UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6441
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AMERICAN CENTURY INTERNATIONAL BOND FUNDS
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
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(Address of principal executive offices) (Zip code)
DAVID C. TUCKER, ESQ., 4500 MAIN STREET, 9TH FLOOR, KANSAS CITY, MISSOURI 64111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 816-531-5575
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Date of fiscal year end: 12-31
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Date of reporting period: 6-30-2006
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ITEM 1. REPORTS TO STOCKHOLDERS.
American Century Investments
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2006
International Bond Fund
[american century investments logo and text logo]
Table of Contents
Our Message to You. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Six-Month Returns for the U.S. Dollar . . . . . . . . . . . . . . . . . 2
INTERNATIONAL BOND
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 5
Bond Holdings by Country . . . . . . . . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .14
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .15
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .16
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .17
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
OTHER INFORMATION
Approval of Management Agreement for International Bond . . . . . . . . . .25
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . .30
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . .31
Index Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report, and
do not necessarily represent the opinions of American Century or any other
person in the American Century organization. Any such opinions are subject to
change at any time based upon market or other conditions and American Century
disclaims any responsibility to update such opinions. These opinions may not be
relied upon as investment advice and, because investment decisions made by
American Century funds are based on numerous factors, may not be relied upon as
an indication of trading intent on behalf of any American Century fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century by third
party vendors. To the best of American Century's knowledge, such information is
accurate at the time of printing.
Our Message to You
[photo of James E. Stowers III and James E. Stowers, Jr.]
JAMES E. STOWERS III WITH JAMES E. STOWERS, JR.
We are pleased to provide you with the semiannual report for the American
Century International Bond Fund for the six months ended June 30, 2006. We hope
you find this information helpful in monitoring your investment. Another useful
resource we offer is our Web site, americancentury.com, where we post quarterly
portfolio commentaries, the views of our senior investment officers, and other
communications about investments, portfolio strategy, and the markets.
Our Web site presents American Century's recently-announced strategic
collaboration with Lance Armstrong and the Lance Armstrong Foundation (LAF). Our
new campaign, featuring Lance, is designed to encourage investors to take a more
active role in planning their financial futures and make every investment
decision count.
American Century's collaboration with Lance Armstrong and the LAF is a perfect
fit. Like members of our family, Lance is a cancer survivor and shares our
values of optimism, focus, and determination. In addition, Lance and our family
have dedicated our success to improving lives, through the LAF and the Stowers
Institute for Medical Research, respectively. To learn more about American
Century's collaboration with Lance Armstrong and the LAF, please visit
www.lanceface.com on the Web and click on the links to related sites.
Besides the exciting new collaboration, we've enjoyed other good news -- in
January, American Century was named, for the seventh consecutive year, one of
FORTUNE magazine's 100 Best Companies to Work For in America. Fostering a
positive work environment can benefit fund investors as well as our company --
it helps us continue to attract and retain talented people.
As always, we deeply appreciate your investment with American Century
Investments.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
FOUNDER
AMERICAN CENTURY COMPANIES, INC.
/s/James E. Stowers III
James E. Stowers III
CHAIRMAN OF THE BOARD
AMERICAN CENTURY COMPANIES, INC.
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1
Market Perspective
[photo of chief investment officer]
BY DAVID MACEWEN, CHIEF INVESTMENT OFFICER, FIXED INCOME
GLOBAL ECONOMIC EXPANSION CONTINUED
Global economic growth continued during the six months ended June 30, 2006. In
Europe, growth was bolstered by strong global demand for European goods.
Increased capital spending by companies worldwide resulted in strong order flows
for manufacturers on the Continent. European companies also benefited from a
changing relationship with labor, as many businesses worked with labor unions to
control costs and increase productivity. Inflation in the euro zone continued to
creep higher, causing the European Central Bank to raise short-term interest
rates twice during the period.
Meanwhile, the Bank of England (BoE) left short rates unchanged on expectations
of moderate growth in the coming months. However, the BoE also expects rising
energy prices to boost inflation in the UK above its 2% target rate this year.
In Japan, economic recovery continued. The country's level of industrial
production was 4.2% higher in May 2006 than a year earlier, while consumer
prices rose 0.6% by May 2006 from a year earlier. After years of deflation, it
was widely anticipated that the Bank of Japan would soon end the country's
zero-interest-rate policy.
DOLLAR WEAKNESS OFFSETS FOREIGN BOND LOSSES
This overall combination of healthy growth and inflation fears pushed foreign
bond yields up and prices down overall. Government bond returns in Europe and
the U.K. were negative in local currency terms, and Japanese bonds also finished
in the red. But a weaker dollar boosted foreign bond returns for U.S. investors.
Early in 2006, it was widely anticipated that the Federal Reserve's U.S.
interest rate hikes were nearing an end, while rate hikes in other parts of the
world were just beginning. This caused foreign currencies to jump versus the
U.S. dollar. The greenback fell -7.37% versus the euro and -2.83% versus the
Japanese yen.
SIX-MONTH RETURNS FOR THE U.S. DOLLAR
AS OF JUNE 30, 2006(1)
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U.S. Dollar vs. the Euro -7.37%
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U.S. Dollar vs. the Japanese Yen -2.83%
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(1) Total returns for periods less than one year are not annualized.
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2
International Bond - Performance
TOTAL RETURNS AS OF JUNE 30, 2006
--------------------------------
AVERAGE ANNUAL RETURNS
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SINCE INCEPTION
6 MONTHS(1) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
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INVESTOR CLASS 3.54% 0.74% 11.07% 5.21% 6.45% 1/7/92
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FUND BENCHMARK(2) 4.79% 1.94% 12.41% 6.11% 6.98%(3) --
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J.P. MORGAN GLOBAL
TRADED GOVERNMENT
BOND INDEX 2.59% -0.58% 8.41% 5.56% 6.25%(3) --
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Institutional Class 3.58% 0.94% -- -- 5.05% 8/2/04
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Advisor Class 3.41% 0.49% 10.80% -- 4.39% 10/27/98
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(1) Total returns for periods less than one year are not annualized.
(2) See Index Definition page.
(3) Since 12/31/91, the date nearest the Investor Class's inception for which
data are available.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
International investing involves special risks, such as political instability
and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. Returns for the index
are provided for comparison. From the fund's inception to December 31, 1997, the
fund benchmark was the J.P. Morgan ECU-Weighted European Index. Since January 1,
1998, the fund benchmark has been the J.P. Morgan Global Traded Government Bond
Index (excluding the U.S. and with Japan weighted at 15%). The fund's total
returns include operating expenses (such as transaction costs and management
fees) that reduce returns, while the total returns of the index do not.
(continued)
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3
International Bond - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made June 30, 1996
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended June 30
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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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Investor Class 0.37% 4.40% 2.76% -2.64% -6.23% 18.64% 22.17% 6.93% 8.30% 0.74%
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Fund benchmark 0.24% 4.68% 3.42% -1.18% -5.97% 19.78% 24.06% 7.90% 9.81% 1.94%
- -----------------------------------------------------------------------------------------------
J.P. Morgan Global
Traded Government
Bond Index 4.48% 5.87% 3.63% 2.70% -2.55% 13.73% 16.57% 5.36% 7.82% -0.58%
- -----------------------------------------------------------------------------------------------
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-2021 or visit
americancentury.com. As interest rates rise, bond values will decline.
International investing involves special risks, such as political instability
and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares;
performance for other share classes will vary due to differences in fee
structure. For information about other share classes available, please consult
the prospectus. Data assumes reinvestment of dividends and capital gains, and
none of the charts reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. Returns for the index
are provided for comparison. From the fund's inception to December 31, 1997, the
fund benchmark was the J.P. Morgan ECU-Weighted European Index. Since January 1,
1998, the fund benchmark has been the J.P. Morgan Global Traded Government Bond
Index (excluding the U.S. and with Japan weighted at 15%). The fund's total
returns include operating expenses (such as transaction costs and management
fees) that reduce returns, while the total returns of the index do not.
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4
International Bond - Portfolio Commentary
PORTFOLIO TEAM LEADER: JULIAN LE BERON
PERFORMANCE SUMMARY
International Bond returned 3.54%* for the six months ended June 30, 2006. By
comparison, the J.P. Morgan Global Traded Government Bond Index returned 2.59%,
while that index with the U.S. excluded and Japan weighted at 15% returned
4.79%. It's worth noting, however, that the returns of those indices are not
reduced by expenses.
We highlight some of the economic and market factors that influenced
International Bond's performance in the section that immediately follows, while
a more detailed discussion can be found in the Market Perspective (page 2). The
Portfolio Positioning & Strategy section talks about our efforts in that
environment.
ECONOMIC, BOND, AND CURRENCY MARKET HIGHLIGHTS
Solid worldwide economic activity, including better prospects in the euro zone
and robust growth in Japan, set the stage for globally rising interest rates
that weighed on overseas bond returns. Quantifying those bond-market
performances in local-currency terms, benchmark indices within the euro zone
returned roughly -2.7%, while indices for Japan and the United Kingdom (U.K.)
returned approximately -1.8% and -1.9%, respectively.
On the currency front, the U.S. dollar depreciated over the six months amid
forecasts of slowing economic growth, increased near-term inflation pressures,
and growing expectations that an end to the Federal Reserve's interest-rate
raising campaign was close at hand. As a result, the U.S. dollar fell by
approximately -7.3% versus the euro, -6.8% versus the pound sterling, and -2.8%
versus the yen.
So for overseas bond investors with unhedged currency exposure, local-currency
bond losses were more than offset by U.S. dollar weakness.
PORTFOLIO POSITIONING & STRATEGY
With regard to the strategies that we employed for the portfolio, we continued
to use the forward currency market to adjust International Bond's
foreign-exchange positions. For the six months, the fund maintained a
conservative overweight in the U.S. dollar. We adopted that strategy due to
expectations that
PORTFOLIO AT A GLANCE
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AS OF AS OF
6/30/06 12/31/05
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Weighted Average
Maturity 9.0 years 8.3 years
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Average Duration
(Modified) 5.9 years 6.0 years
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TYPES OF INVESTMENTS IN PORTFOLIO
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% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/06 12/31/05
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Government Bonds 61.1% 60.8%
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Credit 35.9% 31.2%
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Short-Term Investments 3.9% 4.3%
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Temporary Cash
Investments 0.1% 0.6%
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Other Assets
and Liabilities (1.0)% 3.1%
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*All fund returns referenced in this commentary
are for Investor Class shares.
Total returns for periods less than one year are not annualized. (continued)
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5
International Bond - Portfolio Commentary
globally rising interest rates would lead to increased risk aversion by
investors, thereby propping up demand for U.S. Treasury bonds -- which offered a
yield advantage over most overseas alternatives -- and the dollars needed to buy
them. Although the conservative dollar overweight didn't work out as well as we
had hoped, tactically overweighting the pound sterling -- a solid performer
relative to the U.S. dollar -- during several key points generated far better
results.
In addition, increased economic prosperity and gathering inflation pressures in
the euro zone convinced the European Central Bank (ECB) to raise short-term
interest rates in December 2005, marking the first rate increase since October
2000. This led us to expect that short-term bond yields in the euro zone would
rise in anticipation of additional increases in 2006 even as ongoing demand for
longer-dated securities anchored long-term bond yields.
So we established a position designed to benefit from a flattening European bond
yield curve (a graph of the relationship between bond maturities and yields). By
the second quarter, with interest rates and short-term bond yields firmly on the
rise and in our estimation likely to continue along that course, we
underweighted both short- and intermediate-term bonds while holding onto our
longer-term securities.
Lastly, we kept part of the portfolio in non-government bonds -- an overweight
compared with the J.P. Morgan Global Traded Government Bond Index, with the U.S.
excluded and Japan weighted at 15% -- primarily emphasizing high-credit-quality
mortgage-backed securities.
INTERNATIONAL BOND'S PLACE IN YOUR PORTFOLIO
International Bond is designed to serve as a specialty bond holding, rather than
as a core part of an investor's portfolio. The fund offers high overall credit
quality due to the nature of the bonds selected for the portfolio in addition to
the benefits of diversifying into overseas currencies. But because currency
exchange rates fluctuate, sometimes significantly, this directly impacts the
value of the portfolio's bonds and income stream once translated back into U.S.
dollars. As a result, International Bond is not managed to generate steady
current income, does not pay monthly dividends, and may not regularly distribute
dividends on a quarterly basis.
BOND HOLDINGS BY COUNTRY
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% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/06 12/31/05
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France* 28.5% 24.5%
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Germany* 19.5% 27.3%
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Japan 10.6% 9.0%
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Spain* 9.9% 6.1%
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United Kingdom 8.0% 9.5%
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Multi-National 6.8% 3.4%
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Finland* 4.2% --
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Italy* 4.0% 4.6%
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Canada 3.7% 0.4%
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Belgium* 2.6% 5.2%
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Denmark 1.3% 0.7%
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Ireland* 1.0% --
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Australia 0.8% 0.9%
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Netherlands* -- 4.7%
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Cash and equivalents** (0.9)% 3.7%
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* These countries are members of the euro zone.
** Includes temporary cash investments and other assets and liabilities.
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6
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2006 to June 30, 2006.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century fund, or Institutional
Class shares of the American Century Diversified Bond Fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
American Century may charge you a $12.50 semiannual account maintenance fee if
the value of those shares is less than $10,000. We will redeem shares
automatically in one of your accounts to pay the $12.50 fee. In determining your
total eligible investment amount, we will include your investments in all
PERSONAL ACCOUNTS (including American Century Brokerage accounts) registered
under your Social Security number. PERSONAL ACCOUNTS include individual
accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell
Education Savings Accounts and IRAs (including traditional, Roth, Rollover,
SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you
have only business, business retirement, employer-sponsored or American Century
Brokerage accounts, you are currently not subject to this fee. We will not
charge the fee as long as you choose to manage your accounts exclusively online.
If you are subject to the Account Maintenance Fee, your account value could be
reduced by the fee amount.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
(continued)
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7
Shareholder Fee Example (Unaudited)
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
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EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/06 - EXPENSE
1/1/06 6/30/06 6/30/06 RATIO*
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INTERNATIONAL BOND SHAREHOLDER FEE EXAMPLE
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ACTUAL
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Investor Class $1,000 $1,035.40 $4.14 0.82%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,035.80 $3.13 0.62%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,034.10 $5.40 1.07%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Investor Class $1,000 $1,020.73 $4.11 0.82%
- --------------------------------------------------------------------------------
Institutional Class $1,000 $1,021.72 $3.11 0.62%
- --------------------------------------------------------------------------------
Advisor Class $1,000 $1,019.49 $5.36 1.07%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365,
to reflect the one-half year period.
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8
International Bond - Schedule of Investments
JUNE 30, 2006 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
GOVERNMENT BONDS -- 61.1%
AUSTRALIA -- 0.8%
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AUD 13,100,000 Australia
Commonwealth,
7.50%, 9/15/09 $ 10,221,132
- --------------------------------------------------------------------------------
BELGIUM -- 2.6%
- --------------------------------------------------------------------------------
Euro 18,775,000 Kingdom of Belgium,
5.00%, 9/28/11 25,275,589
- --------------------------------------------------------------------------------
Euro 4,550,000 Kingdom of Belgium,
8.00%, 3/28/15 7,491,593
- --------------------------------------------------------------------------------
32,767,182
- --------------------------------------------------------------------------------
CANADA -- 3.7%
- --------------------------------------------------------------------------------
Euro 3,500,000 Government of Canada,
4.875%, 7/7/08 4,583,643
- --------------------------------------------------------------------------------
CAD 25,300,000 Government of Canada,
4.00%, 9/1/10 22,309,228
- --------------------------------------------------------------------------------
CAD 7,920,000 Government of Canada,
5.00%, 6/1/14 7,291,120
- --------------------------------------------------------------------------------
CAD 12,250,000 Government of Canada,
5.75%, 6/1/33 12,875,409
- --------------------------------------------------------------------------------
47,059,400
- --------------------------------------------------------------------------------
DENMARK -- 1.3%
- --------------------------------------------------------------------------------
DKK 87,000,000 Kingdom of Denmark,
6.00%, 11/15/09 15,934,615
- --------------------------------------------------------------------------------
FINLAND -- 4.2%
- --------------------------------------------------------------------------------
Euro 40,000,000 Government of Finland,
5.00%, 4/25/09 52,940,051
- --------------------------------------------------------------------------------
FRANCE -- 20.5%
- --------------------------------------------------------------------------------
Euro 40,200,000 Government of France,
3.00%, 1/12/11 49,645,357
- --------------------------------------------------------------------------------
Euro 38,300,000 Government of France,
3.50%, 4/25/15 47,033,477
- --------------------------------------------------------------------------------
Euro 58,250,000 Government of France,
3.25%, 4/25/16 69,548,759
- --------------------------------------------------------------------------------
Euro 18,800,000 Government of France,
5.00%, 10/25/16 25,873,580
- --------------------------------------------------------------------------------
Euro 15,000,000 Government of France,
8.50%, 4/25/23 28,908,777
- --------------------------------------------------------------------------------
Euro 14,050,000 Government of France,
5.50%, 4/25/29 20,987,625
- --------------------------------------------------------------------------------
Euro 12,400,000 Government of France,
4.75%, 4/25/35 16,895,249
- --------------------------------------------------------------------------------
258,892,824
- --------------------------------------------------------------------------------
GERMANY -- 11.5%
- --------------------------------------------------------------------------------
Euro 37,800,000 German Federal
Republic, 3.25%,
4/9/10 47,453,852
- --------------------------------------------------------------------------------
Euro 9,750,000 German Federal
Republic, 3.50%,
1/4/16 11,934,979
- --------------------------------------------------------------------------------
Euro 4,300,000 German Federal
Republic, 6.25%,
1/4/24 6,838,082
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
Euro 17,940,000 German Federal
Republic, 5.625%,
1/4/28 $ 27,060,835
- --------------------------------------------------------------------------------
Euro 38,680,000 German Federal
Republic, 4.75%,
7/4/34 52,820,324
- --------------------------------------------------------------------------------
146,108,072
- --------------------------------------------------------------------------------
ITALY -- 4.0%
- --------------------------------------------------------------------------------
Euro 29,090,000 Republic of Italy,
7.25%, 11/1/26 50,210,986
- --------------------------------------------------------------------------------
JAPAN -- 9.7%
- --------------------------------------------------------------------------------
JPY 3,860,150,000 Government of Japan,
0.20%, 9/20/07 33,553,446
- --------------------------------------------------------------------------------
JPY 2,738,100,000 Government of Japan,
0.80%, 6/20/09 23,761,255
- --------------------------------------------------------------------------------
JPY 2,630,000,000 Government of Japan,
0.80%, 9/20/10 22,527,756
- --------------------------------------------------------------------------------
JPY 3,926,300,000 Government of Japan,
1.30%, 3/20/15 32,805,175
- --------------------------------------------------------------------------------
JPY 1,114,000,000 Government of Japan,
2.50%, 9/20/35 9,713,058
- --------------------------------------------------------------------------------
122,360,690
- --------------------------------------------------------------------------------
UNITED KINGDOM -- 2.8%
- --------------------------------------------------------------------------------
GBP 10,200,000 Government of
United Kingdom,
4.75%, 9/7/15 18,880,681
- --------------------------------------------------------------------------------
GBP 6,800,000 Government of
United Kingdom,
8.00%, 6/7/21 17,030,817
- --------------------------------------------------------------------------------
35,911,498
- --------------------------------------------------------------------------------
TOTAL GOVERNMENT BONDS
(Cost $755,442,799) 772,406,450
- --------------------------------------------------------------------------------
CREDIT -- 35.9%
FRANCE -- 8.0%
- --------------------------------------------------------------------------------
Euro 28,050,000 Cie Financement Foncier,
3.625%, 1/28/08 35,895,426
- --------------------------------------------------------------------------------
JPY 2,045,000,000 Cie Financement Foncier,
0.60%, 3/23/10 17,452,983
- --------------------------------------------------------------------------------
Euro 37,900,000 Dexia Municipal Agency,
3.25%, 7/12/08 48,053,010
- --------------------------------------------------------------------------------
101,401,419
- --------------------------------------------------------------------------------
GERMANY -- 8.0%
- --------------------------------------------------------------------------------
Euro 43,400,000 DEPFA Deutsche
Pfandbriefbank AG,
(Covered Bond),
5.50%, 2/12/08 57,135,986
- --------------------------------------------------------------------------------
Euro 22,150,000 Eurohypo AG,
(Covered Bond),
3.75%, 4/11/11 28,029,208
- --------------------------------------------------------------------------------
JPY 1,800,000,000 KFW, 1.85%, 9/20/10 16,072,825
- --------------------------------------------------------------------------------
101,238,019
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
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9
International Bond - Schedule of Investments
JUNE 30, 2006 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
IRELAND -- 1.0%
- --------------------------------------------------------------------------------
Euro 10,000,000 Ulster Bank Finance
plc, VRN, 3.13%,
9/29/06, resets
quarterly off the
3-month Euribor plus
0.09% with no caps $ 12,793,325
- --------------------------------------------------------------------------------
JAPAN -- 0.9%
- --------------------------------------------------------------------------------
JPY 1,280,000,000 Development
Bank of Japan,
2.30%, 3/19/26 10,891,646
- --------------------------------------------------------------------------------
MULTI-NATIONAL -- 2.9%
- --------------------------------------------------------------------------------
GBP 20,150,000 European Investment
Bank, 4.75%, 6/6/12 36,597,465
- --------------------------------------------------------------------------------
SPAIN -- 9.9%
- --------------------------------------------------------------------------------
Euro 41,200,000 AYT Cedulas Cajas VII,
4.00%, 6/23/11 52,606,465
- --------------------------------------------------------------------------------
Euro 42,000,000 Banco Bilbao Vizcaya,
4.25%, 9/26/07 54,150,871
- --------------------------------------------------------------------------------
Euro 4,806,369 FTA Santander Auto,
VRN, 2.96%, 8/25/06,
resets quarterly
off the 3-month
Euribor plus 0.06%
with no caps 6,141,189
- --------------------------------------------------------------------------------
Euro 9,500,000 UCI, VRN, 3.05%,
9/18/06, resets quarterly
off the 3-month
Euribor plus 0.14%
with no caps 12,144,403
- --------------------------------------------------------------------------------
125,042,928
- --------------------------------------------------------------------------------
UNITED KINGDOM -- 5.2%
- --------------------------------------------------------------------------------
Euro 10,000,000 Barclays Bank plc, VRN,
2.94%, 7/20/06, resets
quarterly off the
3-month Euribor plus
0.18% with no caps 12,761,847
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
Euro 10,000,000 HBOS Treasury
Services plc, VRN,
3.05%, 9/14/06, resets
quarterly off the
3-month Euribor plus
0.10% with no caps $ 12,800,088
- --------------------------------------------------------------------------------
GBP 10,000,000 Network Rail MTN
Finance plc,
4.875%, 3/6/09 18,420,831
- --------------------------------------------------------------------------------
GBP 11,300,000 Network Rail MTN
Finance plc,
4.75%, 11/29/35 21,447,896
- --------------------------------------------------------------------------------
65,430,662
- --------------------------------------------------------------------------------
TOTAL CREDIT
(Cost $444,386,621) 453,395,464
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 3.9%
MULTI-NATIONAL -- 3.9%
- --------------------------------------------------------------------------------
Euro 39,000,000 IXIS Corp.,
2.67%, 7/3/06
(Cost $49,629,167) 49,855,824
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.1%
USD 646,000 FHLB Discount Notes,
4.90%, 7/3/06(1)
(Cost $645,824) 645,824
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 101.0%
(Cost $1,250,104,411) 1,276,303,562
- --------------------------------------------------------------------------------
OTHER ASSETS
AND LIABILITIES -- (1.0)% (12,971,751)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $1,263,331,811
================================================================================
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Contracts Purchased Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
1,316 Canada 10-year
6% Bond Futures September 2006 $129,933,581 $200,205
=================================
Expiration Underlying Face Unrealized
Contracts Sold Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
366 Euro- Bobl 5-year
6% Futures September 2006 $ 51,057,949 $ 42,115
- --------------------------------------------------------------------------------
789 Euro- Bund 10-year
6% Futures September 2006 116,332,044 70,614
- --------------------------------------------------------------------------------
$167,389,993 $112,729
=================================
See Notes to Financial Statements. (continued)
- ------
10
International Bond - Schedule of Investments
JUNE 30, 2006 (UNAUDITED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
- --------------------------------------------------------------------------------------------
1,829,433 CAD for AUD 07/28/06 $ 1,639,003 $ (22,741)
- --------------------------------------------------------------------------------------------
1,735,562 Euro for AUD 07/28/06 2,221,976 (35,077)
- --------------------------------------------------------------------------------------------
1,790,735 Euro for AUD 07/28/06 2,292,612 (25,584)
- --------------------------------------------------------------------------------------------
4,519,823 AUD for CAD 07/28/06 3,353,814 (21,240)
- --------------------------------------------------------------------------------------------
250,149,546 JPY for CAD 07/28/06 2,194,532 22,743
- --------------------------------------------------------------------------------------------
248,506,258 JPY for CAD 07/28/06 2,180,116 59,266
- --------------------------------------------------------------------------------------------
411,759,887 JPY for CAD 07/28/06 3,612,321 122,379
- --------------------------------------------------------------------------------------------
413,997,641 JPY for CAD 07/28/06 3,631,952 76,187
- --------------------------------------------------------------------------------------------
1,477,813 AUD for Euro 07/28/06 1,096,572 (32,172)
- --------------------------------------------------------------------------------------------
5,053,748 AUD for Euro 07/28/06 3,749,999 (12,866)
- --------------------------------------------------------------------------------------------
203,597,066 JPY for Euro 07/28/06 1,786,133 (18,392)
- --------------------------------------------------------------------------------------------
203,175,236 JPY for Euro 07/28/06 1,782,432 (5,766)
- --------------------------------------------------------------------------------------------
3,514,654 NZD for Euro 07/28/06 2,131,110 50,769
- --------------------------------------------------------------------------------------------
16,390,291 SEK for Euro 07/28/06 2,281,618 529
- --------------------------------------------------------------------------------------------
4,270,231 Euro for GBP 07/28/06 5,467,020 38,372
- --------------------------------------------------------------------------------------------
747,386,640 JPY for GBP 07/28/06 6,556,735 (26,576)
- --------------------------------------------------------------------------------------------
4,859,049 CAD for JPY 07/28/06 4,353,259 66,702
- --------------------------------------------------------------------------------------------
2,735,325 Euro for JPY 07/28/06 3,501,937 4,151
- --------------------------------------------------------------------------------------------
2,735,000 Euro for JPY 07/28/06 3,501,520 15,108
- --------------------------------------------------------------------------------------------
1,755,000 Euro for NZD 07/28/06 2,246,862 (20,336)
- --------------------------------------------------------------------------------------------
12,362,575 AUD for USD 07/28/06 9,173,319 149,917
- --------------------------------------------------------------------------------------------
25,341,000 CAD for USD 07/28/06 22,703,192 179,312
- --------------------------------------------------------------------------------------------
26,000,000 CAD for USD 07/28/06 23,293,595 105,060
- --------------------------------------------------------------------------------------------
31,975,873 CAD for USD 07/28/06 28,647,424 (89,123)
- --------------------------------------------------------------------------------------------
24,474,477 DKK for USD 07/28/06 4,201,653 30,679
- --------------------------------------------------------------------------------------------
49,931,170 DKK for USD 07/28/06 8,571,929 (121,908)
- --------------------------------------------------------------------------------------------
2,000,000 Euro for USD 07/28/06 2,560,527 (41,215)
- --------------------------------------------------------------------------------------------
2,726,395 Euro for USD 07/28/06 3,490,503 3,535
- --------------------------------------------------------------------------------------------
3,426,235 Euro for USD 07/28/06 4,386,482 (525)
- --------------------------------------------------------------------------------------------
6,000,000 Euro for USD 07/28/06 7,681,580 35,536
- --------------------------------------------------------------------------------------------
31,000,000 Euro for USD 07/28/06 39,688,163 (384,255)
- --------------------------------------------------------------------------------------------
68,536,410 Euro for USD 07/28/06 87,744,652 1,391,084
- --------------------------------------------------------------------------------------------
1,175,000 GBP for USD 07/28/06 2,171,075 46,033
- --------------------------------------------------------------------------------------------
1,376,130 GBP for USD 07/28/06 2,542,708 (3,252)
- --------------------------------------------------------------------------------------------
1,642,211 GBP for USD 07/28/06 3,034,352 (42,058)
- --------------------------------------------------------------------------------------------
2,813,805 GBP for USD 07/28/06 5,199,133 109,025
- --------------------------------------------------------------------------------------------
3,011,970 GBP for USD 07/28/06 5,565,288 15,140
- --------------------------------------------------------------------------------------------
201,875,863 JPY for USD 07/28/06 1,771,033 (30,854)
- --------------------------------------------------------------------------------------------
707,427,743 JPY for USD 07/28/06 6,206,180 (57,021)
- --------------------------------------------------------------------------------------------
9,842,109 SGD for USD 07/28/06 6,224,691 (19,739)
- --------------------------------------------------------------------------------------------
$334,439,002 $1,510,827
===========================================
(Value on Settlement Date $335,949,829)
See Notes to Financial Statements. (continued)
- ------
11
International Bond - Schedule of Investments
JUNE 30, 2006 (UNAUDITED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Contracts to Buy Settlement Date Value Unrealized Gain (Loss)
- --------------------------------------------------------------------------------------------
2,165,000 AUD for CAD 7/28/06 $ 1,606,481 $ (9,781)
- --------------------------------------------------------------------------------------------
2,973,903 AUD for Euro 7/28/06 2,206,705 19,806
- --------------------------------------------------------------------------------------------
3,066,952 AUD for Euro 7/28/06 2,275,750 8,722
- --------------------------------------------------------------------------------------------
3,701,441 CAD for AUD 7/28/06 3,316,149 (16,425)
- --------------------------------------------------------------------------------------------
2,457,941 CAD for JPY 7/28/06 2,202,088 (15,188)
- --------------------------------------------------------------------------------------------
2,458,000 CAD for JPY 7/28/06 2,202,141 (37,242)
- --------------------------------------------------------------------------------------------
4,123,000 CAD for JPY 7/28/06 3,693,826 (40,874)
- --------------------------------------------------------------------------------------------
4,123,741 CAD for JPY 7/28/06 3,694,491 (13,649)
- --------------------------------------------------------------------------------------------
834,964 Euro for AUD 7/28/06 1,068,974 4,574
- --------------------------------------------------------------------------------------------
2,956,618 Euro for AUD 7/28/06 3,785,250 48,117
- --------------------------------------------------------------------------------------------
1,395,820 Euro for JPY 7/28/06 1,787,017 19,276
- --------------------------------------------------------------------------------------------
1,396,000 Euro for JPY 7/28/06 1,787,248 10,581
- --------------------------------------------------------------------------------------------
1,736,000 Euro for NZD 7/28/06 2,222,537 40,658
- --------------------------------------------------------------------------------------------
1,772,000 Euro for SEK 7/28/06 2,268,627 (13,520)
- --------------------------------------------------------------------------------------------
2,933,264 GBP for Euro 7/28/06 5,419,860 (85,531)
- --------------------------------------------------------------------------------------------
3,536,000 GBP for JPY 7/28/06 6,533,550 3,391
- --------------------------------------------------------------------------------------------
493,295,560 JPY for CAD 7/28/06 4,327,624 (92,337)
- --------------------------------------------------------------------------------------------
394,822,326 JPY for Euro 7/28/06 3,463,730 (42,358)
- --------------------------------------------------------------------------------------------
395,699,800 JPY for Euro 7/28/06 3,471,428 (45,201)
- --------------------------------------------------------------------------------------------
3,540,037 NZD for Euro 7/28/06 2,146,501 (80,024)
- --------------------------------------------------------------------------------------------
1,465,000 AUD for USD 7/28/06 1,087,064 (14,909)
- --------------------------------------------------------------------------------------------
1,466,000 AUD for USD 7/28/06 1,087,806 (16,018)
- --------------------------------------------------------------------------------------------
8,772,627 AUD for USD 7/28/06 6,509,494 (100,562)
- --------------------------------------------------------------------------------------------
24,406,372 CAD for USD 7/28/06 21,865,851 8,192
- --------------------------------------------------------------------------------------------
25,200,000 CAD for USD 7/28/06 22,576,869 270
- --------------------------------------------------------------------------------------------
1,696,663 Euro for USD 7/28/06 2,172,175 11,608
- --------------------------------------------------------------------------------------------
3,434,000 Euro for USD 7/28/06 4,396,424 (33,333)
- --------------------------------------------------------------------------------------------
9,917,010 Euro for USD 7/28/06 12,696,384 190,816
- --------------------------------------------------------------------------------------------
19,995,180 Euro for USD 7/28/06 25,599,096 295,496
- --------------------------------------------------------------------------------------------
1,189,125 GBP for USD 7/28/06 2,197,174 (1,138)
- --------------------------------------------------------------------------------------------
2,349,613 GBP for USD 7/28/06 4,341,434 (72,337)
- --------------------------------------------------------------------------------------------
1,175,000 GBP for USD 7/28/06 2,171,075 (22,661)
- --------------------------------------------------------------------------------------------
23,577,350 GBP for USD 7/28/06 43,564,420 (1,002,701)
- --------------------------------------------------------------------------------------------
1,300,496 JPY for USD 7/28/06 11,409 31,389
- --------------------------------------------------------------------------------------------
210,214,317 JPY for USD 7/28/06 1,844,185 (29,351)
- --------------------------------------------------------------------------------------------
358,435,158 JPY for USD 7/28/06 3,144,509 (51,396)
- --------------------------------------------------------------------------------------------
47,077 NOK for USD 7/28/06 7,731 (33)
- --------------------------------------------------------------------------------------------
3,424,272 NZD for USD 7/28/06 2,076,307 (75,642)
- --------------------------------------------------------------------------------------------
3,510,453 NZD for USD 7/28/06 2,128,563 (58,625)
- --------------------------------------------------------------------------------------------
16,666,690 SEK for USD 7/28/06 2,320,094 23,394
- --------------------------------------------------------------------------------------------
238,814,894 SEK for USD 7/28/06 33,244,335 118,755
- --------------------------------------------------------------------------------------------
9,842,109 SGD for USD 7/28/06 6,224,691 4,170
- --------------------------------------------------------------------------------------------
$260,747,067 $(1,131,621)
===========================================
(Value on Settlement Date $261,878,688)
See Notes to Financial Statements. (continued)
- ------
12
International Bond - Schedule of Investments
JUNE 30, 2006 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS
AUD = Australian Dollar
CAD = Canadian Dollar
DKK = Danish Krone
Euribor = Euro Interbank Offered Rate
FHLB = Federal Home Loan Bank
GBP = British Pound
JPY = Japanese Yen
MTN = Medium Term Note
NOK = Norwegian Krone
NZD = New Zealand Dollar
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon
will vary significantly from current market rates.
SEK = Swedish Krona
SGD = Singapore Dollar
USD = United States Dollar
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective June 30, 2006.
(1) The rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
13
Statement of Assets and Liabilities
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $1,250,104,411) $1,276,303,562
- ------------------------------------------------------------
Foreign currency holdings, at value (cost of $2,033,769) 1,497,340
- ------------------------------------------------------------
Receivable for investments sold 33,887,009
- ------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 3,360,742
- ------------------------------------------------------------
Receivable for capital shares sold 2,131,895
- ------------------------------------------------------------
Receivable for variation margin on futures contracts 549,566
- ------------------------------------------------------------
Interest receivable 19,071,649
- --------------------------------------------------------------------------------
1,336,801,763
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash 127,633
- ------------------------------------------------------------
Payable for investments purchased 68,444,489
- ------------------------------------------------------------
Payable for forward foreign currency exchange contracts 2,981,536
- ------------------------------------------------------------
Payable for capital shares redeemed 1,068,109
- ------------------------------------------------------------
Accrued management fees 825,057
- ------------------------------------------------------------
Distribution fees payable 11,564
- ------------------------------------------------------------
Service fees payable 11,564
- --------------------------------------------------------------------------------
73,469,952
- --------------------------------------------------------------------------------
NET ASSETS $1,263,331,811
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital paid in $1,249,174,684
- ------------------------------------------------------------
Undistributed net investment income 2,124,544
- ------------------------------------------------------------
Accumulated net realized loss
on investment transactions
and foreign currency transactions (13,581,011)
- ------------------------------------------------------------
Net unrealized appreciation
on investments and translation of assets
and liabilities in foreign currencies 25,613,594
- --------------------------------------------------------------------------------
$1,263,331,811
================================================================================
INVESTOR CLASS
- --------------------------------------------------------------------------------
Net assets $1,194,082,012
- ------------------------------------------------------------
Shares outstanding 88,859,273
- ------------------------------------------------------------
Net asset value per share $13.44
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
Net assets $10,511,404
- ------------------------------------------------------------
Shares outstanding 781,389
- ------------------------------------------------------------
Net asset value per share $13.45
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
Net assets $58,738,395
- ------------------------------------------------------------
Shares outstanding 4,379,754
- ------------------------------------------------------------
Net asset value per share $13.41
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
14
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (LOSS)
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Interest (net of foreign taxes withheld of $189,817) $ 18,981,222
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 4,693,051
- ------------------------------------------------------------
Distribution fees -- Advisor Class 68,467
- ------------------------------------------------------------
Service fees -- Advisor Class 68,467
- ------------------------------------------------------------
Trustees' fees and expenses 48,986
- ------------------------------------------------------------
Other expenses 1,788
- --------------------------------------------------------------------------------
4,880,759
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 14,100,463
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON:
- ------------------------------------------------------------
Investment transactions (11,406,271)
- ------------------------------------------------------------
Foreign currency transactions (1,193,832)
- --------------------------------------------------------------------------------
(12,600,103)
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
- ------------------------------------------------------------
Investments (34,140,789)
- ------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 73,011,935
- --------------------------------------------------------------------------------
38,871,146
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) 26,271,043
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 40,371,506
================================================================================
See Notes to Financial Statements.
- ------
15
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2006 2005
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income (loss) $ 14,100,463 $ 25,477,168
- ------------------------------------------
Net realized gain (loss) (12,600,103) (6,689,912)
- ------------------------------------------
Change in net unrealized
appreciation (depreciation) 38,871,146 (122,764,909)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 40,371,506 (103,977,653)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- ------------------------------------------
Investor Class (3,090,502) (32,210,099)
- ------------------------------------------
Institutional Class (24,241) (155,712)
- ------------------------------------------
Advisor Class (125,224) (1,533,430)
- ------------------------------------------
From net realized gains:
- ------------------------------------------
Investor Class (998,578) (10,322,977)
- ------------------------------------------
Institutional Class (6,505) (55,615)
- ------------------------------------------
Advisor Class (48,079) (563,204)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (4,293,129) (44,841,037)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions 118,685,802 236,559,374
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 154,764,179 87,740,684
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 1,108,567,632 1,020,826,948
- --------------------------------------------------------------------------------
End of period $1,263,331,811 $1,108,567,632
================================================================================
Accumulated undistributed
net investment income (loss) $2,124,544 $(8,735,952)
================================================================================
See Notes to Financial Statements.
- ------
16
Notes to Financial Statements
JUNE 30, 2006 (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 seek high total return. The fund
pursues its objective by investing in high-quality, nondollar-denominated
government and corporate debt securities issued outside the United States. The
following is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue the Investor Class, the
Institutional Class, and the Advisor Class. The share classes 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. Income, non-class specific expenses, and realized and
unrealized capital gains and losses of the fund are allocated to each class of
shares based on their relative net assets.
SECURITY VALUATIONS -- Securities are valued through a commercial pricing
service or at the mean of the most recent bid and asked prices. Debt securities
maturing in greater than 60 days are valued at current market value as provided
by a commercial pricing service or at the mean of the most recent bid and asked
prices. Debt securities maturing within 60 days may be valued at cost, plus or
minus any amortized discount or premium. If the fund determines that the market
price of a portfolio security is not readily available, or that the valuation
methods mentioned above do not reflect the security's fair value, such security
is valued at its fair value as determined by, or in accordance with procedures
adopted by, the Board of Trustees or its designee if such fair value
determination would materially impact a fund's net asset value. Circumstances
that may cause the fund to fair value a security include: an event occurred
after the close of the exchange on which a portfolio security principally trades
(but before the close of the New York Stock Exchange) that was likely to have
changed the value of the security; a security has been declared in default; or
trading in a security has been halted during the trading day.
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.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks of
entering into futures contracts is the possibility that the change in value of
the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
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. Certain countries may impose taxes on the contract amount of
purchases and sales of foreign currency contracts in their currency. The fund
records the foreign tax expense, if any, as a reduction to the net realized gain
(loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of
(continued)
- ------
17
Notes to Financial Statements
JUNE 30, 2006 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities denominated in a foreign currency or to hedge the fund's exposure to
foreign currency exchange rate fluctuations. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) 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 substantially 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, if any,
are generally declared and paid twice a year.
INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and
trustees are indemnified against certain liabilities arising out of the
performance of their duties to the fund. In addition, in the normal course of
business, the fund enters into contracts that provide general indemnifications.
The fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the fund. The risk of material
loss from such claims is considered by management to be remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require management to make certain estimates and assumptions at the date of
the financial statements. Actual results could differ from these estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- 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 (the fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, 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 computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. The fee consists of (1) an Investment
Category Fee based on the daily net assets of the funds and certain other
accounts managed by the investment advisor that are in the same broad investment
category as the fund and (2) a Complex Fee based on the assets of all the funds
in the American Century family of funds. 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 0.2500% to 0.3100%. The Institutional Class and the Advisor
Class are 0.2000% and 0.2500% less at each point within the Complex Fee range,
respectively. The effective annual management fee for the fund for the six
months ended June 30, 2006 was 0.82%, 0.62% and 0.57% for the Investor Class,
Institutional Class, and Advisor Class, respectively.
DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a Master
Distribution and Shareholder Services Plan (the plan) for the Advisor Class,
pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the Advisor Class
will pay American Century Investment Services, Inc. (ACIS) an annual
distribution fee equal to 0.25% and an annual service fee equal to 0.25%. The
fees are computed and accrued daily based on the Advisor Class's daily net
assets and paid monthly in arrears. The distribution fee provides compensation
for 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
(continued)
- ------
18
Notes to Financial Statements
JUNE 30, 2006 (UNAUDITED)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
agreements with respect to shares of the fund. The service fee provides
compensation for shareholder and administrative services rendered by ACIS, its
affiliates or independent third party providers. Fees incurred under the plan
during the six months ended June 30, 2006, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and trustees of the trust are also officers
and/or directors, and, as a group, controlling stockholders of American Century
Companies, Inc. (ACC), the parent of the trust's investment advisor, ACIM, the
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services, LLC.
ACIM has entered into a Subadvisory Agreement with J.P. Morgan Investment
Management, Inc. (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
Directors. ACIM pays all costs associated with retaining JPMIM as the subadvisor
of the fund. JPMIM is a wholly owned subsidiary of J.P. Morgan Chase & Co.
(JPM). JPM is an equity investor in ACC. The fund has a bank line of credit
agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned subsidiary
of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2006, were $2,220,790,928 and $2,077,217,891,
respectively.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows (unlimited number of shares
authorized):
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
INVESTOR CLASS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2006
- --------------------------------------------
Sold 28,529,938 $ 377,681,463
- --------------------------------------------
Issued in reinvestment of distributions 262,127 3,400,398
- --------------------------------------------
Redeemed (19,777,161) (261,380,188)
- --------------------------------------------------------------------------------
Net increase (decrease) 9,014,904 $ 119,701,673
================================================================================
YEAR ENDED DECEMBER 31, 2005
- --------------------------------------------
Sold 56,500,193 $ 794,411,698
- --------------------------------------------
Issued in reinvestment of distributions 2,492,365 33,729,716
- --------------------------------------------
Redeemed (45,307,422) (623,964,559)
- --------------------------------------------------------------------------------
Net increase (decrease) 13,685,136 $ 204,176,855
================================================================================
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2006
- --------------------------------------------
Sold 350,293 $4,627,773
- --------------------------------------------
Issued in reinvestment of distributions 6 79
- --------------------------------------------
Redeemed (54,364) (727,702)
- --------------------------------------------------------------------------------
Net increase (decrease) 295,935 $3,900,150
================================================================================
YEAR ENDED DECEMBER 31, 2005
- --------------------------------------------
Sold 489,207 $ 6,807,977
- --------------------------------------------
Issued in reinvestment of distributions 99 1,362
- --------------------------------------------
Redeemed (89,382) (1,201,687)
- --------------------------------------------------------------------------------
Net increase (decrease) 399,924 $ 5,607,652
================================================================================
(continued)
- ------
19
Notes to Financial Statements
JUNE 30, 2006 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2006
- --------------------------------------------
Sold 1,426,353 $ 18,824,825
- --------------------------------------------
Issued in reinvestment of distributions 12,652 163,834
- --------------------------------------------
Redeemed (1,797,201) (23,904,680)
- --------------------------------------------------------------------------------
Net increase (decrease) (358,196) $ (4,916,021)
================================================================================
YEAR ENDED DECEMBER 31, 2005
- --------------------------------------------
Sold 4,913,513 $ 68,651,101
- --------------------------------------------
Issued in reinvestment of distributions 143,639 1,927,830
- --------------------------------------------
Redeemed (3,217,310) (43,804,064)
- --------------------------------------------------------------------------------
Net increase (decrease) 1,839,842 $ 26,774,867
================================================================================
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or American Century
Global Investment Management, Inc., has a $500,000,000 unsecured bank line of
credit agreement with JPMCB. 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, 2006.
6. RISK FACTORS
There are certain risks involved in investing in foreign securities. These risks
include those resulting from future adverse political, social, and economic
developments, fluctuations in currency exchange rates, the possible imposition
of exchange controls, and other foreign laws or restrictions. Investing in
emerging markets may accentuate these risks.
7. FEDERAL TAX INFORMATION
The book-basis 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 on the financial statements.
As of June 30, 2006, the components of investments for federal income tax
purposes were as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $1,252,221,216
================================================================================
Gross tax appreciation of investments $30,285,260
- ------------------------------------------------------------
Gross tax depreciation of investments (6,202,914)
- --------------------------------------------------------------------------------
Net tax appreciation (depreciation) of investments $24,082,346
================================================================================
The difference between book-basis and tax-basis cost and unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales.
The fund had currency loss deferrals of $9,267,427 which represent net foreign
currency losses incurred in the two-month period ended December 31, 2005. The
fund has elected to treat such losses as having been incurred in the following
fiscal year for federal income tax purposes.
(continued)
- ------
20
Notes to Financial Statements
JUNE 30, 2006 (UNAUDITED)
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board issued Interpretation No.
48, "Accounting for Uncertainty in Income Taxes -- an Interpretation of FASB
Statement No. 109" (the Interpretation). The Interpretation establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable in
a particular jurisdiction), and requires certain expanded tax disclosures. The
Interpretation is effective for fiscal years beginning after December 15, 2006,
and is to be applied to all open tax years as of the date of effectiveness.
Management has recently begun to evaluate the application of the Interpretation
to each fund, and is not in a position at this time to estimate the significance
of its impact, if any, on the fund's financial statements.
- ------
21
International Bond - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- -----------------------------------------------------------------------------------------------------
INVESTOR CLASS
- -----------------------------------------------------------------------------------------------------
2006(1) 2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $13.03 $14.76 $13.64 $12.19 $10.08 $10.25
- -----------------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------------
Net Investment
Income (Loss)(2) 0.16 0.30 0.36 0.37 0.36 0.39
- -------------------------------
Net Realized and
Unrealized Gain (Loss) 0.30 (1.49) 1.40 2.03 2.01 (0.56)
- -----------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.46 (1.19) 1.76 2.40 2.37 (0.17)
- -----------------------------------------------------------------------------------------------------
Distributions
- -------------------------------
From Net Investment Income (0.04) (0.41) (0.21) (0.31) (0.26) --
- -------------------------------
From Net Realized Gains (0.01) (0.13) (0.43) (0.64) -- --
- -----------------------------------------------------------------------------------------------------
Total Distributions (0.05) (0.54) (0.64) (0.95) (0.26) --
- -----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.44 $13.03 $14.76 $13.64 $12.19 $10.08
=====================================================================================================
TOTAL RETURN(3) 3.54% (8.23)% 13.10% 19.91% 23.53% (1.66)%
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.82%(4) 0.82% 0.83% 0.84% 0.85% 0.86%
- -------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets 2.42%(4) 2.17% 2.60% 2.80% 3.28% 3.87%
- -------------------------------
Portfolio Turnover Rate 176% 226% 104% 112% 137% 147%
- -------------------------------
Net Assets, End of Period
(in thousands) $1,194,082 $1,040,576 $976,828 $622,657 $315,491 $115,172
- -----------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2006 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
22
International Bond - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
2006(1) 2005 2004(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.04 $14.77 $13.37
- --------------------------------------------------------------------------------
Income From Investment Operations
- ------------------------------------------
Net Investment Income (Loss)(3) 0.14 0.36 0.17
- ------------------------------------------
Net Realized and Unrealized Gain (Loss) 0.32 (1.52) 1.84
- --------------------------------------------------------------------------------
Total From Investment Operations 0.46 (1.16) 2.01
- --------------------------------------------------------------------------------
Distributions
- ------------------------------------------
From Net Investment Income (0.04) (0.44) (0.18)
- ------------------------------------------
From Net Realized Gains (0.01) (0.13) (0.43)
- --------------------------------------------------------------------------------
Total Distributions (0.05) (0.57) (0.61)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $13.45 $13.04 $14.77
================================================================================
TOTAL RETURN(4) 3.58% (7.98)% 15.25%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.62%(5) 0.62% 0.63%(5)
- ------------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets 2.62%(5) 2.37% 2.88%(5)
- ------------------------------------------
Portfolio Turnover Rate 176% 226% 104%(6)
- ------------------------------------------
Net Assets, End of Period (in thousands) $10,511 $6,329 $1,263
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2006 (unaudited).
(2) August 2, 2004 (commencement of sale) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2004.
See Notes to Financial Statements.
- ------
23
International Bond - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------
2006(1) 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $13.01 $14.75 $13.62 $12.16 $10.03 $10.23
- ----------------------------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------
Net Investment Income (Loss)(2) 0.15 0.27 0.32 0.29 0.33 0.36
- -----------------------------------
Net Realized and
Unrealized Gain (Loss) 0.29 (1.51) 1.42 2.08 2.00 (0.56)
- ----------------------------------------------------------------------------------------------------
Total From Investment Operations 0.44 (1.24) 1.74 2.37 2.33 (0.20)
- ----------------------------------------------------------------------------------------------------
Distributions
- -----------------------------------
From Net Investment Income (0.03) (0.37) (0.18) (0.27) (0.20) --
- -----------------------------------
From Net Realized Gains (0.01) (0.13) (0.43) (0.64) -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.04) (0.50) (0.61) (0.91) (0.20) --
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.41 $13.01 $14.75 $13.62 $12.16 $10.03
====================================================================================================
TOTAL RETURN(3) 3.41% (8.47)% 12.93% 19.60% 23.24% (1.96)%
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.07%(4) 1.07% 1.08% 1.09% 1.10% 1.11%
- -----------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets 2.16%(4) 1.92% 2.35% 2.55% 3.03% 3.62%
- -----------------------------------
Portfolio Turnover Rate 176% 226% 104% 112% 137% 147%
- -----------------------------------
Net Assets, End of Period
(in thousands) $58,738 $61,663 $42,736 $21,137 $3,192 $1,983
- ----------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2006 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
24
Approval of Management Agreement for International Bond
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports from
the advisor concerning fund operations. In addition to this annual review, the
board of directors oversees and evaluates on a continuous basis at its quarterly
meetings the nature and quality of significant services performed by the
advisor, fund performance, audit and compliance information, and a variety of
other reports relating to fund operations. The board, or committees of the
board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information compiled
by the advisor and certain independent providers of evaluative data (the "15(c)
Providers") concerning International Bond (the "fund") and the services provided
to the fund under the management agreement. The information considered and the
discussions held at the meetings included, but were not limited to:
* the nature, extent and quality of investment management, shareholder services
and other services provided to the fund under the management agreement;
* reports on the advisor's activities relating to the wide range of programs and
services the advisor provides to the fund and its shareholders on a routine
and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a peer
group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the information
provided by the advisor and to complete its negotiations with the advisor
regarding the renewal of the management agreement, including the setting of the
applicable advisory fee. The board also had the benefit of the advice of its
independent counsel throughout the period.
(continued)
- ------
25
Approval of Management Agreement for International Bond
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objectives and approved strategies.
In providing these services, the advisor utilizes teams of investment
professionals (portfolio managers, analysts, research assistants, and securities
traders) who require extensive information technology, research, training,
compliance and other systems to conduct their business. At each quarterly
meeting the Directors review investment performance information for the fund,
together with comparative information for appropriate benchmarks and peer groups
of funds managed similarly to the fund. The Directors also review detailed
performance information
(continued)
- ------
26
Approval of Management Agreement for International Bond
during the 15(c) Process comparing the fund's performance with that of similar
funds not managed by the advisor. If performance concerns are identified, the
Directors discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance fell below the median for both the one and
three year periods during part of the past year. The board discussed the fund's
performance with the advisor and was satisfied with the efforts being undertaken
by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review, and
reports to the board. These reports include, but are not limited to, information
regarding the operational efficiency and accuracy of the shareholder and
transfer agency services provided, staffing levels, shareholder satisfaction (as
measured by external as well as internal sources), technology support, new
products and services offered to fund shareholders, securities trading
activities, portfolio valuation services, auditing services, and legal and
operational compliance activities. Certain aspects of shareholder and transfer
agency service level efficiency and the quality of securities trading activities
are measured by independent third party providers and are presented in
comparison to other fund groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment
to providing quality services to shareholders and to conducting its business
ethically. They noted that the advisor's practices generally meet or exceed
industry best practices and that the advisor was not implicated in the industry
scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional services
and content provided by the advisor and its reinvestment in its ability to
provide and expand those services. Accordingly, the Directors also seek to
evaluate economies of scale by reviewing other information, such as
year-over-year
(continued)
- ------
27
Approval of Management Agreement for International Bond
profitability of the advisor generally, the profitability of its management of
the fund specifically, the expenses incurred by the advisor in providing various
functions to the fund, and the breakpoint fees of competitive funds not managed
by the advisor. The Directors believe the advisor is appropriately sharing
economies of scale through its competitive fee structure, fee breakpoints as the
fund complex and the fund increases in size, and through reinvestment in its
business to provide shareholders additional content and services. In particular,
separate breakpoint schedules based on the size of the entire fund complex and
on the size of the fund reflect the complexity of assessing economies of scale.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other funds are charged a variety of fees,
including an investment advisory fee, a transfer agency fee, an administrative
fee, distribution charges and other expenses. Other than their investment
advisory fees and Rule 12b-1 distribution fees, all other components of the
total fees charged by these other funds may be increased without shareholder
approval. The board believes the unified fee structure is a benefit to fund
shareholders because it clearly discloses to shareholders the cost of owning
fund shares, and, since the unified fee cannot be increased without a vote of
fund shareholders, it shifts to the advisor the risk of increased costs of
operating the fund and provides a direct incentive to minimize administrative
inefficiencies. Part of the Directors' analysis of fee levels involves reviewing
certain evaluative data compiled by an independent provider and comparing the
fund's unified fee to the total expense ratio of other funds in the fund's peer
group. The unified fee charged to shareholders of the fund was the lowest of the
total expense ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or
(continued)
- ------
28
Approval of Management Agreement for International Bond
shareholder information to generate profits in other lines of business, and
therefore does not derive any significant collateral benefits from them. The
Directors noted that the advisor receives proprietary research from broker
dealers that execute fund portfolio transactions and concluded that this
research is likely to benefit fund shareholders. The Directors also determined
that the advisor is able to provide investment management services to certain
clients other than the fund, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are not material to the analysis
and, in any event, are included with the assets of the fund to determine
breakpoints in the fund's fee schedule, provided they are managed using the same
investment team and strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor concluded that the investment
management agreement between the fund and the advisor is fair and reasonable in
light of the services provided and should be renewed.
As a part of the 15(c) Process, the board of directors also unanimously approved
the renewal of the investment subadvisory agreement by which J.P. Morgan
Investment Management, Inc. (the "subadvisor") is engaged to manage the
investments of the fund. In approving the subadvisory agreement, the board
considered all material factors including the nature, extent, and quality of
investment management services provided by the subadvisor to the fund under the
agreement. As a part of this review the board evaluated the subadvisor's
investment performance and capabilities, as well as its compliance policies,
procedures, and regulatory experience. The Directors noted that the management
fees paid to the subadvisor under the subadvisory agreement were subject to
arm's length negotiation between the advisor and the subadvisor and are paid by
the advisor out of its unified fee.
- ------
29
Share Class Information
Three classes of shares are authorized for sale by the fund: Investor Class,
Institutional Class and Advisor Class. The total expense ratio for Institutional
Class shares is lower than that of Investor Class shares. The total expense
ratio for Advisor Class shares is higher than that of Investor Class shares.
INVESTOR CLASS shares are available for purchase in two ways: 1) directly from
American Century without any commissions or other fees; or 2) through certain
financial intermediaries (such as banks, broker-dealers, insurance companies and
investment advisors), which may require payment of a transaction fee to the
financial intermediary.
INSTITUTIONAL CLASS shares are available to large investors such as endowments,
foundations, and retirement plans, and to financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million ($3 million
for endowments and foundations) in an American Century fund or at least $10
million in multiple funds. In recognition of the larger investments and account
balances and comparatively lower transaction costs, the unified management fee
of Institutional Class shares is 0.20% less than the unified management fee of
Investor Class shares.
ADVISOR CLASS shares are sold primarily through institutions such as investment
advisors, banks, broker-dealers, insurance companies, and financial advisors.
Advisor Class shares are subject to a 0.50% annual Rule 12b-1 distribution and
service fee. The total expense ratio of Advisor Class shares is 0.25% higher
than the total expense ratio of Investor Class shares.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
- ------
30
Additional Information
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA or certain 403(b),
457 and qualified plans [those not eligible for rollover to an IRA or to another
qualified plan] are subject to federal income tax withholding, unless you elect
not to have withholding apply. Tax will be withheld on the total amount
withdrawn even though you may be receiving amounts that are not subject to
withholding, such as nondeductible contributions. In such case, excess amounts
of withholding could occur. You may adjust your withholding election so that a
greater or lesser amount will be withheld.
If you don't want us to withhold on this amount, you must notify us to not
withhold the federal income tax. 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 notice not to withhold federal
income tax prior to the withdrawal. You may notify us in writing or in certain
situations by telephone or through other electronic means. You have the right to
revoke your withholding election at any time and any election you make may
remain in effect until revoked by filing a new election.
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.
State tax will be withheld if, at the time of your distribution, your address is
within one of the mandatory withholding states and you have federal income tax
withheld. State taxes will be withheld from your distribution in accordance with
the respective state rules.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-345-2021. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at americancentury.com and, upon request, by calling
1-800-345-2021.
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31
Index Definition
The following index is used to illustrate investment market, sector, or style
performance or to serve as a fund performance comparison. It is not an
investment product available for purchase.
The J.P. MORGAN GLOBAL TRADED GOVERNMENT BOND INDEX (JPM GTGBI) is a
market-capitalization weighted index consisting of regularly traded, fixed-rate
government bonds from certain developed foreign countries in North America,
Europe, Asia, and Australia.
Since January 1998, the FUND BENCHMARK has been the JPM GTGBI with the U.S.
excluded and Japan weighted at 15%.
Prior to January 1998, the FUND BENCHMARK was the J.P. Morgan ECU-Weighted
European Index.
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32
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE:
1-800-345-8765
INVESTOR SERVICES REPRESENTATIVE:
1-800-345-2021 or 816-531-5575
BUSINESS, NOT-FOR-PROFIT,
EMPLOYER-SPONSORED RETIREMENT PLANS:
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL PROFESSIONALS, INSURANCE COMPANIES:
1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
AMERICAN CENTURY INTERNATIONAL BOND FUNDS
INVESTMENT ADVISOR:
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.
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
(c)2006 American Century Proprietary Holdings, Inc. All rights reserved.
0608
SH-SAN-50660N
ITEM 2. CODE OF ETHICS.
Not applicable for semiannual report filings.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semiannual report filings.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semiannual report filings.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedule of investments is included as part of the report to stockholders
filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by
which shareholders may recommend nominees to the registrant's board.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable for semiannual report filings.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are filed and attached hereto as Exhibit
99.302CERT.
(a)(3) Not applicable.
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AMERICAN CENTURY INTERNATIONAL BOND FUNDS
By: /s/ William M. Lyons
---------------------------------------------------
Name: William M. Lyons
Title: President
Date: August 24, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ William M. Lyons
---------------------------------------------------
Name: William M. Lyons
Title: President
(principal executive officer)
Date: August 24, 2006
By: /s/ Maryanne L. Roepke
---------------------------------------------------
Name: Maryanne L. Roepke
Title: Sr. Vice President, Treasurer, and
Chief Financial Officer
(principal financial officer)
Date: August 24, 2006
