
20 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 Technology International Discovery
Giftrust(reg.tm) Life Sciences 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 and text 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 QUANTITATIVE EQUITY 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0008 American Century Investment Services, Inc.
SH-SAN-21706 (c)2000 American Century Services Corporation
