SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
File No. 33-43321
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
File No. 811-6441
Amendment No. 27 [X]
(Check appropriate box or boxes.)
AMERICAN CENTURY INTERNATIONAL BOND FUNDS
-----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
4500 MAIN STREET, KANSAS CITY, MO 64111
-----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (816) 531-5575
---------------------
CHARLES A. ETHERINGTON, 4500 MAIN STREET, KANSAS CITY, MO 64111
-----------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: September 28, 2007
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on September 28, 2007 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
September 28, 2007
AMERICAN CENTURY INVESTMENTS
PROSPECTUS
International Bond Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
American Century Investment Services, Inc., Distributor
[american century investments logo and text logo]
[blank page]
Table of Contents
AN OVERVIEW OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FUND PERFORMANCE HISTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OBJECTIVES, STRATEGIES AND RISKS. . . . . . . . . . . . . . . . . . . . . . . 7
BASICS OF FIXED-INCOME INVESTING. . . . . . . . . . . . . . . . . . . . . . . 9
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INVESTING DIRECTLY WITH AMERICAN CENTURY. . . . . . . . . . . . . . . . . . . 14
INVESTING THROUGH A FINANCIAL INTERMEDIARY. . . . . . . . . . . . . . . . . . 16
ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT . . . . . . . . . . . . . . . . 22
SHARE PRICE AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . 27
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
MULTIPLE CLASS INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 31
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
[graphic of triangle)
THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS OF KEY
INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
An Overview of the Fund
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The fund seeks high total return by investing in high-quality,
non-dollar-denominated government and corporate debt securities outside the
United States.
WHAT ARE THE FUND'S PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The fund invests all of its assets in high-quality debt securities, at least 80%
of which are issued by foreign corporations and governments. The advisor expects
the fund's dollar-weighted average maturity to range from two to 10 years.
The fund's primary investment risks include
* FOREIGN SECURITIES RISK - Foreign securities have certain unique risks, such
as currency risk, political and economic risk, and foreign market and trading
risk.
* INTEREST RATE RISK - Generally, when interest rates rise, the value of the
fund's debt securities will decline. The opposite is true when interest rates
decline.
* NONDIVERSIFICATION - The fund is classified as NONDIVERSIFIED. This gives the
portfolio managers the flexibility to hold large positions in a smaller
number of securities. If so, a price change in any one of those securities
may have a greater impact on the fund's share price than would be the case in
a diversified fund.
[graphic of triangle)
A NONDIVERSIFIED FUND MAY INVEST A GREATER PERCENTAGE OF ITS ASSETS IN A
SMALLER NUMBER OF SECURITIES THAN A DIVERSIFIED FUND.
* PRINCIPAL LOSS - At any given time your shares may be worth less than the
price you paid for them. In other words, it is possible to lose money be
investing in the fund.
A more detailed description of the fund's investment strategies and risks may be
found under the heading OBJECTIVES, STRATEGIES AND RISKS, which begins on page
7.
[graphic of triangle)
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY OTHER
GOVERNMENT AGENCY.
------
2
FUND PERFORMANCE HISTORY
Annual Total Returns
The following bar chart shows the performance of the fund's Investor Class
shares for each of the last 10 calendar years. It indicates the volatility of
the fund's historical returns from year to year. Account fees and sales charges,
if applicable, are not reflected in the chart below. If they had been included,
returns would be lower than those shown. The returns of the fund's other classes
of shares will differ from those shown in the chart, depending on the expenses
of those classes.
INVESTOR CLASS(1)
(1) AS OF JUNE 30, 2007, THE YEAR-TO-DATE RETURN FOR THE INVESTOR CLASS WAS
-0.45%.
The highest and lowest quarterly returns for the periods reflected in the bar
chart are:
HIGHEST LOWEST
--------------------------------------------------------------------------------
International Bond 14.36% (2Q 2002) -6.79% (1Q 1997)
--------------------------------------------------------------------------------
Average Annual Total Returns
The following table shows the average annual total returns of the fund's
Investor Class shares calculated three different ways. Additional tables show
the average annual total returns of the fund's other share classes calculated
before the impact of taxes. Returns assume the deduction of all sales loads,
charges and other fees associated with a particular class. Your actual returns
may vary depending on the circumstances of your investment. Because the B, C and
R Classes of International Bond were not in operation as of the calendar year
end, they are not included.
Return Before Taxes shows the actual change in the value of fund shares over the
time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with owning fund shares. Return After Taxes
on Distributions is a fund's actual performance, adjusted by the effect of taxes
on distributions made by the fund during the period shown. Return After Taxes on
Distributions and Sale of Fund Shares is further adjusted to reflect the tax
impact on any change in the value of fund shares as if they had been sold on the
last day of the period.
After-tax returns are calculated using the historical highest federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs. After-tax
returns are shown only for Investor Class shares. After-tax returns for other
share classes will vary.
------
3
The benchmarks are unmanaged indices that have no operating costs and are
included in the table for performance comparison.
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 United States excluded and Japan weighted at 15%. Prior to
January 1998, the fund benchmark was the J.P. Morgan ECU-Weighted European
Index.
INVESTOR CLASS
FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Return Before Taxes 8.25% 10.72% 4.86%
Return After Taxes on Distributions 7.39% 9.26% 3.71%
Return After Taxes on Distributions
and Sale of Fund Shares 5.37% 8.47% 3.51%
Fund Benchmark(1) 9.68% 12.01% 5.83%
(reflects no deduction for
fees, expenses or taxes)
J.P. Morgan Global Traded 5.94% 8.31% 5.32%
Government Bond Index
(reflects no deduction for
fees, expenses or taxes)
--------------------------------------------------------------------------------
(1) FROM DECEMBER 31, 1991 TO DECEMBER 31, 1997, THE BENCHMARK WAS THE J.P.
MORGAN ECU-WEIGHTED EUROPEAN INDEX. SINCE JANUARY 1, 1998, THE BENCHMARK
HAS BEEN THE J.P. MORGAN GLOBAL TRADED GOVERNMENT BOND INDEX (EXCLUDING THE
UNITED STATES AND WITH JAPAN WEIGHTED AT 15%).
INSTITUTIONAL CLASS
FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2006 1 YEAR LIFE OF CLASS(1)
--------------------------------------------------------------------------------
Return Before Taxes 8.43% 5.96%
Fund Benchmark(2) 9.68% 6.93%(3)
(reflects no deduction for
fees, expenses or taxes)
J.P. Morgan Global Traded 5.94% 4.48%(3)
Government Bond Index
(reflects no deduction for
fees, expenses or taxes)
--------------------------------------------------------------------------------
(1) THE INCEPTION DATE FOR THE INSTITUTIONAL CLASS OF THE FUND IS AUGUST 2,
2004. ONLY CLASSES WITH PERFORMANCE HISTORY FOR LESS THAN 10 YEARS SHOW
RETURNS FOR LIFE OF CLASS.
(2) THE FUND BENCHMARK IS THE J.P. MORGAN GLOBAL TRADED GOVERNMENT BOND INDEX
(EXCLUDING THE UNITED STATES AND WITH JAPAN WEIGHTED AT 15%).
(3) FROM JULY 31, 2004, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
A CLASS(1)
FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF CLASS(2)
--------------------------------------------------------------------------------
Return Before Taxes 3.19% 9.47% 4.08%
Fund Benchmark(3) 9.68% 12.01% 5.88%(4)
(reflects no deduction for
fees, expenses or taxes)
J.P. Morgan Global Traded 5.94% 8.31% 4.63%(4)
Government Bond Index
(reflects no deduction for
fees, expenses or taxes)
--------------------------------------------------------------------------------
(1) PRIOR TO SEPTEMBER 4, 2007, THIS CLASS WAS REFERRED TO AS THE ADVISOR CLASS
AND DID NOT HAVE A FRONT-END SALES CHARGE. PERFORMANCE HAS BEEN RESTATED TO
REFLECT THIS CHARGE.
(2) THE INCEPTION DATE FOR THE A CLASS OF THE FUND IS OCTOBER 27, 1998. ONLY
CLASSES WITH PERFORMANCE HISTORY FOR LESS THAN 10 YEARS SHOW RETURNS FOR
LIFE OF CLASS.
(3) THE FUND BENCHMARK IS THE J.P. MORGAN GLOBAL TRADED GOVERNMENT BOND INDEX
(EXCLUDING THE UNITED STATES AND WITH JAPAN WEIGHTED AT 15%).
(4) FROM OCTOBER 31, 1998, THE DATE CLOSEST TO THE CLASS'S INCEPTION FOR WHICH
DATA IS AVAILABLE.
Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
the fund will perform in the future.
For current performance information, including yields, please call us or visit
americancentury.com.
------
4
FEES AND EXPENSES
The following tables describe the fees and expenses you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
INVESTOR INSTITUTIONAL A B C R
CLASS CLASS CLASS CLASS CLASS CLASS
--------------------------------------------------------------------------------
Maximum Sales None None 4.50% None None None
Charge (Load)
Imposed on
Purchases
(as a
percentage
of offering
price)
--------------------------------------------------------------------------------
Maximum None None None(1) 5.00%(2) 1.00%(3) None
Deferred Sales
Charge (Load)
(as a
percentage
of the original
offering price
for B Class
shares or the
lower of the
original
offering price
or redemption
proceeds for
A and C
Class shares)
--------------------------------------------------------------------------------
Maximum $25(4) None None None None None
Account
Maintenance
Fee
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
DISTRIBUTION TOTAL ANNUAL
MANAGEMENT AND SERVICE OTHER FUND OPERATING
FEE(5) (12B-1) FEES(6) EXPENSES(7) EXPENSES
--------------------------------------------------------------------------------
Investor Class 0.82% None 0.01% 0.83%
--------------------------------------------------------------------------------
Institutional 0.62% None 0.01% 0.63%
Class
--------------------------------------------------------------------------------
A Class 0.82%(8) 0.25%(9) 0.01% 1.08%
--------------------------------------------------------------------------------
B Class 0.82% 1.00% 0.01% 1.83%
--------------------------------------------------------------------------------
C Class 0.82% 1.00% 0.01% 1.83%
--------------------------------------------------------------------------------
R Class 0.82% 0.50% 0.01% 1.33%
--------------------------------------------------------------------------------
(1) INVESTMENTS OF $1 MILLION OR MORE IN A CLASS SHARES MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF 1.00% IF THE SHARES ARE REDEEMED WITHIN
ONE YEAR OF THE DATE OF PURCHASE.
(2) THE CHARGE IS 5.00% DURING THE FIRST YEAR AFTER PURCHASE, DECLINES OVER THE
NEXT FIVE YEARS AS SHOWN ON PAGE 19, AND IS ELIMINATED AFTER SIX YEARS.
(3) THE CHARGE IS 1.00% DURING THE FIRST YEAR AFTER PURCHASE, AND IS ELIMINATED
THEREAFTER.
(4) APPLIES ONLY TO INVESTORS WHOSE TOTAL ELIGIBLE INVESTMENTS WITH AMERICAN
CENTURY ARE LESS THAN $10,000. SEE Account Maintenance Fee UNDER Investing
Directly with American Century FOR MORE DETAILS.
(5) THE FUND PAYS THE ADVISOR A SINGLE, UNIFIED MANAGEMENT FEE FOR ARRANGING
ALL SERVICES NECESSARY FOR THE FUND TO OPERATE. THE FEE SHOWN IS BASED ON
ASSETS DURING THE FUND'S MOST RECENT FISCAL YEAR. THE FUND HAS A STEPPED
FEE SCHEDULE. AS A RESULT, THE FUND'S UNIFIED MANAGEMENT FEE RATE GENERALLY
DECREASES AS ASSETS INCREASE AND INCREASES AS ASSETS DECREASE. FOR MORE
INFORMATION ABOUT THE UNIFIED MANAGEMENT FEE, SEE The Investment AdvisoR
UNDER Management.
(6) THE 12B-1 FEE IS DESIGNED TO PERMIT INVESTORS TO PURCHASE SHARES THROUGH
BROKER-DEALERS, BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL
INTERMEDIARIES. THE FEE MAY BE USED TO COMPENSATE SUCH FINANCIAL
INTERMEDIARIES FOR DISTRIBUTION AND OTHER SHAREHOLDER SERVICES. FOR MORE
INFORMATION, SEE Multiple Class Information AND Service, Distribution and
Administrative Fees, PAGE 31.
(7) OTHER EXPENSES INCLUDE THE FEES AND EXPENSES OF THE FUND'S INDEPENDENT
TRUSTEES AND THEIR LEGAL COUNSEL, AS WELL AS INTEREST.
(8) THE UNIFIED MANAGEMENT FEE HAS BEEN RESTATED TO REFLECT THE INCREASE IN THE
FEE APPROVED BY THE FUND'S SHAREHOLDERS EFFECTIVE SEPTEMBER 4, 2007.
(9) THE 12B-1 FEE HAS BEEN RESTATED TO REFLECT THE DECREASE IN THE FEE
EFFECTIVE SEPTEMBER 4, 2007.
------
5
EXAMPLE
The examples in the table below are intended to help you compare the costs of
investing in the fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. Assuming you . . .
* invest $10,000 in the fund
* redeem all of your shares at the end of the periods shown below
* earn a 5% return each year
* incur the same operating expenses as shown above
. . . your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Investor Class $85 $264 $459 $1,022
--------------------------------------------------------------------------------
Institutional Class $64 $201 $351 $785
--------------------------------------------------------------------------------
A Class $555 $777 $1,017 $1,702
--------------------------------------------------------------------------------
B Class $585 $872 $1,083 $1,936
--------------------------------------------------------------------------------
C Class $185 $572 $983 $2,129
--------------------------------------------------------------------------------
R Class $135 $420 $725 $1,592
--------------------------------------------------------------------------------
The table above reflects a deduction for charges payable upon redemption. You
would pay the following expenses if you did not redeem your shares and thus did
not incur such charges:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Investor Class $85 $264 $459 $1,022
--------------------------------------------------------------------------------
Institutional Class $64 $201 $351 $785
--------------------------------------------------------------------------------
A Class $555 $777 $1,017 $1,702
--------------------------------------------------------------------------------
B Class $185 $572 $983 $1,936
--------------------------------------------------------------------------------
C Class $185 $572 $983 $2,129
--------------------------------------------------------------------------------
R Class $135 $420 $725 $1,592
--------------------------------------------------------------------------------
------
6
OBJECTIVES, STRATEGIES AND RISKS
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The fund seeks high total return by investing in high-quality,
non-dollar-denominated government and corporate debt securities outside the
United States.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVE?
The fund invests all of its assets in HIGH-QUALITY DEBT SECURITIES, at least 80%
of which are non-dollar-denominated foreign government and foreign corporate
debt securities. The fund may change this 80% policy only upon 60 days' prior
written notice to shareholders.
[graphic of triangle)
HIGH-QUALITY DEBT SECURITIES ARE FIXED-INCOME INVESTMENTS, SUCH AS NOTES,
BONDS, COMMERCIAL PAPER, DEBENTURES, AND MORTGAGE AND ASSET-BACKED
SECURITIES THAT HAVE BEEN RATED BY AN INDEPENDENT RATING AGENCY IN ITS TOP
TWO CREDIT QUALITY CATEGORIES OR DETERMINED BY THE ADVISOR TO BE OF
COMPARABLE CREDIT QUALITY. THE DETAILS OF THE FUND'S CREDIT QUALITY
STANDARDS ARE DESCRIBED IN THE STATEMENT OF ADDITIONAL INFORMATION.
The portfolio manager, who is responsible for selecting the fund's investments,
determines whether to buy and sell securities for the fund by using a
combination of fundamental research and bond and currency valuation models.
* ECONOMIC/POLITICAL FUNDAMENTALS. The portfolio manager evaluates each
country's economic climate and political discipline for controlling deficits
and inflation.
* EXPECTED RETURN. Using economic forecasts, the portfolio manager projects the
expected return for each country.
* RELATIVE VALUE. By contrasting expected risks and returns for investments in
each country, the portfolio manager selects those countries expected to
produce the best return at reasonable risk.
Generally, the fund will purchase only bonds denominated in foreign currencies.
Because the fund is designed for U.S. investors seeking currency and interest
rate diversification, the fund limits its use of hedging strategies that may
minimize the effect of currency fluctuations. The fund may hedge up to 25% of
its total assets into U.S. dollars when the portfolio manager considers the
dollar to be attractive relative to foreign currencies.
The fund also may invest in futures contracts and foreign currency exchange
contracts, provided that such investments are in keeping with the fund's
investment objective.
The weighted average maturity of the fund is expected to be between two and 10
years.
A description of the policies and procedures with respect to the disclosure of
the fund's portfolio securities is available in the statement of additional
information.
------
7
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
Investing in foreign securities has certain unique risks that make it generally
riskier than investing in U.S. securities. These risks are summarized below.
* CURRENCY RISK. In addition to changes in the value of the fund's investments,
changes in the value of foreign currencies against the U.S. dollar also could
result in gains or losses to the fund. The value of a share of the fund is
determined in U.S. dollars. The fund's investments, however, generally are
held in the foreign currency of the country where investments are made. As a
result, the fund could recognize a gain or loss based solely upon a change in
the exchange rate between the foreign currency and the U.S. dollar.
* POLITICAL AND ECONOMIC RISK. The fund invests in foreign debt securities,
which are generally riskier than U.S. debt securities. As a result, the fund
is subject to foreign political and economic risk not associated with U.S.
investments, meaning that political events (civil unrest, national elections,
changes in political conditions and foreign relations, imposition of exchange
controls and repatriation restrictions), social and economic events (labor
strikes, rising inflation) and natural disasters occurring in a country where
the fund invests could cause the fund's investments in that country to
experience gains or losses. The fund also could be unable to enforce its
ownership rights or pursue legal remedies in countries where it invests.
* FOREIGN MARKET AND TRADING RISK. The trading markets for many foreign
securities are not as active as U.S. markets and may have less governmental
regulation and oversight. Foreign markets also may have clearance and
settlement procedures that make it difficult for the fund to buy and sell
securities. These factors could result in a loss to the fund by causing the
fund to be unable to dispose of an investment or to miss an attractive
investment opportunity, or by causing fund assets to be uninvested for some
period of time.
* AVAILABILITY OF INFORMATION. Generally, foreign companies are not subject to
the regulatory controls or uniform accounting, auditing and financial
reporting standards imposed on U.S. issuers. As a result, there may be less
publicly available information about foreign issuers than is available
regarding U.S. issuers.
When interest rates change, the fund's share value will be affected. Generally,
when interest rates rise, the fund's share value will decline. The opposite is
true when interest rates decline. The interest rate risk for International Bond
is higher than for funds that have shorter weighted average maturities, such as
money market and short-term bond funds.
The fund is classified as nondiversified. This means that the fund's portfolio
manager may choose to invest in a relatively small number of securities. If so,
a price change in any one of these securities may have a greater impact on the
fund's share price than would be the case if the fund were diversified.
At any given time your shares may be worth less than the price you paid for
them. In other words, it is possible to lose money by investing in the fund.
------
8
BASICS OF FIXED-INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, also called a fixed-income security, it is
essentially lending money to the security's issuer. Notes, bonds, commercial
paper and debentures are examples of debt securities. After the debt security is
first sold by the issuer, it may be bought and sold by other investors. The
price of the debt security may rise or fall based on many factors, including
changes in interest rates, liquidity and credit quality.
The portfolio manager decides which debt securities to buy and sell by
* determining which debt securities help a fund meet its maturity
requirements
* identifying debt securities that satisfy a fund's credit quality standards
* evaluating the current economic conditions and assessing the risk of
inflation
* evaluating special features of the debt securities that may make them more
or less attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid or refinanced at some
date. This date is called the maturity date. The number of days left to a debt
security's maturity date is called the remaining maturity. The longer a debt
security's remaining maturity, generally the more sensitive its price is to
changes in interest rates.
Because a bond fund will own many debt securities, the portfolio manager
calculates the average of the remaining maturities of all the debt securities
the fund owns to evaluate the interest rate sensitivity of the entire portfolio.
This average is weighted according to the size of the fund's individual holdings
and is called the weighted average maturity. The following chart shows how the
portfolio manager would calculate the weighted average maturity for a fund that
owned only two debt securities.
AMOUNT OF PERCENT OF REMAINING WEIGHTED
SECURITY OWNED PORTFOLIO MATURITY MATURITY
--------------------------------------------------------------------------------
Debt Security A $100,000 25% 4 years 1 year
--------------------------------------------------------------------------------
Debt Security B $300,000 75% 12 years 9 years
--------------------------------------------------------------------------------
Weighted Average Maturity 10 years
--------------------------------------------------------------------------------
------
9
TYPES OF RISK
The basic types of risk the fund faces are described below.
Interest Rate Risk
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the fund invests primarily in
debt securities, changes in interest rates will affect the fund's performance.
This sensitivity to interest rate changes is called interest rate risk.
The degree to which interest rate changes affect a fund's performance varies and
is related to the weighted average maturity of a particular fund. For example,
when interest rates rise, you can expect the share value of a long-term bond
fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true.
The following table shows the likely effect of a 1% (100 basis points) increase
in interest rates on the price of 7% coupon bonds of differing maturities:
REMAINING MATURITY CURRENT PRICE PRICE AFTER 1% INCREASE CHANGE IN PRICE
--------------------------------------------------------------------------------
1 year $100.00 $99.06 -0.94%
--------------------------------------------------------------------------------
3 years $100.00 $97.38 -2.62%
--------------------------------------------------------------------------------
10 years $100.00 $93.20 -6.80%
--------------------------------------------------------------------------------
30 years $100.00 $88.69 -11.31%
--------------------------------------------------------------------------------
Credit Risk
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and make interest and principal payments on
time. Generally, a lower credit rating indicates a greater risk of non-payment.
A lower rating also may indicate that the issuer has a more senior series of
debt securities, which means that if the issuer has difficulties making its
payments, the more senior series of debt is first in line for payment.
The portfolio manager does not invest solely on the basis of a debt security's
credit rating; he also considers other factors, including potential returns.
Higher credit ratings usually mean lower interest rate payments, so investors
often purchase debt securities that aren't the highest rated to increase return.
If a fund purchases lower-rated debt securities, it assumes additional credit
risk.
Credit quality may be lower when the issuer has a high debt level, a short
operating history, a difficult, competitive environment, or a less stable cash
flow.
Liquidity Risk
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have difficulty selling its debt securities is called liquidity risk.
------
10
MANAGEMENT
WHO MANAGES THE FUND?
The Board of Trustees, investment advisor and fund management team play key
roles in the management of the fund.
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the fund, it has hired an investment advisor to do so.
More than three-fourths of the trustees are independent of the fund's advisor;
that is, they have never been employed by and have no financial interest in the
advisor or any of its affiliated companies (other than as shareholders of
American Century funds).
THE INVESTMENT ADVISOR
The fund's investment advisor is American Century Investment Management, Inc.
(the advisor). The advisor has been managing mutual funds since 1958 and is
headquartered at 4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolio of the fund and
directing the purchase and sale of its investment securities. The advisor also
arranges for transfer agency, custody and all other services necessary for the
fund to operate. The advisor has hired J.P. Morgan Investment Management, Inc.
(JPMIM) to make the day-to-day investment decisions for the fund. JPMIM performs
this function under the supervision of the fund's Board of Trustees. JPMIM and
its predecessor companies have managed investments for clients for over eighty
years. JPMIM is headquartered at 245 Park Avenue, New York, New York 10167.
For the services it provides to the fund, the advisor receives a unified
management fee based on a percentage of the daily net assets of each class of
shares of the fund. The management fee is calculated daily and paid monthly in
arrears. Out of the fund's fee, the advisor pays all expenses of managing and
operating the fund except brokerage expenses, taxes, interest, fees and expenses
of the independent trustees (including legal counsel fees), and extraordinary
expenses. A portion of the fund's management fee may be paid by the fund's
advisor to unaffiliated third parties who provide recordkeeping and
administrative services that would otherwise be performed by an affiliate of the
advisor.
The percentage rate used to calculate the management fee for each class of
shares of the fund is determined daily using a two-component formula that takes
into account (i) the daily net assets of the accounts managed by the advisor
that are in the same broad investment category as the fund (the "Category Fee")
and (ii) the assets of all funds in the American Century family of funds (the
"Complex Fee"). The statement of additional information contains detailed
information about the calculation of the fund's management fee.
------
11
MANAGEMENT FEES
PAID BY THE FUND TO THE
ADVISOR AS A PERCENTAGE
OF AVERAGE NET ASSETS
FOR THE FISCAL YEAR INVESTOR INSTITUTIONAL A B C R
ENDED JUNE 30, 2007(1) CLASS CLASS CLASS(2) CLASS(3) CLASS(3) CLASS(3)
-----------------------------------------------------------------------------------------
International
Bond 0.82% 0.62% 0.57 N/A N/A N/A
-----------------------------------------------------------------------------------------
(1) THE FUND'S FISCAL YEAR END WAS CHANGED FROM DECEMBER 31 TO JUNE 30,
RESULTING IN A SIX-MONTH REPORTING PERIOD. FEE PERCENTAGES ARE ANNUALIZED.
(2) PRIOR TO SEPTEMBER 4, 2007, THE A CLASS WAS REFERRED TO AS THE ADVISOR
CLASS. FOLLOWING THAT DATE, THE MANAGEMENT FEE PAID ANNUALLY TO THE ADVISOR
IS EXPECTED TO BE 0.82% OF AVERAGE NET ASSETS.
(3) THE B, C AND R CLASSES OF THIS FUND HAD NOT COMMENCED OPERATIONS AS OF JUNE
30, 2007. THE B, C AND R CLASSES WILL PAY THE ADVISOR A UNIFIED MANAGEMENT
FEE CALCULATED BY ADDING THE APPROPRIATE INVESTMENT CATEGORY AND COMPLEX
FEES FROM THE FOLLOWING SCHEDULES:
INVESTMENT CATEGORY FEE SCHEDULE FOR INTERNATIONAL BOND
--------------------------------------------------------------------------------
CATEGORY ASSETS FEE RATE
--------------------------------------------------------------------------------
First $1 billion 0.6100%
--------------------------------------------------------------------------------
Next $1 billion 0.5580%
--------------------------------------------------------------------------------
Next $3 billion 0.5280%
--------------------------------------------------------------------------------
Next $5 billion 0.5080%
--------------------------------------------------------------------------------
Next $15 billion 0.4950%
--------------------------------------------------------------------------------
Next $25 billion 0.4930%
--------------------------------------------------------------------------------
Thereafter 0.4925%
--------------------------------------------------------------------------------
The Complex Fee is determined according to the schedule below.
COMPLEX FEE SCHEDULE
--------------------------------------------------------------------------------
INVESTOR, A, B, C
AND R CLASSES INSTITUTIONAL CLASS
COMPLEX ASSETS FEE RATE FEE RATE
--------------------------------------------------------------------------------
First $2.5 billion 0.3100% 0.1100%
--------------------------------------------------------------------------------
Next $7.5 billion 0.3000% 0.1000%
--------------------------------------------------------------------------------
Next $15 billion 0.2985% 0.0985%
--------------------------------------------------------------------------------
Next $25 billion 0.2970% 0.0970%
--------------------------------------------------------------------------------
Next $25 billion 0.2870% 0.0870%
--------------------------------------------------------------------------------
Next $25 billion 0.2800% 0.0800%
--------------------------------------------------------------------------------
Next $25 billion 0.2700% 0.0700%
--------------------------------------------------------------------------------
Next $25 billion 0.2650% 0.0650%
--------------------------------------------------------------------------------
Next $25 billion 0.2600% 0.0600%
--------------------------------------------------------------------------------
Next $25 billion 0.2550% 0.0550%
--------------------------------------------------------------------------------
Thereafter 0.2500% 0.0500%
--------------------------------------------------------------------------------
A discussion regarding the basis for the Board of Trustees' approval of the
fund's investment advisory contract with the advisor is available in the fund's
report to shareholders dated June 30, 2007.
------
12
THE PORTFOLIO MANAGER
JPMIM employs a portfolio manager to manage the fund. The portfolio manager
regularly reviews portfolio holdings and buys and sells securities for the fund
as he sees fit, guided by the fund's investment objective and strategy.
The portfolio manager who is primarily responsible for the day-to-day management
of the fund is identified below.
JON B. JONSSON
Mr. Jonsson, Vice President and Head of Global Short Duration and London Broad
Market Portfolio Management, has been a member of the team since August 2006. He
joined J.P. Morgan in 1998 and became a portfolio manager in 2001. He has a
bachelor's degree in applied mathematics from the University of Iceland and a
master's degree with specialization in financial engineering from New York
University's Stern School of Business.
The statement of additional information provides additional information about
the other accounts managed by the portfolio manager, if any, the structure of
his compensation, and his ownership of fund securities.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the statement of additional
information and the investment objective of the fund may not be changed without
shareholder approval. The Board of Trustees and/or the advisor may change any
other policies and investment strategies.
------
13
INVESTING DIRECTLY WITH AMERICAN CENTURY
SERVICES AUTOMATICALLY AVAILABLE TO YOU
Most accounts automatically will have access to the services listed under WAYS
TO MANAGE YOUR ACCOUNT when the account is opened. If you do not want these
services, see CONDUCTING BUSINESS IN WRITING. If you have questions about the
services that apply to your account type, please call us.
CONDUCTING BUSINESS IN WRITING
If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). By choosing this option, you are not eligible to enroll for
exclusive online account management to waive the account maintenance fee. See
ACCOUNT MAINTENANCE FEE in this section. If you want to add online and telephone
services later, you can complete a Full Services Option form.
ACCOUNT MAINTENANCE FEE
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),
we may charge you a $12.50 semiannual account maintenance fee if the value of
those shares is less than $10,000. We will determine the amount of your total
eligible investments twice per year, generally the last Friday in October and
April. If the value of those investments is less than $10,000 at that time, we
will automatically redeem shares in one of your accounts to pay the $12.50 fee.
Please note that you may incur tax liability as a result of the redemption. 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. We will not charge the
fee as long as you choose to manage your accounts exclusively online. You may
enroll for exclusive online account management on our Web site. To find out more
about exclusive online account management, visit americancentury.com/info/demo.
[graphic of triangle)
PERSONAL ACCOUNTS INCLUDE INDIVIDUAL ACCOUNTS, JOINT ACCOUNTS, UGMA/UTMA
ACCOUNTS, PERSONAL TRUSTS, COVERDELL EDUCATION SAVINGS ACCOUNTS, 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, BUT YOU MAY BE SUBJECT TO OTHER
FEES.
WIRE PURCHASES
CURRENT INVESTORS: If you would like to make a wire purchase into an existing
account, your bank will need the following information. (To invest in a new
fund, please call us first to set up the new account.)
* American Century's bank information: Commerce Bank N.A., Routing No.
101000019, Account No. 2804918
* Your American Century account number and fund name
* Your name
* The contribution year (for IRAs only)
NEW INVESTORS: To make a wire purchase into a new account, please complete an
application prior to wiring money.
------
14
WAYS TO MANAGE YOUR ACCOUNT
ONLINE
americancentury.com
OPEN AN ACCOUNT: If you are a current or new investor, you can open an account
by completing and submitting our online application. Current investors also can
open an account by exchanging shares from another American Century account.
EXCHANGE SHARES: Exchange shares from another American Century account.
MAKE ADDITIONAL INVESTMENTS: Make an additional investment into an established
American Century account if you have authorized us to invest from your bank
account.
SELL SHARES*: Redeem shares and proceeds will be electronically transferred to
your authorized bank account.
* ONLINE REDEMPTIONS UP TO $25,000 PER DAY.
IN PERSON
If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.
* 4500 Main Street, Kansas City, Missouri -- 8 a.m. to 5 p.m., Monday - Friday
* 4917 Town Center Drive, Leawood, Kansas -- 8 a.m. to 5 p.m., Monday - Friday,
8 a.m. to noon, Saturday
* 1665 Charleston Road, Mountain View, California -- 8 a.m. to 5 p.m.,
Monday - Friday
BY TELEPHONE
INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021
INSTITUTIONAL SERVICE REPRESENTATIVE: 1-800-345-3533
BUSINESS, NOT-FOR-PROFIT AND EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533
AUTOMATED INFORMATION LINE: 1-800-345-8765
OPEN AN ACCOUNT: If you are a current investor, you can open an account by
exchanging shares from another American Century account.
EXCHANGE SHARES: Call or use our Automated Information Line if you have
authorized us to accept telephone instructions. The Automated Information Line
is available only to Investor Class shareholders.
MAKE ADDITIONAL INVESTMENTS: Call or use our Automated Information Line if you
have authorized us to invest from your bank account. The Automated Information
Line is available only to Investor Class shareholders.
SELL SHARES: Call a Service Representative.
BY MAIL OR FAX
P.O. Box 419200, Kansas City, MO 64141-6200 -- Fax: 816-340-7962
OPEN AN ACCOUNT: Send a signed, completed application and check or money order
payable to American Century Investments.
EXCHANGE SHARES: Send written instructions to exchange your shares from one
American Century account to another.
MAKE ADDITIONAL INVESTMENTS: Send your check or money order for at least $50
with an investment slip or $250 without an investment slip. If you don't have an
investment slip, include your name, address and account number on your check or
money order.
SELL SHARES: Send written instructions or a redemption form to sell shares. Call
a Service Representative to request a form.
AUTOMATICALLY
OPEN AN ACCOUNT: Not available.
EXCHANGE SHARES: Send written instructions to set up an automatic exchange of
your shares from one American Century account to another.
MAKE ADDITIONAL INVESTMENTS: With the automatic investment service, you can
purchase shares on a regular basis. You must invest at least $50 per month per
account.
SELL SHARES: You may sell shares automatically by establishing Check-A-Month or
Automatic Redemption plans.
SEE ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT FOR MORE INFORMATION ABOUT
INVESTING WITH US.
------
15
INVESTING THROUGH A FINANCIAL INTERMEDIARY
The fund's A, C and R Classes are intended for purchase by participants in
employer-sponsored retirement plans. Additionally the fund's A, B and C Classes
are intended for persons purchasing shares through FINANCIAL INTERMEDIARIES that
provide various administrative and distribution services. For more information
regarding employer-sponsored retirement plan types, please see BUYING AND
SELLING FUND SHARES in the statement of additional information.
[graphic of triangle)
FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS,
INSURANCE COMPANIES, PLAN SPONSORS AND FINANCIAL PROFESSIONALS.
Although each class of shares represents an interest in the same fund, each has
a different cost structure, as described below. Which class is right for you
depends on many factors, including how long you plan to hold the shares, how
much you plan to invest, the fee structure of each class, and how you wish to
compensate your financial professional for the services provided to you. Your
financial professional can help you choose the option that is most appropriate.
The following table provides a summary description of these classes.
A CLASS B CLASS
--------------------------------------------------------------------------------
Initial sales charge(1) No initial sales charge
--------------------------------------------------------------------------------
Generally no contingent deferred Contingent deferred sales charge
sales charge(2) on redemptions within six years
--------------------------------------------------------------------------------
12b-1 fee of 0.25% 12b-1 fee of 1.00%
--------------------------------------------------------------------------------
No conversion feature Convert to A Class shares eight
years after purchase
--------------------------------------------------------------------------------
Generally more appropriate Purchases generally limited
for long-term investors to investors whose aggregate
investments in American Century
funds are less than $50,000;
generally offered through
financial intermediaries(3)
--------------------------------------------------------------------------------
C CLASS R CLASS
--------------------------------------------------------------------------------
No initial sales charge No initial sales charge
--------------------------------------------------------------------------------
Contingent deferred sales charge No contingent deferred
on redemptions within 12 months sales charge
--------------------------------------------------------------------------------
12b-1 fee of 1.00% 12b-1 fee of 0.50%
--------------------------------------------------------------------------------
No conversion feature No conversion feature
--------------------------------------------------------------------------------
Purchases generally limited to Generally offered through
investors whose aggregate employer-sponsored retirement
investments in American Century plans and other fee-based
funds are less than $1,000,000; arrangements
generally more appropriate for
short-term investors
--------------------------------------------------------------------------------
(1) THE SALES CHARGE FOR A CLASS SHARES DECREASES DEPENDING ON THE SIZE OF YOUR
INVESTMENT, AND MAY BE WAIVED FOR SOME PURCHASES. THERE IS NO SALES CHARGE
FOR PURCHASES OF $1,000,000 OR MORE.
(2) A CONTINGENT DEFERRED SALES CHARGE (CDSC) OF 1.00% WILL BE CHARGED ON
CERTAIN PURCHASES OF $1,000,000 OR MORE THAT ARE REDEEMED WITHIN ONE YEAR
OF PURCHASE.
(3) THIS CLASS IS NOT AVAILABLE FOR EMPLOYER-SPONSORED RETIREMENT PLAN
ACCOUNTS.
------
16
CALCULATION OF SALES CHARGES
The information regarding sales charges provided herein is included free of
charge and in a clear and prominent format at americancentury.com in the
INVESTORS USING ADVISORS and INVESTMENT PROFESSIONALS portions of the Web site.
From the description of A, B or C Class shares, a hyperlink will take you
directly to this disclosure.
A Class
A Class shares are sold at their offering price, which is net asset value plus
an initial sales charge. This sales charge varies depending on the amount of
your investment, and is deducted from your purchase before it is invested. The
sales charges and the amounts paid to your financial professional are:
AMOUNT PAID
SALES CHARGE SALES CHARGE TO FINANCIAL
AS A % OF AS A % OF NET PROFESSIONAL AS A
PURCHASE AMOUNT OFFERING PRICE AMOUNT INVESTED % OF OFFERING PRICE
--------------------------------------------------------------------------------
Less than $50,000 4.50% 4.71% 4.00%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 4.71% 4.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 3. 50% 3.63% 3.00%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04% 1.75%
--------------------------------------------------------------------------------
$1,000,000 - $3,999,999 0.00% 0.00% 1.00%(1)
--------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.00% 0.00% 0.50%(1)
--------------------------------------------------------------------------------
$10,000,000 or more 0.00% 0.00% 0.25%(1)
--------------------------------------------------------------------------------
(1) FOR PURCHASES OVER $1,000,000 BY EMPLOYER-SPONSORED RETIREMENT PLANS, NO
UPFRONT AMOUNT WILL BE PAID TO FINANCIAL PROFESSIONALS.
There is no front-end sales charge for purchases of $1,000,000 or more, but if
you redeem your shares within one year of purchase you will pay a 1.00% deferred
sales charge, subject to the exceptions listed below. No sales charge applies to
reinvested dividends.
Reductions and Waivers of Sales Charges for A Class
You may qualify for a reduction or waiver of certain sales charges, but you or
your financial professional must provide certain information, including the
account numbers of any accounts to be aggregated, to American Century at the
time of purchase in order to take advantage of such reduction or waiver. If you
hold assets among multiple intermediaries, it is your responsibility to inform
your intermediary and/or American Century at the time of the purchase of any
accounts to be aggregated.
You and your immediate family (your spouse and your children under the age of
21) may combine investments in any share class of any American Century fund
(excluding 529 account assets and certain assets in money market accounts) to
reduce your A Class sales charge in the following ways:
ACCOUNT AGGREGATION. Investments made by you and your immediate family may be
aggregated at each account's current market value if made for your own
account(s) and/or certain other accounts, such as:
* Certain trust accounts
* Solely controlled business accounts
* Single-participant retirement plans
* Endowments or foundations established and controlled by you or an
immediate family member
------
17
For purposes of aggregation, only investments made through individual-level
accounts may be combined. Assets held in multiple participant employer-sponsored
retirement plans may be aggregated at a plan level.
CONCURRENT PURCHASES. You may combine simultaneous purchases in any share class
of any American Century fund to qualify for a reduced A Class sales charge.
RIGHTS OF ACCUMULATION. You may take into account the current value of your
existing holdings, less any commissionable shares in the money market funds, in
any share class of any American Century fund to qualify for a reduced A Class
sales charge.
LETTER OF INTENT. A Letter of Intent allows you to combine all non-money market
fund purchases of any share class of any American Century fund you intend to
make over a 13-month period to determine the applicable sales charge. At your
request, existing holdings may be combined with new purchases and sales charge
amounts may be adjusted for purchases made within 90 days prior to our receipt
of the Letter of Intent. Capital appreciation, capital gains and reinvested
dividends earned during the Letter of Intent period do not apply toward its
completion. A portion of your account will be held in escrow to cover additional
A Class sales charges that will be due if your total investments over the
13-month period do not qualify for the applicable sales charge reduction.
WAIVERS FOR CERTAIN INVESTORS. The sales charge on A Class shares may be waived
for:
* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having selling
agreements with the advisor or distributor
* Broker-dealer sponsored wrap program accounts and/or fee-based accounts
maintained for clients of certain financial intermediaries who have entered
into selling agreements with American Century
* Present or former officers, trustees, and employees (and their families) of
American Century
* Employer-sponsored retirement plan purchases. For plans under $1 million in
assets, purchases with sales charges are allowed, but may be subject to the
retirement plan recordkeeper's policies. Refer to BUYING AND SELLING FUND
SHARES in the statement of additional information.
* IRA Rollovers from any American Century fund held in an employer-sponsored
retirement plan
* Shares purchased in accounts that held Advisor Class shares of this fund
prior to September 4, 2007
* Certain other investors as deemed appropriate by American Century
B Class
B Class shares are sold at their net asset value without an initial sales
charge. For sales of B Class shares, the amount paid to your financial
professional is 4.00% of the amount invested. If you redeem your shares within
six years of purchase date, you will pay a contingent deferred sales charge
(CDSC) as set forth below. The purpose of the CDSC is to permit the fund's
distributor to recoup all or a portion of the up-front payment made to your
financial professional. There is no CDSC on shares acquired through reinvestment
of dividends or capital gains.
------
18
REDEMPTION DURING CDSC AS A % OF ORIGINAL PURCHASE PRICE
--------------------------------------------------------------------------------
1st year 5.00%
--------------------------------------------------------------------------------
2nd year 4.00%
--------------------------------------------------------------------------------
3rd year 3.00%
--------------------------------------------------------------------------------
4th year 3.00%
--------------------------------------------------------------------------------
5th year 2.00%
--------------------------------------------------------------------------------
6th year 1.00%
--------------------------------------------------------------------------------
After 6th year None
--------------------------------------------------------------------------------
B Class shares (which carry a 1.00% 12b-1 fee) will automatically convert to A
Class shares (which carry a 0.25% 12b-1 fee) within 31 days after the eight-year
anniversary of the purchase date.
American Century generally limits purchases of B Class shares to investors whose
aggregate investments in American Century funds are less than $50,000. However,
it is your responsibility to inform your financial intermediary and/or American
Century at the time of purchase of any accounts to be aggregated, including
investments in any share class of any American Century fund (excluding 529
account assets and certain assets in money market accounts) in accounts held by
you and your immediate family members (your spouse and children under the age of
21). Once you reach this limit, you should work with your financial intermediary
to determine what share class is most appropriate for additional purchases.
C Class
C Class shares are sold at their net asset value without an initial sales
charge. For sales of C Class shares, the amount paid to your financial
professional is 1.00% of the amount invested. If you redeem your shares within
12 months of purchase, you will pay a CDSC of 1.00% of the original purchase
price or the current market value at redemption, whichever is less. The purpose
of the CDSC is to permit the fund's distributor to recoup all or a portion of
the up-front payment made to your financial professional.
The CDSC will not be charged on shares acquired through reinvestment of
dividends or distributions or increases in the net asset value of shares.
American Century generally limits purchases of C Class shares to investors whose
aggregate investments in American Century funds are less than $1,000,000.
However, it is your responsibility to inform your financial intermediary and/or
American Century at the time of purchase of any accounts to be aggregated,
including investments in any share class of any American Century fund (excluding
529 account assets and certain assets in money market accounts) in accounts held
by you and your immediate family members (your spouse and children under the age
of 21). Once you reach this limit, you should work with your financial
intermediary to determine what share class is most appropriate for additional
purchases.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE (CDSC)
To minimize the amount of the CDSC you may pay when you redeem shares, the fund
will first redeem shares acquired through reinvested dividends and capital gain
distributions, which are not subject to a CDSC. Shares that have been in your
account long enough that they are not subject to a CDSC are redeemed next. For
any remaining redemption amount, shares will be sold in the order they were
purchased (earliest to latest).
------
19
CDSC WAIVERS
Any applicable CDSC may be waived in the following cases:
* redemptions through systematic withdrawal plans not exceeding annually:
* 12% of the lesser of the original purchase cost or current market value for
A Class shares
* 12% of the original purchase cost for B Class shares
* 12% of the lesser of the original purchase cost or current market value
for C Class shares
* distributions from IRAs due to attainment of age 59-1/2 for A Class shares
and for C Class shares
* required minimum distributions from retirement accounts upon reaching age
70-1/2
* tax-free returns of excess contributions to IRAs
* redemptions due to death or post-purchase disability
* exchanges, unless the shares acquired by exchange are redeemed within the
original CDSC period
* IRA Rollovers from any American Century fund held in an employer-sponsored
retirement plan, for A Class shares only
* if no broker was compensated for the sale
REINSTATEMENT PRIVILEGE
Within 90 days of a redemption of any A or B Class shares, you may reinvest all
of the redemption proceeds in A Class shares of any American Century fund at the
then-current net asset value without paying an initial sales charge. At your
request, any CDSC you paid on an A Class redemption that you are reinvesting
will be credited to your account. You or your financial professional must notify
the funds' transfer agent in writing at the time of the reinvestment to take
advantage of this privilege, and you may use it only once per account. This
privilege applies only if the new account is owned by the original account
owner.
EXCHANGING SHARES
You may exchange shares of the fund for shares of the same class of another
American Century fund without a sales charge if you meet the following criteria:
* The exchange is for a minimum of $100
* For an exchange that opens a new account, the amount of the exchange must
meet or exceed the minimum account size requirement for the fund receiving
the exchange
For purposes of computing any applicable CDSC on shares that have been
exchanged, the holding period will begin as of the date of purchase of the
original fund owned. Exchanges from a money market fund are subject to a sales
charge on the fund being purchased, unless the money market fund shares were
acquired by exchange from a fund with a sales charge or by reinvestment of
dividends or capital gains distributions.
EXCHANGES BETWEEN FUNDS (C CLASS)
You may exchange C Class shares of a fund for C Class shares of any other
American Century fund. You may not exchange from the C Class to any other class.
We will not charge a CDSC on the shares you exchange, regardless of the length
of time you have owned them. When you do redeem shares that have been exchanged,
the CDSC will be based on the date you purchased the original shares.
------
20
BUYING AND SELLING SHARES
Your ability to purchase, exchange, redeem and transfer shares will be affected
by the policies of the financial intermediary through which you do business.
Some policy differences may include
* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
* trading restrictions
In addition, your financial intermediary may charge a transaction fee for the
purchase or sale of fund shares. Those charges are retained by the financial
intermediary and are not shared with American Century or the fund. Please
contact your financial intermediary or plan sponsor for a complete description
of its policies. Copies of the fund's annual report, semiannual report and
statement of additional information are available from your financial
intermediary or plan sponsor.
The fund has authorized certain financial intermediaries to accept orders on the
fund's behalf. American Century has selling agreements with these financial
intermediaries requiring them to track the time investment orders are received
and to comply with procedures relating to the transmission of orders. Orders
must be received by the financial intermediary on the fund's behalf before the
time the net asset value is determined in order to receive that day's share
price. If those orders are transmitted to American Century and paid for in
accordance with the selling agreement, they will be priced at the net asset
value next determined after your request is received in the form required by the
financial intermediary.
SEE ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT FOR MORE INFORMATION ABOUT
INVESTING WITH US.
------
21
ADDITIONAL POLICIES AFFECTING YOUR INVESTMENT
ELIGIBILITY FOR INVESTOR CLASS SHARES
The fund's Investor Class shares are available for purchase through financial
intermediaries in the following types of accounts:
* employer-sponsored retirement plans
* broker-dealer sponsored fee-based wrap programs or other fee-based
advisory accounts
* insurance products and bank/trust products where fees are being charged
The fund's Investor Class shares also are available for purchase directly from
American Century by:
* shareholders who held any account directly with American Century as of
September 28, 2007, and have continuously maintained such account (this
includes anyone listed in the registration of an account, such as joint
owners, trustees or custodians, and the immediate family members of such
persons)
* current or retired employees of American Century and their immediate family
members, and trustees of the fund
Investors may be required to demonstrate eligibility to purchase Investor Class
shares of the fund before an investment is accepted. The fund reserves the
right, when in the judgment of American Century it is not adverse to the fund's
interest, to permit all or only certain types of investors to open new accounts
in the fund, to impose further restrictions, or to close the fund to any
additional investments, all without notice.
MINIMUM INITIAL INVESTMENT AMOUNTS (OTHER THAN INSTITUTIONAL CLASS)
Unless otherwise specified below, the minimum initial investment amount to open
an account is $2,500. Financial intermediaries may open an account with $250,
but may require their clients to meet different investment minimums. See
INVESTING THROUGH A FINANCIAL INTERMEDIARY for more information.
Broker-dealer sponsored wrap program
accounts and/or fee-based accounts No minimum
--------------------------------------------------------------------------------
Coverdell Education Savings Account (CESA) $2,000(1)
--------------------------------------------------------------------------------
Employer-sponsored retirement plans No minimum
--------------------------------------------------------------------------------
(1) THE MINIMUM INITIAL INVESTMENT FOR FINANCIAL INTERMEDIARIES IS $250.
FINANCIAL INTERMEDIARIES MAY HAVE DIFFERENT MINIMUMS FOR THEIR CLIENTS.
SUBSEQUENT PURCHASES
There is a $50 minimum for subsequent purchases. See WAYS TO MANAGE YOUR ACCOUNT
for more information about making additional investments directly with American
Century. However, there is no subsequent purchase minimum for financial
intermediaries or employer-sponsored retirement plans, but financial
intermediaries may require their clients to meet different subsequent purchase
requirements.
------
22
ELIGIBILITY FOR INSTITUTIONAL CLASS SHARES
The Institutional Class shares are made available for purchase by large
institutional shareholders such as bank trust departments, corporations,
retirement plans, endowments, foundations and financial advisors that meet the
fund's minimum investment requirements. Institutional Class shares are not
available for purchase by insurance companies for variable annuity and variable
life products.
MINIMUM INITIAL INVESTMENT AMOUNTS (INSTITUTIONAL CLASS)
The minimum initial investment amount is $5 million ($3 million for endowments
and foundations) per fund. If you invest with us through a financial
intermediary, this requirement may be met if your financial intermediary
aggregates your investments with those of other clients into a single group, or
omnibus, account that meets the minimum. The minimum investment requirement may
be waived if you, or your financial intermediary if you invest through an
omnibus account, have an aggregate investment in our family of funds of $10
million or more ($5 million for endowments and foundations). In addition,
financial intermediaries or plan recordkeepers may require retirement plans to
meet certain other conditions, such as plan size or a minimum level of assets
per participant, in order to be eligible to purchase Institutional Class shares.
REDEMPTIONS
If you sell B, C or, in certain cases, A Class shares, you may pay a sales
charge, depending on how long you have held your shares, as described above.
Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.
[graphic of triangle)
A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S SHARES.
However, we reserve the right to delay delivery of redemption proceeds up to
seven days. For example, each time you make an investment with American Century,
there is a seven-day holding period before we will release redemption proceeds
from those shares, unless you provide us with satisfactory proof that your
purchase funds have cleared. Investments by wire generally require only a
one-day holding period. If you change your address, we may require that any
redemption request made within 15 days be submitted in writing and be signed by
all authorized signers with their signatures guaranteed. If you change your bank
information, we may impose a 15-day holding period before we will transfer or
wire redemption proceeds to your bank. Please remember, if you request
redemptions by wire, $10 will be deducted from the amount redeemed. Your bank
also may charge a fee.
In addition, we reserve the right to honor certain redemptions with securities,
rather than cash, as described in the next section.
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
If, during any 90-day period, you redeem fund shares worth more than $250,000
(or 1% of the value of a fund's assets if that amount is less than $250,000), we
reserve the right to pay part or all of the redemption proceeds in excess of
this amount in readily marketable securities instead of in cash. The portfolio
managers would select these securities from the fund's portfolio.
We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, you may have to pay
brokerage or other transaction costs to convert the securities to cash.
------
23
If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on a fund and its remaining investors.
REDEMPTION OF SHARES IN ACCOUNTS BELOW MINIMUM
If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, American Century
reserves the right to redeem the shares in the account and send the proceeds to
your address of record. Prior to doing so, we will notify you and give you 90
days to meet the minimum. Please note that A, B and C Class shares redeemed in
this manner may be subject to a sales charge if held less than the applicable
time period. You may also incur tax liability as a result of the redemption. For
Institutional Class shares, we reserve the right to convert your shares to
Investor Class shares of the same fund. The Investor Class shares have a unified
management fee that is 0.20% higher than the Institutional Class.
SIGNATURE GUARANTEES
A signature guarantee -- which is different from a notarized signature -- is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions.
* You have chosen to conduct business in writing only and would like to redeem
over $100,000.
* Your redemption or distribution check, Check-A-Month or automatic redemption
is made payable to someone other than the account owners.
* Your redemption proceeds or distribution amount is sent by EFT (ACH or wire)
to a destination other than your personal bank account.
* You are transferring ownership of an account over $100,000.
* You change your address and request a redemption over $100,000 within 15
days.
* You change your bank information and request a redemption within 15 days.
We reserve the right to require a signature guarantee for other transactions, at
our discretion.
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. The fund reserves the right to suspend the offering of shares for a period
of time and to reject any specific investment (including a purchase by
exchange). Additionally, we may refuse a purchase if, in our judgment, it is of
a size that would disrupt the management of a fund.
ABUSIVE TRADING PRACTICES
Short-term trading and other so-called market timing practices are not defined
or explicitly prohibited by any federal or state law. However, short-term
trading and other abusive trading practices may disrupt portfolio management
strategies and harm fund performance. If the cumulative amount of short-term
trading activity is significant relative to a fund's net assets, the fund may
incur trading costs that are higher than necessary as securities are first
purchased then quickly sold to meet the redemption request. In such case, the
fund's performance could be negatively impacted by the increased trading costs
created by short-term trading if the additional trading costs are significant.
------
24
Because of the potentially harmful effects of abusive trading practices, the
fund's Board of Trustees has approved American Century's abusive trading
policies and procedures, which are designed to reduce the frequency and effect
of these activities in our funds. These policies and procedures include
monitoring trading activity, imposing trading restrictions on certain accounts,
imposing redemption fees on certain funds, and using fair value pricing when
current market prices are not readily available. Although these efforts are
designed to discourage abusive trading practices, they cannot eliminate the
possibility that such activity will occur. American Century seeks to exercise
its judgment in implementing these tools to the best of its ability in a manner
that it believes is consistent with shareholder interests.
American Century uses a variety of techniques to monitor for and detect abusive
trading practices. These techniques may vary depending on the type of fund, the
class of shares or whether the shares are held directly or indirectly with
American Century. They may change from time to time as determined by American
Century in its sole discretion. To minimize harm to the funds and their
shareholders, we reserve the right to reject any purchase order (including
exchanges) from any shareholder we believe has a history of abusive trading or
whose trading, in our judgment, has been or may be disruptive to the funds. In
making this judgment, we may consider trading done in multiple accounts under
common ownership or control.
Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made
* within seven days of the purchase, or
* within 30 days of the purchase, if it happens more than once per year.
To the extent practicable, we try to use the same approach for defining abusive
trading for shares held through financial intermediaries. American Century
reserves the right, in its sole discretion, to identify other trading practices
as abusive and to modify its monitoring and other practices as necessary to deal
with novel or unique abusive trading practices.
In addition, American Century reserves the right to accept purchases and
exchanges in excess of the trading restrictions discussed above if it believes
that such transactions would not be inconsistent with the best interests of fund
shareholders or this policy.
American Century's policies do not permit us to enter into arrangements with
fund shareholders that permit such shareholders to engage in frequent purchases
and redemptions of fund shares. Due to the complexity and subjectivity involved
in identifying abusive trading activity and the volume of shareholder
transactions American Century handles, there can be no assurance that American
Century's efforts will identify all trades or trading practices that may be
considered abusive. In addition, American Century's ability to monitor trades
that are placed by individual shareholders within group, or omnibus, accounts
maintained by financial intermediaries is severely limited because American
Century generally does not have access to the underlying shareholder account
information. However, American Century monitors aggregate trades placed in
omnibus accounts and seeks to work with financial intermediaries to discourage
shareholders from engaging in abusive trading practices and to impose
restrictions on excessive trades. There may be limitations on the ability of
financial intermediaries to impose restrictions on the trading practices of
their clients. As a result, American Century's ability to monitor and discourage
abusive trading practices in omnibus accounts may be limited.
------
25
YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS
American Century and its affiliated companies use procedures reasonably designed
to confirm that telephone, electronic and other instructions are genuine. These
procedures include recording telephone calls, requesting personalized security
codes or other information, and sending confirmation of transactions. If we
follow these procedures, we are not responsible for any losses that may occur
due to unauthorized instructions. For transactions conducted over the Internet,
we recommend the use of a secure Internet browser. In addition, you should
verify the accuracy of your confirmation statements immediately after you
receive them.
A NOTE ABOUT MAILINGS TO SHAREHOLDERS
To reduce the amount of mail you receive from us, we may deliver a single copy
of certain investor documents (such as shareholder reports and prospectuses) to
investors who share an address, even if accounts are registered under different
names. If you prefer to receive multiple copies of these documents individually
addressed, please call us or your financial professional. For American Century
Brokerage accounts, please call 1-888-345-2071.
RIGHT TO CHANGE POLICIES
We reserve the right to change any stated investment requirement, including
those that relate to purchases, exchanges and redemptions. We also may alter,
add or discontinue any service or privilege. Changes may affect all investors or
only those in certain classes or groups. In addition, from time to time we may
waive a policy on a case-by-case basis, as the advisor deems appropriate.
------
26
SHARE PRICE AND DISTRIBUTIONS
SHARE PRICE
American Century will price the fund shares you purchase, exchange or redeem at
the net asset value (NAV) next determined after your order is received and
accepted by the fund's transfer agent, or other financial intermediary with the
authority to accept orders on the fund's behalf. We determine the fund's NAV as
of the close of regular trading (usually 4 p.m. Eastern time) on the New York
Stock Exchange (NYSE) on each day the NYSE is open. On days when the NYSE is
closed (including certain U.S. national holidays), we do not calculate the NAV.
A fund's NAV is the current value of the fund's assets, minus any liabilities,
divided by the number of shares outstanding.
The fund values portfolio securities for which market quotations are readily
available at their market price. The fund may use pricing services to assist in
the determination of market value. Unlisted securities for which market
quotations are readily available are valued at the last quoted sale price or the
last quoted ask price, as applicable, except that debt obligations with 60 days
or less remaining until maturity may be valued at amortized cost.
If the fund determines that the market price for 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 as determined in good faith
by, or in accordance with procedures adopted by, the fund's board or its
designee. Circumstances that may cause the fund to use alternate procedures to
value a security include, but are not limited to:
* if, after the close of the foreign exchange on which a portfolio security is
principally traded, but before the close of the NYSE, an event occurs that
may materially affect the value of the security;
* a debt security has been declared in default; or
* trading in a security has been halted during the trading day.
If such circumstances occur, the fund will fair value the security if the fair
valuation would materially impact the fund's NAV. While fair value
determinations involve judgments that are inherently subjective, these
determinations are made in good faith in accordance with procedures adopted by
the fund's board.
The effect of using fair value determinations is that the fund's NAV will be
based, to some degree, on security valuations that the board or its designee
believes are fair rather than being solely determined by the market.
With respect to any portion of the fund's assets that are invested in one or
more open-end management investment companies that are registered with the SEC
(known as registered investment companies, or RICs), the fund's NAV will be
calculated based upon the NAVs of such RICs. These RICs are required by law to
explain the circumstances under which they will use fair value pricing and the
effects of using fair value pricing in their prospectuses.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Trading of securities in foreign markets may not take place every day the NYSE
is open. Also, trading in some foreign markets and on some electronic trading
networks may take place on weekends or holidays when the fund's NAV is not
calculated. So, the value of the fund's portfolio may be affected on days when
you will not be able to purchase, exchange or redeem fund shares.
------
27
DISTRIBUTIONS
Federal tax laws require the fund to make distributions to its shareholders in
order to qualify as a regulated investment company. Qualification as a regulated
investment company means that the fund should not be subject to state or federal
income tax on amounts distributed. The distributions generally consist of
dividends and interest received by the fund, as well as CAPITAL GAINS realized
by the fund on the sale of its investment securities.
[graphic of triangle)
CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH AS STOCK,
FROM THE TIME THE ASSETS ARE PURCHASED.
The fund pays distributions of substantially all its income each year. These
distributions may be paid quarterly, but may be paid less frequently.
Distributions from realized capital gains are paid twice a year, usually in
March and December. It may make more frequent distributions, if necessary, to
comply with Internal Revenue Code provisions. Distributions may be taxable as
ordinary income, capital gains or a combination of the two. Capital gains are
taxed at different rates depending on the length of time the fund held the
securities that were sold.
You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day that a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.
Participants in tax-deferred retirement plans must reinvest all distributions.
For investors investing through taxable accounts, we will reinvest distributions
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another person or address by check.
------
28
TAXES
The tax consequences of owning shares of the fund will vary depending on whether
you own them through a taxable or tax-deferred account. Tax consequences result
from distributions by the fund of dividend and interest income it has received
or capital gains it has generated through its investment activities. Tax
consequences also may result when investors sell fund shares after the net asset
value has increased or decreased.
Tax-Deferred Accounts
If you purchase fund shares through a tax-deferred account, such as an IRA or a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions usually will not be subject to current taxation but will
accumulate in your account under the plan on a tax-deferred basis. Likewise,
moving from one fund to another fund within a plan or tax-deferred account
generally will not cause you to be taxed. For information about the tax
consequences of making purchases or withdrawals through a tax-deferred account,
please consult your plan administrator, your summary plan description or a tax
advisor.
Taxable Accounts
If you own fund shares through a taxable account, you may be taxed on your
investments if the fund makes distributions or if you sell your fund shares.
Taxability of Distributions
Fund distributions may consist of income, such as dividends and interest earned
by a fund from its investments, or capital gains generated by a fund from the
sale of investment securities. Distributions of income are taxed as ordinary
income, unless they are designated as QUALIFIED DIVIDEND INCOME and you meet a
minimum required holding period with respect to your shares of the fund, in
which case distributions of income are taxed as long-term capital gains.
[graphic of triangle)
QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM THE STOCK
OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED THAT THE FUND HAS
HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.
For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:
TAX RATE FOR 10% TAX RATE FOR
TYPE OF DISTRIBUTION AND 15% BRACKETS ALL OTHER BRACKETS
--------------------------------------------------------------------------------
Short-term capital gains Ordinary Income Ordinary Income
--------------------------------------------------------------------------------
Long-term capital gains ( 1 year)
and Qualified Dividend Income 5% 15%
--------------------------------------------------------------------------------
If a fund's distributions exceed its taxable income and capital gains realized
during the tax year, all or a portion of the distributions made by the fund in
that tax year will be considered a return of capital. A return of capital
distribution is generally not subject to tax, but will reduce your cost basis in
the fund and result in higher realized capital gains (or lower realized capital
losses) upon the sale of fund shares.
------
29
The tax status of any distributions of capital gains is determined by how long
the fund held the underlying security that was sold, not by how long you have
been invested in the fund, or whether you reinvest your distributions in
additional shares or take them in cash. For taxable accounts, American Century
or your financial intermediary will inform you of the tax status of fund
distributions for each calendar year in an annual tax mailing.
Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.
Taxes on Transactions
Your redemptions -- including exchanges to other American Century funds -- are
subject to capital gains tax. The table above can provide a general guide for
your potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to those shares. If a loss is realized on the
redemption of fund shares, the reinvestment in additional fund shares within 30
days before or after the redemption may be subject to the wash sale rules of the
Internal Revenue Code. This may result in a postponement of the recognition of
such loss for federal income tax purposes.
If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to withholding, we
are required to withhold and pay to the IRS the applicable federal withholding
tax rate on taxable dividends, capital gains distributions and redemption
proceeds.
Buying a Dividend
Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.
The risk in buying a dividend is that a fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. The fund distributes those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.
If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.
------
30
MULTIPLE CLASS INFORMATION
American Century offers the following classes of shares of the fund: Investor
Class, Institutional Class, A Class, B Class, C Class and R Class.
The classes have different fees, expenses and/or minimum investment
requirements. The difference in the fee structures between the classes is the
result of their separate arrangements for shareholder and distribution services.
It is not the result of any difference in advisory or custodial fees or other
expenses related to the management of the fund's assets, which do not vary by
class. The Institutional Class is made available to institutional shareholders
or through financial intermediaries whose clients do not require the same level
of shareholder and administrative services from the advisor as shareholders of
the other classes. As a result, the advisor is able to charge this class a lower
unified management fee. Different fees and expenses will affect performance.
Except as described below, all classes of shares of a fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the classes are (a) each class may be
subject to different expenses specific to that class; (b) each class has a
different identifying designation or name; (c) each class has exclusive voting
rights with respect to matters solely affecting such class; (d) each class may
have different exchange privileges; (e) the Institutional Class may provide for
automatic conversion from that class into shares of the Investor Class of the
same fund; and (f) the B Class provides for automatic conversion from that class
into shares of A Class of the same fund after eight years.
SERVICE, DISTRIBUTION AND ADMINISTRATIVE FEES
Investment Company Act Rule 12b-1 permits mutual funds that adopt a written plan
to pay certain expenses associated with the distribution of their shares out of
fund assets. Each class, except the Investor Class and Institutional Class,
offered by this prospectus has a 12b-1 plan. The plans provide for the fund to
pay annual fees of 0.25% for A Class, 1.00% for B and C Classes and 0.50% for R
Class to the distributor for distribution and individual shareholder services,
including past distribution services. The distributor pays all or a portion of
such fees to the financial intermediaries that make the classes available.
Because these fees may be used to pay for services that are not related to
prospective sales of the fund, each class will continue to make payments under
its plan even if it is closed to new investors. Because these fees are paid out
of the fund's assets on an ongoing basis, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges. The higher fees for B and C Class shares may cost you more over time
than paying the initial sales charge for A Class shares. For additional
information about the plans and their terms, see MULTIPLE CLASS STRUCTURE in the
statement of additional information.
------
31
Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
fund's distributor may make payments to intermediaries for various additional
services, other expenses and/or the intermediaries' distribution of the fund out
of their profits or other available sources. Such payments may be made for one
or more of the following: (1) distribution, which may include expenses incurred
by intermediaries for their sales activities with respect to the fund, such as
preparing, printing and distributing sales literature and advertising materials
and compensating registered representatives or other employees of such financial
intermediaries for their sales activities, as well as the opportunity for the
fund to be made available by such intermediaries; (2) shareholder services, such
as providing individual and custom investment advisory services to clients of
the financial intermediaries; and (3) marketing and promotional services,
including business planning assistance, educating personnel about the fund, and
sponsorship of sales meetings, which may include covering costs of providing
speakers, meals and other entertainment. The distributor may sponsor seminars
and conferences designed to educate intermediaries about the fund and may cover
the expenses associated with attendance at such meetings, including travel
costs. These payments and activities are intended to provide an incentive to
intermediaries to sell the fund by educating them about the fund and helping
defray the costs associated with offering the fund. The amount of any payments
described by this paragraph is determined by the advisor or the distributor, and
all such amounts are paid out of the available assets of the advisor and
distributor, and not by you or the fund. As a result, the total expense ratio of
the fund will not be affected by any such payments.
------
32
FINANCIAL HIGHLIGHTS
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The tables on the next pages itemize what contributed to the changes in share
price during the most recently ended fiscal year. They also show the changes in
share price for this period in comparison to changes over the last five fiscal
years (or a shorter period if the share class is not five years old). Because
the B, C and R Class shares are new, financial information is not available for
these classes.
On a per-share basis, each table includes as appropriate
* share price at the beginning of the period
* investment income and capital gains or losses
* distributions of income and capital gains paid to investors
* share price at the end of the period
Each table also includes some key statistics for the period as appropriate
* TOTAL RETURN - the overall percentage of return of the fund, assuming the
reinvestment of all distributions
* EXPENSE RATIO - the operating expenses of the fund as a percentage of
average net assets
* NET INCOME RATIO - the net investment income of the fund as a percentage
of average net assets
* PORTFOLIO TURNOVER - the percentage of the fund's investment portfolio that
is replaced during the period
The Financial Highlights that follow have been audited by PricewaterhouseCoopers
LLP, independent registered public accounting firm. Their Report of Independent
Registered Public Accounting Firm and the financial statements are included in
the fund's annual report, which is available upon request.
------
33
INTERNATIONAL BOND FUND
Investor Class
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
2007(1) 2006 2005 2004(2) 2003(2) 2002
-------------------------------------------------------------------------------------------
PER-SHARE DATA
-------------------------------------------------------------------------------------------
Net Asset Value,
Beginning
of Period $13.78 $13.03 $14.76 $13.64 $12.19 $10.08
-------------------------------------------------------------------
Income From
Investment
Operations
Net Investment
Income (Loss)(3) 0.20 0.34 0.30 0.36 0.37 0.36
Net Realized
and Unrealized
Gain (Loss) (0.26) 0.73 (1.49) 1.40 2.03 2.01
-------------------------------------------------------------------
Total From
Investment
Operations (0.06) 1.07 (1.19) 1.76 2.40 2.37
-------------------------------------------------------------------
Distributions
From Net
Investment
Income (0.03) (0.31) (0.41) (0.59) (0.85) (0.26)
From Net
Realized Gains -- (0.01) (0.13) (0.05) (0.10) --
-------------------------------------------------------------------
Total
Distributions (0.03) (0.32) (0.54) (0.64) (0.95) (0.26)
-------------------------------------------------------------------
Net Asset Value,
End of Period $13.69 $13.78 $13.03 $14.76 $13.64 $12.19
===================================================================
TOTAL RETURN(4) (0.45)% 8.25% (8.23)% 13.10% 19.91% 23.53%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net Assets 0.83%(5) 0.82% 0.82% 0.83% 0.84% 0.85%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 2.95%(5) 2.51% 2.17% 2.60% 2.80% 3.28%
Portfolio
Turnover Rate 37% 206% 226% 104% 112% 137%
Net Assets,
End of Period
(in thousands) $1,440,762 $1,317,505 $1,040,576 $976,828 $622,657 $315,491
-------------------------------------------------------------------------------------------
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD.
(2) CERTAIN DISTRIBUTIONS IN 2004 AND 2003 WERE RECLASSIFIED BETWEEN NET
INVESTMENT INCOME AND NET REALIZED GAINS TO CONFORM TO CURRENT YEAR
PRESENTATION.
(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.
------
34
INTERNATIONAL BOND FUND
Institutional Class
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
2007(1) 2006 2005 2004(2)(3)
--------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $13.78 $13.04 $14.77 $13.37
-------------------------------------------
Income From
Investment Operations
Net Investment Income (Loss)(4) 0.21 0.35 0.36 0.17
Net Realized and
Unrealized Gain (Loss) (0.26) 0.74 (1.52) 1.84
-------------------------------------------
Total From
Investment Operations (0.05) 1.09 (1.16) 2.01
-------------------------------------------
Distributions
From Net Investment Income (0.03) (0.34) (0.44) (0.57)
From Net Realized Gains -- (0.01) (0.13) (0.04)
-------------------------------------------
Total Distributions (0.03) (0.35) (0.57) (0.61)
-------------------------------------------
Net Asset Value, End of Period $13.70 $13.78 $13.04 $14.77
===========================================
TOTAL RETURN(5) (0.34)% 8.43% (7.98)% 15.25%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 0.63%(6) 0.62% 0.62% 0.63%(6)
Ratio of Net Investment Income
(Loss) to Average Net Assets 3.15%(6) 2.71% 2.37% 2.88%(6)
Portfolio Turnover Rate 37% 206% 226% 104%(7)
Net Assets, End of Period
(in thousands) $109,350 $88,812 $6,329 $1,263
--------------------------------------------------------------------------------
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD.
(2) AUGUST 2, 2004 (COMMENCEMENT OF SALE) THROUGH DECEMBER 31, 2004.
(3) CERTAIN DISTRIBUTIONS IN 2004 WERE RECLASSIFIED BETWEEN NET INVESTMENT
INCOME AND NET REALIZED GAINS TO CONFORM TO CURRENT YEAR PRESENTATION.
(4) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(5) 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.
(6) ANNUALIZED.
(7) PORTFOLIO TURNOVER IS CALCULATED AT THE FUND LEVEL. PERCENTAGE INDICATED
WAS CALCULATED FOR THE YEAR ENDED DECEMBER 31, 2004.
------
35
INTERNATIONAL BOND FUND
A Class(1)
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
2007(2) 2006 2005 2004(3) 2003(3) 2002
--------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------
Net Asset Value,
Beginning
of Period $13.77 $13.01 $14.75 $13.62 $12.16 $10.03
----------------------------------------------------------
Income From
Investment
Operations
Net Investment
Income (Loss)(4) 0.18 0.30 0.27 0.32 0.29 0.33
Net Realized
and Unrealized
Gain (Loss) (0.26) 0.74 (1.51) 1.42 2.08 2.00
----------------------------------------------------------
Total From
Investment
Operations (0.08) 1.04 (1.24) 1.74 2.37 2.33
----------------------------------------------------------
Distributions
From Net
Investment
Income (0.02) (0.27) (0.37) (0.56) (0.81) (0.20)
From Net
Realized Gains -- (0.01) (0.13) (0.05) (0.10) --
----------------------------------------------------------
Total
Distributions (0.02) (0.28) (0.50) (0.61) (0.91) (0.20)
----------------------------------------------------------
Net Asset Value,
End of Period $13.67 $13.77 $13.01 $14.75 $13.62 $12.16
==========================================================
TOTAL RETURN(5) (0.57)% 8.03% (8.47)% 12.93% 19.60% 23.24%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets 1.08%(6) 1.07% 1.07% 1.08% 1.09% 1.10%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 2.70%(6) 2.26% 1.92% 2.35% 2.55% 3.03%
Portfolio
Turnover Rate 37% 206% 226% 104% 112% 137%
Net Assets,
End of Period
(in thousands) $72,787 $65,452 $61,663 $42,736 $21,137 $3,192
--------------------------------------------------------------------------------
(1) PRIOR TO SEPTEMBER 4, 2007, THE A CLASS WAS REFERRED TO AS THE ADVISOR
CLASS.
(2) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD.
(3) CERTAIN DISTRIBUTIONS IN 2004 AND 2003 WERE RECLASSIFIED BETWEEN NET
INVESTMENT INCOME AND NET REALIZED GAINS TO CONFORM TO CURRENT YEAR
PRESENTATION.
(4) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(5) 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.
(6) ANNUALIZED.
------
36
NOTES
------
37
MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the fund's
investments and the market conditions and investment strategies that
significantly affected the fund's performance during the most recent fiscal
period.
Statement of Additional Information (SAI)
The SAI contains a more detailed legal description of the fund's operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this prospectus. This means that it is legally part of this
prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the fund or your accounts, online at americancentury.com, by
contacting American Century at the addresses or telephone numbers listed below
or by contacting your financial intermediary.
You also can get information about the fund (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
IN PERSON SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
ON THE INTERNET * EDGAR database at sec.gov
* By email request at publicinfo@sec.gov
BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102
This prospectus shall not constitute an offer to sell securities of a fund in
any state, territory, or other jurisdiction where the fund's shares have not
been registered or qualified for sale, unless such registration or qualification
is not required, or under any circumstances in which such offer or solicitation
would be unlawful.
FUND REFERENCE FUND CODE TICKER NEWSPAPER LISTING
--------------------------------------------------------------------------------
International Bond
Investor Class 992 BEGBX IntlBnd
--------------------------------------------------------------------------------
Institutional Class 392 AIDIX IntlBnd
--------------------------------------------------------------------------------
A Class 792 AIBDX IntlBnd
--------------------------------------------------------------------------------
B Class 292 N/A IntlBnd
--------------------------------------------------------------------------------
C Class 492 N/A IntlBnd
--------------------------------------------------------------------------------
R Class 192 N/A IntlBnd
--------------------------------------------------------------------------------
Investment Company Act File No. 811-6441
AMERICAN CENTURY INVESTMENTS
americancentury.com
Banks and Trust Companies, Broker-Dealers,
Self-Directed Retail Investors Financial Professionals, Insurance Companies
P.O. Box 419200 P.O. Box 419786
Kansas City, Missouri 64141-6200 Kansas City, Missouri 64141-6786
1-800-345-2021 or 816-531-5575 1-800-345-6488
0709
SH-PRS-55348
September 28, 2007
AMERICAN CENTURY INVESTMENTS
STATEMENT OF ADDITIONAL INFORMATION
American Century International Bond Funds
International Bond Fund
THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUND'S
PROSPECTUS, DATED SEPTEMBER 28, 2007, BUT IS NOT A PROSPECTUS. THE STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUND'S CURRENT
PROSPECTUS. IF YOU WOULD LIKE A COPY OF THE PROSPECTUS, PLEASE CONTACT US AT ONE
OF THE ADDRESSES OR TELEPHONE NUMBERS LISTED ON THE BACK COVER OR VISIT AMERICAN
CENTURY'S WEB SITE AT AMERICANCENTURY.COM.
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT APPEARS IN THE FUND'S ANNUAL AND SEMIANNUAL REPORTS, WHICH ARE
DELIVERED TO ALL INVESTORS. YOU MAY OBTAIN A FREE COPY OF THE FUND'S ANNUAL OR
SEMIANNUAL REPORT BY CALLING 1-800-345-2021.
American Century Investment Services, Inc., Distributor
[american century investments logo and text logo]
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
Table of Contents
The Fund's History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fund Investment Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . . 2
Currency Management . . . . . . . . . . . . . . . . . . . . . . . . . 3
Fund Investments and Risks. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Strategies and Risks . . . . . . . . . . . . . . . . . . . 4
Investment Policies/ . . . . . . . . . . . . . . . . . . . . . . . . .16
Temporary Defensive Measures/ . . . . . . . . . . . . . . . . . . . . 18
Portfolio Turnover/ . . . . . . . . . . . . . . . . . . . . . . . . . 18
Transactions with Subadvisor Affiliates . . . . . . . . . . . . . . . 19
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Board of Trustees . . . . . . . . . . . . . . . . . . . . . . . . 22
Ownership of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . 25
Code of Ethics. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Proxy Voting Guidelines . . . . . . . . . . . . . . . . . . . . . . . 25
Disclosure of Portfolio Holdings. . . . . . . . . . . . . . . . . . . 26
The Fund's Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . 30
Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Investment Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Subadvisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Portfolio Manager . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Transfer Agent and Administrator. . . . . . . . . . . . . . . . . . . 36
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Custodian Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Independent Registered Public Accounting Firm . . . . . . . . . . . . 37
Brokerage Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Regular Broker-Dealers. . . . . . . . . . . . . . . . . . . . . . . . 37
Information about Fund Shares . . . . . . . . . . . . . . . . . . . . 38
Multiple Class Structure. . . . . . . . . . . . . . . . . . . . . . . 38
Buying and Selling Fund Shares. . . . . . . . . . . . . . . . . . . . 49
Valuation of the Fund's Securities. . . . . . . . . . . . . . . . . . 50
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Federal Income Tax. . . . . . . . . . . . . . . . . . . . . . . . . . 51
State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . 52
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Explanation of Fixed-Income Securities Ratings. . . . . . . . . . . . . . . . 53
THE FUND'S HISTORY
American Century International Bond Funds is a registered open-end management
investment company that was organized as a Massachusetts business trust in 1991
under the name Benham International Funds. In October 1996, it changed its name
to American Century International Bond Funds. Throughout this statement of
additional information we refer to American Century International Bond Funds as
the trust. The trust's fiscal year end was changed from December 31 to June 30
beginning on January 1, 2007.
The fund is a separate series of the trust and operates for many purposes as if
it were an independent company.
The fund's ticker symbols and inception dates of each class of the fund are:
FUND/CLASS TICKER SYMBOL INCEPTION DATE
--------------------------------------------------------------------------------
International Bond
Investor Class BEGBX 01/07/1992
--------------------------------------------------------------------------------
Institutional Class AIDIX 08/02/2004
--------------------------------------------------------------------------------
A Class AIBDX 10/27/1998
--------------------------------------------------------------------------------
B Class AIQBX 09/28/2007
--------------------------------------------------------------------------------
C Class AIQCX 09/28/2007
--------------------------------------------------------------------------------
R Class AIBRX 09/28/2007
--------------------------------------------------------------------------------
FUND INVESTMENT GUIDELINES
This section explains the extent to which the fund's advisor, American Century
Investment Management, Inc., can use various investment vehicles and strategies
in managing the fund's assets. Descriptions of the investment techniques and
risks associated with each appear in the section INVESTMENT STRATEGIES AND
RISKS, which begins on page 4. In the case of the fund's principal investment
strategies, these descriptions elaborate upon the discussion contained in the
prospectus.
The fund is nondiversified as defined in the Investment Company Act of 1940 (the
Investment Company Act). Diversified means that, with respect to 75% of its
total assets, the fund will not invest more than 5% of its total assets in the
securities of a single issuer or own more than 10% of the outstanding voting
securities of a single issuer (other than U.S. government securities and
securities of other investment companies). Nondiversified means that a fund may
invest a greater percentage of its assets in a smaller number of securities than
a diversified fund.
To meet federal tax requirements for qualification as a regulated investment
company, the fund must limit its investments so that at the close of each
quarter of its taxable year
(1) no more than 25% of its total assets are invested in the securities of a
single issuer (other than the U.S. government or a regulated investment
company); and
(2) with respect to at least 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer.
PORTFOLIO COMPOSITION
The portfolio manager intends to keep the fund fully invested in foreign debt
securities. Under normal market conditions, the fund will invest at least 65% of
its total assets in bonds issued or guaranteed by foreign governments or their
agencies and by foreign authorities, provinces and municipalities. The fund may
invest up to 35% of its total assets in high-quality (i.e., rated "AA" or
higher) foreign corporate debt securities.
The fund's investments may include but shall not be limited to: (1) debt
obligations issued or guaranteed by (a) a foreign sovereign government or one of
its agencies, authorities, instrumentalities or political subdivisions including
a foreign state, province
------
2
or municipality, and (b) supranational organizations such as the World Bank,
Asian Development Bank, European Investment Bank, and European Economic
Community; (2) debt obligations of (a) foreign banks and bank holding companies,
and (b) domestic banks and corporations issued in foreign currencies; and (3)
foreign corporate debt securities and commercial paper. All of these investments
must satisfy the credit quality standards (i.e., "AA" or higher) established by
the trustees of the fund.
The fund's credit quality requirements effectively limit the countries in which
the fund may invest. As of the date of this statement of additional information,
the fund expects to invest in the securities of issuers located in and
governments of the following countries: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, Liechtenstein,
Luxembourg, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, Taiwan and the United Kingdom. To limit the possibility
that the fund will become unduly concentrated in Japan, the fund currently
limits its investment in issuers located in Japan to no more than 25% of total
assets.
Some securities will also have the country of issue reported as `Supranational.'
These are organizations that cannot be aligned with one particular country, such
as the International Finance Corporation or the European Development Bank.
For an explanation of the securities ratings referred to in the prospectus and
this statement of additional information, see EXPLANATION OF FIXED-INCOME
SECURITIES RATINGS on page 53.
CURRENCY MANAGEMENT
The rate of exchange between U.S. dollars and foreign currencies fluctuates,
which results in gains and losses to the fund. Even if the fund's foreign
security holdings perform well, an increase in the value of the dollar relative
to the currencies in which portfolio securities are denominated can offset net
investment income.
Because the fund is designed for U.S. investors seeking currency and interest
rate diversification, the fund's subadvisor, J.P. Morgan Investment Management
Inc. (JPMIM), limits its use of hedging strategies intended to minimize the
effect of currency fluctuations. Although hedging strategies (if they are
successful) reduce exchange rate risk, they also reduce the potential for share
price appreciation when foreign currencies increase in value relative to the
U.S. dollar.
When the subadvisor considers the U.S. dollar to be attractive relative to
foreign currencies, as much as 25% of the fund's total assets may be hedged into
U.S. dollars. For temporary defensive purposes and under extraordinary
circumstances (such as significant political events), more than 25% of the
fund's total assets may be hedged in this manner.
In managing the fund's currency exposure, the subadvisor will buy and sell
foreign currencies regularly, either in the spot (i.e., cash) market or the
forward market. Forward foreign currency exchange contracts (forward contracts)
are individually negotiated and privately traded between currency traders
(usually large commercial banks) and their customers. In most cases, no deposit
requirements exist, and these contracts are traded at a net price without
commission. Forward contracts involve an obligation to purchase or sell a
specific currency at an agreed-upon price on a future date. Most contracts
expire in less than one year. The fund also may use futures and options for
currency management purposes. For more information on futures and options,
please see FUTURES AND OPTIONS on page 7.
------
3
FUND INVESTMENTS AND RISKS
INVESTMENT STRATEGIES AND RISKS
This section describes investment vehicles and techniques the portfolio manager
can use in managing the fund's assets. It also details the risks associated with
each, because each investment vehicle and technique contributes to the fund's
overall risk profile.
Asset-Backed Securities (ABS)
To the extent permitted by its investment objective, the fund may invest in
asset-backed securities. ABS are structured like mortgage-backed securities, but
instead of mortgage loans or interest in mortgage loans, the underlying assets
may include, for example, such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, home equity loans, student loans, small business loans, and
receivables from credit card agreements. The ability of an issuer of
asset-backed securities to enforce its security interest in the underlying
assets may be limited. The value of an ABS is affected by changes in the
market's perception of the assets backing the security, the creditworthiness of
the servicing agent for the loan pool, the originator of the loans, the
financial institution providing any credit enhancement, and subordination
levels.
Payments of principal and interest passed through to holders of ABS are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or a priority to
certain of the borrower's other securities. The degree of credit enhancement
varies, and generally applies to only a fraction of the asset-backed security's
par value until exhausted. If the credit enhancement of an ABS held by the fund
has been exhausted, and if any required payments of principal and interest are
not made with respect to the underlying loans, the fund may experience losses or
delays in receiving payment.
Some types of ABS may be less effective than other types of securities as a
means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates. Prepayments may also significantly shorten the
effective maturities of these securities, especially during periods of declining
interest rates. Conversely, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
The risks of investing in ABS are ultimately dependent upon the repayment of
loans by the individual or corporate borrowers. Although the fund would
generally have no recourse against the entity that originated the loans in the
event of default by a borrower, ABS typically are structured to mitigate this
risk of default.
ABS are generally issued in more than one class, each with different payment
terms. Multiple class ABS may be used as a method of providing credit support
through creation of one or more classes whose right to payments is made
subordinate to the right to such payments of the remaining class or classes.
Multiple classes also may permit the issuance of securities with payment terms,
interest rates or other characteristics differing both from those of each other
and from those of the underlying assets. Examples include so-called strips (ABS
entitling the holder to disproportionate interests with respect to the
allocation of interest and principal of the assets backing the security), and
securities with classes having characteristics such as floating interest rates
or scheduled amortization of principal.
------
4
Foreign Currency Exchange Transactions
The fund expects to exchange dollars for the fund's underlying currencies, and
vice versa, in the normal course of managing the fund's underlying investments.
The fund's subadvisor does not expect that the fund will hold currency that is
not earning income on a regular basis, although the fund may do so temporarily
when suitable investments are not available. The fund may purchase and sell
currencies on a spot basis (i.e., for prompt delivery and settlement), or by
entering into forward currency exchange contracts (also called forward
contracts) or other contracts to purchase and sell currencies for settlement at
a future date. The fund will incur costs in converting assets from one currency
to another. Foreign exchange dealers may charge a fee for conversion; in
addition, they realize a profit based on the difference (i.e., the spread)
between the prices at which they buy and sell various currencies in the spot and
forward markets. Thus, a dealer may offer to sell a foreign currency to the fund
at one rate and repurchase it at a lesser rate should the fund desire to resell
the currency to the dealer.
The fund may use foreign currency forward contracts to increase exposure to a
foreign currency, or to shift exposure to the fluctuations in the value of
foreign currencies from one foreign currency to another foreign currency. Open
positions in forwards used for non-hedging purposes will be covered by the
segregation of liquid assets, marked to market daily. Forward contracts are
agreements to exchange a specific amount of one currency for a specified amount
of another at a future date. The date may be any agreed fixed number of days in
the future. The amount of currency to be exchanged, the price at which the
exchange will take place, and the date of the exchange are negotiated when the
fund enters into the contract and are fixed for the term of the contract.
Forward contracts are traded in an interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement and is consummated without payment
of any commission. However, the fund may enter into forward contracts with
deposit requirements or commissions.
At the maturity of a forward contract, the fund may complete the contract by
paying for and receiving the underlying currency, or may seek to roll forward
its contractual obligation by entering into an offsetting transaction with the
same currency trader and paying or receiving the difference between the
contractual exchange rate and the current exchange rate. The fund also may be
able to enter into an offsetting contract prior to the maturity of the
underlying contract. This practice is sometimes referred to as "cross hedging"
and may be employed if, for example, JPMIM believes that one foreign currency
(in which a portion of the fund's foreign currency holdings are denominated)
will change in value relative to the U.S. dollar differently than another
foreign currency. There is no assurance that offsetting transactions, or new
forward contracts, will always be available to the fund.
Investors should realize that the use of forward contracts does not eliminate
fluctuations in the underlying prices of the securities. Such contracts simply
establish a rate of exchange that the fund can achieve at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to fluctuations in the value of the hedged currency when used as a hedge
against foreign currency declines, at the same time they tend to limit any
potential gain that might result from the change in the value of such currency.
Because investments in, and redemptions from, the fund will be in U.S. dollars,
JPMIM expects that the fund's normal investment activity will involve a
significant amount of currency exchange. For example, the fund may exchange its
underlying foreign currencies for U.S. dollars in order to meet shareholder
redemption requests or to pay expenses. These transactions may be executed in
the spot or forward markets.
In addition, the fund may combine forward transactions in its underlying
currency with investments in U.S. dollar-denominated instruments, in an attempt
to construct an investment position whose overall performance will be similar to
that of a security denominated in its underlying currency. If the amount of
dollars to be exchanged is
------
5
properly matched with the anticipated value of the dollar-denominated
securities, the fund should be able to lock in the foreign currency value of the
securities, and the fund's overall investment return from the combined position
should be similar to the return from purchasing a foreign currency-denominated
instrument. This is sometimes referred to as a synthetic investment position or
a position hedge.
The execution of a synthetic investment position may not be successful. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of a
dollar-denominated security is not exactly matched with the fund's obligation
under the forward contract on the contract's maturity date, the fund may be
exposed to some risk of loss from fluctuation of the dollar. Although JPMIM will
attempt to hold such mismatchings to a minimum, there can be no assurance that
JPMIM will be successful in doing so.
Foreign Securities
Investments in foreign securities may present certain risks, including:
CURRENCY RISK - The value of the foreign investments held by the fund may be
significantly affected by changes in currency exchange rates. The dollar value
of a foreign security generally decreases when the value of the dollar rises
against the foreign currency in which the security is denominated, and tends to
increase when the value of the dollar falls against such currency. In addition,
the value of fund assets may be affected by losses and other expenses incurred
in converting between various currencies in order to purchase and sell foreign
securities, and by currency restrictions, exchange control regulation, currency
devaluations and political developments. Please see CURRENCY MANAGEMENT on page
3 for more information.
POLITICAL AND ECONOMIC RISK - The economies of many of the countries in which
the fund invests are not as developed as the economy of the United States and
may be subject to significantly different forces. Political or social
instability, expropriation, nationalization, confiscatory taxation and
limitations on the removal of funds or other assets also could adversely affect
the value of investments. Further, the fund may find it difficult or be unable
to enforce ownership rights, pursue legal remedies or obtain judgments in
foreign courts.
REGULATORY RISK - Foreign companies generally are not subject to the regulatory
controls imposed on U.S. issuers and, in general, there is less publicly
available information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the fund may be reduced by a withholding tax at the source,
which would reduce dividend income payable to shareholders.
MARKET AND TRADING RISK - Brokerage commission rates in foreign countries, which
generally are fixed rather than subject to negotiation as in the United States,
are likely to be higher. The securities markets in many of the countries in
which the fund invests will have substantially less trading volume than the
principal U.S. markets. As a result, the securities of some companies in these
countries may be less liquid and more volatile than comparable U.S. securities.
Furthermore, one securities broker may represent all or a significant part of
the trading volume in a particular country, resulting in higher trading costs
and decreased liquidity due to a lack of alternative trading partners. There
generally is less government regulation and supervision of foreign stock
exchanges, brokers and issuers, which may make it difficult to enforce
contractual obligations.
CLEARANCE AND SETTLEMENT RISK - Foreign securities markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in clearance and settlement could result in temporary periods when assets
of the fund are uninvested and no return is earned. The inability of the fund to
make intended security purchases due to clearance and settlement problems could
cause the fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to clearance and settlement problems
------
6
could result either in losses to the fund due to subsequent declines in the
value of the portfolio security or, if the fund has entered into a contract to
sell the security, liability to the purchaser.
OWNERSHIP RISK - Evidence of securities ownership may be uncertain in many
foreign countries. As a result, there is a risk that a fund's trade details
could be incorrectly or fraudulently entered at the time of the transaction,
resulting in a loss to the fund.
Futures and Options
The fund may enter into futures contracts, options or options on futures
contracts. Futures contracts provide for the sale by one party and purchase by
another party of a specific security at a specified future time and price.
Generally, futures transactions will be used to:
* protect against a decline in market value of the fund's securities (taking a
short futures position),
* protect against the risk of an increase in market value for securities in
which the fund generally invests at a time when the fund is not
fully-invested (taking a long futures position), or
* provide a temporary substitute for the purchase of an individual security
that may not be purchased in an orderly fashion.
Some futures and options strategies, such as selling futures, buying puts and
writing calls, hedge the fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure.
Although other techniques may be used to control the fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While the fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
For example, the sale of a future by the fund means the fund becomes obligated
to deliver the security (or securities, in the case of an index future) at a
specified price on a specified date. The purchase of a future means the fund
becomes obligated to buy the security (or securities) at a specified price on a
specified date. The portfolio manager may engage in futures and options
transactions based on securities indices provided that the transactions are
consistent with the fund's investment objectives. Examples of indices that may
be used include the Morgan Stanley Capital International Europe, Australasia,
Far East Index (MSCI EAFE) and Morgan Stanley Capital International Emerging
Markets Free Index (MSCI EMF). The portfolio manager also may engage in futures
and options transactions based on specific securities, such as U.S. Treasury
bonds or notes. Futures contracts are traded on national futures exchanges.
Domestic futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission (CFTC), a U.S.
government agency.
Index futures contracts differ from traditional futures contracts in that when
delivery takes place, no stocks or bonds change hands. Instead, these contracts
settle in cash at the spot market value of the index. Although other types of
futures contracts by their terms call for actual delivery or acceptance of the
underlying securities, in most cases the contracts are closed out before the
settlement date. A futures position may be closed by taking an opposite position
in an identical contract (i.e., buying a contract that has previously been sold
or selling a contract that has previously been bought).
Unlike when the fund purchases or sells a bond, no price is paid or received by
the fund upon the purchase or sale of the future. Initially, the fund will be
required to deposit an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The
margin deposit is intended to ensure completion of the contract (delivery or
acceptance of the underlying security) if it is not terminated prior to the
specified delivery date. A margin deposit does not constitute a margin
transaction for purposes of the fund's investment restrictions. Minimum initial
margin requirements are established by the futures exchanges and
------
7
may be revised. In addition, brokers may establish margin deposit requirements
that are higher than the exchange minimums. Cash held in the margin accounts
generally is not income-producing. However, coupon bearing securities, such as
Treasury bills and bonds, held in margin accounts generally will earn income.
Subsequent payments to and from the broker, called variation margin, will be
made on a daily basis as the price of the underlying debt securities or index
fluctuates, making the future more or less valuable, a process known as marking
the contract to market. Changes in variation margin are recorded by the fund as
unrealized gains or losses.
At any time prior to expiration of the future, the fund may elect to close the
position by taking an opposite position. A final determination of variation
margin is then made; additional cash is required to be paid by or released to
the fund and the fund realizes a loss or gain.
Purchasing Put and Call Options
By purchasing a put option, the fund obtains the right (but not the obligation)
to sell the option's underlying instrument at a fixed strike price. In return
for this right, the fund pays the current market price for the option (known as
the option premium). Options have various types of underlying instruments,
including specific securities, indices of securities prices, and futures
contracts. The fund may terminate its position in a put option it has purchased
by allowing it to expire or by exercising the option. If the option is allowed
to expire, the fund will lose the entire premium it paid. If the fund exercises
the option, it completes the sale of the underlying instrument at the strike
price. The fund also may terminate a put option position by closing it out in
the secondary market at its current price if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if security prices do
not rise sufficiently to offset the cost of the option.
Writing Put and Call Options
If the fund writes a put option, it takes the opposite side of the transaction
from the option's purchaser. In return for receipt of the premium, the fund
assumes the obligation to pay the strike price for the option's underlying
instrument if the other party chooses to exercise the option. When writing an
option on a futures contract, the fund will be required to make margin payments
to a broker or custodian as described above for futures contracts. The fund may
seek to terminate its position in a put option it writes before exercise by
closing out the option in the secondary market at its current price. However, if
the secondary market is not liquid for a put option the fund has written, the
fund must continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to set aside assets
to cover its position.
If security prices rise, a put writer would generally expect to profit, although
the gain would be limited to the amount of the premium received. If security
prices remain the same over time, the writer also would likely profit by being
able to close out the option at a lower price. If security prices fall, the put
writer would expect to suffer a loss. This loss should be less than the loss
from purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates the fund to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the
------
8
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
Combined Positions
The fund may purchase and write options in combination with one another, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the fund may purchase a
put option and write a call option on the same underlying instrument to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. Another possible combined position would involve
writing a call option at one strike price and buying a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
Over-the-Counter Options
Unlike exchange-traded options, which are standardized with respect to the
underlying instrument, expiration date, contract size, and strike price, the
terms of over-the-counter (OTC) options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the fund greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organizations
of the exchanges where they are traded. The risk of illiquidity also is greater
with OTC options because these options generally can be closed out only by
negotiation with the other party to the option.
Risks Related to Futures and Options Transactions
Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the portfolio manager applies a hedge at an
inappropriate time or judges interest rate trends incorrectly, futures and
options strategies may lower a fund's return.
The fund could suffer losses if it is unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the portfolio manager considers it appropriate or
desirable to do so. In the event of adverse price movements, a fund would be
required to continue making daily cash payments to maintain its required margin.
If the fund had insufficient cash, it might have to sell portfolio securities to
meet daily margin requirements at a time when the portfolio manager would not
otherwise elect to do so. In addition, the fund may be required to deliver or
take delivery of instruments underlying futures contracts it holds. The
portfolio manager will seek to minimize these risks by limiting the futures
contracts entered into on behalf of the fund to those traded on national futures
exchanges and for which there appears to be a liquid secondary market.
The fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by the fund had different maturities than those of
the portfolio securities being hedged. Such imperfect correlation may give rise
to circumstances in which the fund loses money on a futures contract at the same
time that it experiences a decline in the value of its hedged portfolio
securities. The fund also could lose margin payments it has deposited with a
margin broker if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading
------
9
day and, therefore, does not limit potential losses. In addition, the daily
limit may prevent liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
Options on Futures
By purchasing an option on a futures contract, the fund obtains the right, but
not the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. The fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is exercised.
Correlation of Price Changes
Because there are a limited number of types of exchange-traded futures and
options contracts, it is likely that the standardized contracts available will
not match the fund's current or anticipated investments exactly. The fund may
invest in futures and options contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests (for example, by hedging intermediate-term securities with a
futures contract based on an index of long-term bond prices); this involves a
risk that the futures position will not track the performance of the fund's
other investments.
Options and futures prices can diverge from the prices of their underlying
instruments even if the underlying instruments correlate well with the fund's
investments. Options and futures prices are affected by factors such as current
and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation also
may result from differing levels of demand in the options and futures markets
and securities markets, from structural differences in how options and futures
and securities are traded, or from the imposition of daily price fluctuation
limits or trading halts. The fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in an effort to compensate for differences in volatility
between the contract and the securities, although this may not be successful in
all cases. If price changes in the fund's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
Futures and Options Contracts Relating to Foreign Currencies
The fund may purchase and sell currency futures and purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The fund also may purchase and write currency options in connection with
currency futures or forward contracts.
Currency futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges and have standard contract sizes and
delivery dates. Most currency futures contracts call for payment or delivery in
U.S. dollars.
The uses and risks of currency futures are similar to those of futures relating
to securities or indices, as described above. Currency futures values can be
expected to correlate with exchange rates but may not reflect other factors that
affect the value of the fund's investments. A currency hedge, for example,
should protect a German-mark-denominated security from a decline in the German
mark, but it will not protect the fund against a price decline resulting from a
deterioration in the issuer's creditworthiness.
Liquidity of Futures Contracts and Options
There is no assurance that a liquid secondary market will exist for any
particular futures contract or option at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are not close
to the underlying instrument's
------
10
current price. In addition, exchanges may establish daily price fluctuation
limits for futures contracts and options and may halt trading if a contract's
price moves upward or downward more than the limit on a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the fund to enter into new positions or close
out existing positions. If the secondary market for a contract was not liquid,
because of price fluctuation limits or otherwise, prompt liquidation of
unfavorable positions could be difficult or impossible, and the fund could be
required to continue holding a position until delivery or expiration regardless
of changes in its value. Under these circumstances, the fund's access to assets
held to cover its future positions also could be impaired.
Futures and options trading on foreign exchanges may not be regulated as
effectively as similar transactions in the U.S. and may not involve clearing
mechanisms or guarantees similar to those available in the U.S. The value of a
futures contract or option traded on a foreign exchange may be adversely
affected by the imposition of different exercise and settlement terms, trading
procedures, margin requirements and lesser trading volume.
Restrictions on the Use of Futures Contracts and Options
The fund may enter into futures contracts, options or options on futures
contracts.
Under the Commodity Exchange Act, the fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for purposes other than
hedging, provided that assets committed to initial margin and option premiums do
not exceed 5% of the fund's total assets. To the extent required by law, the
fund will segregate cash, cash equivalents or other appropriate liquid
securities on its records in an amount sufficient to cover its obligations under
the futures contracts and options.
Mortgage-Related Securities
To the extent permitted by its investment objective, the fund may invest in
mortgage-related securities.
Background
A mortgage-backed security represents an ownership interest in a pool of
mortgage loans. The loans are made by financial institutions to finance home and
other real estate purchases. As the loans are repaid, investors receive payments
of both interest and principal.
Like fixed-income securities, mortgage-backed securities pay a stated rate of
interest during the life of the security. However, unlike a bond, which returns
principal to the investor in one lump sum at maturity, mortgage-backed
securities return principal to the investor in increments during the life of the
security.
Because the timing and speed of principal repayments vary, the cash flow on
mortgage-backed securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages or default on their loans, the
principal is distributed pro rata to investors.
As with other fixed-income securities, the prices of mortgage-backed securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage-backed securities rise, and vice versa. Changing interest
rates have additional significance for mortgage-backed securities investors,
however, because they influence prepayment rates (the rates at which mortgage
holders prepay their mortgages), which in turn affect the yields on
mortgage-backed securities. When interest rates decline, prepayment rates
generally increase. Mortgage holders take advantage of the opportunity to
refinance their mortgages at lower rates with lower monthly payments. When
interest rates rise, mortgage holders are less inclined to refinance their
mortgages. The effect of prepayment activity on yield depends on whether the
mortgage-backed security was purchased at a premium or at a discount.
------
11
The fund may receive principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, the fund might miss an opportunity to earn interest at higher
prevailing rates.
Collateralized Mortgage Obligations (CMOs)
A CMO is a multiclass bond backed by a pool of mortgage pass-through
certificates or mortgage loans. In structuring a CMO, an issuer distributes cash
flow from the underlying collateral over a series of classes called tranches.
Each CMO is a set of two or more tranches, with average lives and cash flow
patterns designed to meet specific investment objectives. The average life
expectancies of the different tranches in a four-part deal, for example, might
be two, five, seven and 20 years.
As payments on the underlying mortgage loans are collected, the CMO issuer pays
the coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off. This basic type of CMO is known as a
sequential pay or plain vanilla CMO.
Some CMOs are structured so that the prepayment or market risks are transferred
from one tranche to another. Prepayment stability is improved in some tranches
if other tranches absorb more prepayment variability.
The final tranche of a CMO often takes the form of a Z-bond, also known as an
accrual bond or accretion bond. Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding, periodic interest payments are added to the initial
face amount of the Z-bond but are not paid to investors. When the prior tranches
are retired, the Z-bond receives coupon payments on its higher principal balance
plus any principal prepayments from the underlying mortgage loans. The existence
of a Z-bond tranche helps stabilize cash flow patterns in the other tranches. In
a changing interest rate environment, however, the value of the Z-bond tends to
be more volatile.
As CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche -- known as a companion bond, support or
non-PAC bond -- that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.
Floating-rate CMO tranches (floaters) pay a variable rate of interest.
Institutional investors with short-term liabilities, such as commercial banks,
often find floating-rate CMOs attractive investments. Super floaters and inverse
floaters are variations on the floater structure that have highly variable cash
flows.
Commercial Mortgage-Backed Securities (CMBS)
CMBS are securities created from a pool of commercial mortgage loans, such as
loans for hotels, shopping centers, office buildings, apartment buildings, and
the like. Interest and principal payments from these loans are passed on to the
investor according to a particular schedule of payments. The credit quality of
CMBS depends primarily on the quality
------
12
of the underlying loans and on the structure of the particular deal. Generally,
deals are structured with senior and subordinate classes. Multiple classes may
permit the issuance of securities with payment terms, interest rates, or other
characteristics differing both from those of each other and those of the
underlying assets. Examples include classes having characteristics such as
floating interest rates or scheduled amortization of principal. Rating agencies
rate the individual classes of the deal based on the degree of seniority or
subordination of a particular class and other factors. The value of these
securities may change because of actual or perceived changes in the
creditworthiness of individual borrowers, their tenants, the servicing agents,
or the general state of commercial real estate and other factors.
CMBS may be partially stripped so that each investor class receives some
interest and some principal. When securities are completely stripped, however,
all of the interest is distributed to holders of one type of security, known as
an interest-only security (IO), and all of the principal is distributed to
holders of another type of security known as a principal-only security (PO). The
funds are permitted to invest in IO classes of CMBS. As interest rates rise and
fall, the value of IOs tends to move in the same direction as interest rates.
The cash flows and yields on IO classes are extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets. In the cases of IOs, prepayments affect the amount of cash flows
provided to the investor. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, an investor may fail to fully recoup
its initial investment in an IO class of a stripped mortgage-backed security,
even if the IO class is rated AAA or Aaa or is derived from a full faith and
credit obligation. However, because commercial mortgages are often locked out
from prepayment, or have high prepayment penalties or a defeasance mechanism,
the prepayment risk associated with a CMBS IO class is generally less than that
of a residential IO.
Adjustable-Rate Mortgage Loans (ARMs)
ARMs eligible for inclusion in a mortgage pool generally will provide for a
fixed initial mortgage interest rate for a specified period of time, generally
for either the first three, six, 12, 24, 36, 60 or 84 scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes in an index.
ARMs have minimum and maximum rates beyond which the mortgage interest rate may
not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
Other Investment Companies
The fund may invest in other investment companies, such as mutual funds,
provided that the investment is consistent with the fund's investment policies
and restrictions. Under the Investment Company Act, a fund's investment in such
securities, subject to certain exceptions, currently is limited to
* 3% of the total voting stock of any one investment company
* 5% of the fund's total assets with respect to any one investment company
and
* 10% of the fund's total assets in the aggregate.
A fund's investments in other investment companies may include money market
funds managed by the advisor. Investments in money market funds are not subject
to the percentage limitations set forth above.
Such purchases will be made in the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary brokers'
commissions. As a shareholder of another investment company, a fund would bear,
along with
------
13
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
management fee that the fund bears directly in connection with its own
operations.
Each fund may invest in exchange traded funds (ETFs), such as Standard & Poor's
Depositary Receipts (SPDRs) and the Lehman Aggregate Bond ETF, with the same
percentage limitations as investments in registered investment companies. ETFs
are a type of fund bought and sold on a securities exchange. An ETF trades like
common stock and usually represents a fixed portfolio of securities designed to
track the performance and dividend yield of a particular domestic or foreign
market index. A fund may purchase an ETF to temporarily gain exposure to a
portion of the U.S. or a foreign market while awaiting purchase of underlying
securities. The risks of owning an ETF generally reflect the risks of owning the
underlying securities they are designed to track, although the lack of liquidity
on an ETF could result in it being more volatile. Additionally, ETFs have
management fees, which increase their cost.
Portfolio Lending
In order to realize additional income, the fund may lend its portfolio
securities. Such loans may not exceed one-third of the fund's total net assets
valued at market except
* through the purchase of debt securities in accordance with its investment
objectives, policies and limitations; or
* by engaging in repurchase agreements with respect to portfolio securities.
Repurchase Agreements
The fund may invest in repurchase agreements when they present an attractive
short-term return on cash that is not otherwise committed to the purchase of
securities pursuant to the investment policies of the fund.
A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
Because the security purchased constitutes collateral for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the seller's ability to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.
The fund will limit repurchase agreement transactions to securities issued by
the U.S. government and its agencies and instrumentalities, and will enter into
such transactions with those banks and securities dealers who are deemed
creditworthy pursuant to criteria adopted by the fund's advisor.
Repurchase agreements maturing in more than seven days would count toward the
fund's 15% limit on illiquid securities.
Short-Term Securities
In order to meet anticipated redemptions, anticipated purchases of additional
securities for the fund's portfolio, or, in some cases, for temporary defensive
purposes, the fund may invest a portion of its assets in money market and other
short-term securities.
Examples of those securities include:
* Securities issued or guaranteed by the U.S. government and its agencies
and instrumentalities;
* Commercial Paper;
------
14
* Certificates of Deposit and Euro Dollar Certificates of Deposit;
* Bankers' Acceptances;
* Short-term notes, bonds, debentures or other debt instruments;
* Repurchase agreements; and
* Money market funds.
U.S. Government Securities
The fund may invest in U.S. government securities including bills, notes and
bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. government.
Some U.S. government securities are supported by the direct full faith and
credit of the U.S. government; others are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as securities issued by the
Federal National Mortgage Association (FNMA), are supported by the discretionary
authority of the U.S. government to purchase the agencies' obligations; and
others are supported only by the credit of the issuing or guaranteeing
instrumentality. There is no assurance that the U.S. government will provide
financial support to an instrumentality it sponsors when it is not obligated by
law to do so.
When-Issued and Forward Commitment Agreements
The fund may sometimes purchase new issues of securities on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date.
For example, a fund may sell a security and at the same time make a commitment
to purchase the same or a comparable security at a future date and specified
price. Conversely, a fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as dollar-rolls, buy/sell back transactions, cash and carry, or
financing transactions. For example, a broker-dealer may seek to purchase a
particular security that a fund owns. The fund will sell that security to the
broker-dealer and simultaneously enter into a forward commitment agreement to
buy it back at a future date. This type of transaction generates income for the
fund if the dealer is willing to execute the transaction at a favorable price in
order to acquire a specific security.
When purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of the security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a fund
will segregate cash, cash equivalents or other appropriate liquid securities on
its record in an amount sufficient to meet the purchase price. To the extent a
fund remains fully invested or almost fully invested at the same time it has
purchased securities on a when-issued basis, there will be greater fluctuations
in its net asset value than if it solely set aside cash to pay for when-issued
securities. When the time comes to pay for the when-issued securities, the fund
will meet its obligations with available cash, through the sale of securities,
or, although it would not normally expect to do so, by selling the when-issued
securities themselves (which may have a market value greater or less than the
fund's payment obligation). Selling securities to meet when-issued or forward
commitment obligations may generate taxable capital gains or losses.
------
15
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the policies described below apply at the time the fund enters into a
transaction. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in the fund's assets will not be considered
in determining whether it has complied with its investment policies.
Fundamental Investment Policies
The fund's fundamental investment policies are set forth below. These investment
policies and the fund's investment objective set forth in its prospectus may not
be changed without approval of a majority of the outstanding votes of
shareholders of the fund, as determined in accordance with the Investment
Company Act.
SUBJECT POLICY
--------------------------------------------------------------------------------
Senior Securities The fund may not issue senior securities, except
as permitted under the Investment Company Act.
--------------------------------------------------------------------------------
Borrowing The fund may not borrow money, except that the fund may
borrow for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33-1/3%
of the fund's total assets (including the amount borrowed)
less liabilities (other than borrowings).
--------------------------------------------------------------------------------
Lending The fund may not lend any security or make any other loan
if, as a result, more than 33-1/3% of the fund's total
assets would be lent to other parties, except, (i) through
the purchase of debt securities in accordance with its
investment objective, policies and limitations or (ii) by
engaging in repurchase agreements with respect to portfolio
securities.
--------------------------------------------------------------------------------
Real Estate The fund may not purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments. This policy shall not prevent a fund from
investing in securities or other instruments backed by real
estate or securities of companies that deal in real estate or
are engaged in the real estate business.
--------------------------------------------------------------------------------
Concentration The fund may not concentrate its investments in securities of
issuers in a particular industry (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities).
--------------------------------------------------------------------------------
Underwriting The fund may not act as an underwriter of securities issued
by others, except to the extent that the fund may be
considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted
securities.
--------------------------------------------------------------------------------
Commodities The fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments provided that this limitation shall not prohibit
the fund from purchasing or selling options and futures
contracts or from investing in securities or other
instruments backed by physical commodities.
--------------------------------------------------------------------------------
Control The fund may not invest for purposes of exercising control
over management.
--------------------------------------------------------------------------------
For purposes of the investment policies relating to lending and borrowing, the
fund has received an exemptive order from the SEC regarding an interfund lending
program. Under the terms of the exemptive order, the fund may borrow money from
or lend money to other American Century-advised funds that permit such
transactions. All such transactions will be subject to the limits for borrowing
and lending set forth above. The fund will borrow money through the program only
when the costs are equal to or lower than the costs of short-term bank loans.
Interfund loans and borrowings normally extend only overnight but can have a
maximum duration of seven days. The fund will lend through the program only when
the returns are higher than those available from other short-term instruments
(such as repurchase agreements). The fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed. Any delay in
repayment to a lending fund could result in a lost investment opportunity or
additional borrowing costs.
------
16
For purposes of the investment policy relating to concentration, the fund shall
not purchase any securities that would cause 25% or more of the value of the
fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that
(a) there is no limitation with respect to obligations issued or guaranteed by
the U.S. government, any state, territory or possession of the United
States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and repurchase agreements
secured by such obligations,
(b) wholly owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing the
activities of their parents,
(c) utilities will be divided according to their services, for example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry, and
(d) personal credit and business credit businesses will be considered separate
industries.
Nonfundamental Investment Policies
In addition, the fund is subject to the following investment policies that are
not fundamental and may be changed by the Board of Trustees.
SUBJECT POLICY
--------------------------------------------------------------------------------
Leveraging The fund may not purchase additional investment securities at any
time during which outstanding borrowings exceed 5% of the total
assets of the fund.
--------------------------------------------------------------------------------
Liquidity The fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its net
assets would be invested in illiquid securities. Illiquid
securities include repurchase agreements not entitling the
holder to payment of principal and interest within seven days
and in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily
available market.
--------------------------------------------------------------------------------
Short Sales The fund may not sell securities short, unless it owns or
has the right to obtain securities equivalent in-kind and amount
to the securities sold short, and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short.
--------------------------------------------------------------------------------
Margin The fund may not purchase securities on margin, except to obtain
such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
--------------------------------------------------------------------------------
Futures The fund may enter into futures contracts and write and buy
and Options put and call options relating to futures contracts.
A fund may not, however, enter into leveraged futures transactions
if it would be possible for the fund to lose more than the
notional value of the investment.
--------------------------------------------------------------------------------
Issuers with A fund may invest a portion of its assets in the securities of
Limited issuers with limited operating histories. An issuer is
Operating considered to have a limited operating history if that issuer has
Histories a record of less than three years of continuous operation.
Periods of capital formation, incubation, consolidations, and
research and development may be considered in determining whether
a particular issuer has a record of three years of continuous
operation.
--------------------------------------------------------------------------------
------
17
The Investment Company Act imposes certain additional restrictions upon the
fund's ability to acquire securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as defined by the Act. It also defines and forbids the
creation of cross and circular ownership. Neither the SEC nor any other agency
of the federal or state government participates in or supervises the management
of the fund or its investment practices or policies.
TEMPORARY DEFENSIVE MEASURES
For temporary defensive purposes, the fund may invest in securities that may not
fit its investment objective or its stated market. During a temporary defensive
period, the fund may direct its assets to the following investment vehicles:
* interest-bearing bank accounts or Certificates of Deposit;
* U.S. government securities and repurchase agreements collateralized by
U.S. government securities; and
* money market funds.
To the extent the fund assumes a defensive position, it will not be pursuing its
investment objective.
PORTFOLIO TURNOVER
The portfolio turnover rate of the fund is listed in the FINANCIAL HIGHLIGHTS
table in the prospectus.
The portfolio manager will sell securities without regard to the length of time
the security has been held. Accordingly, the fund's rate of portfolio turnover
may be substantial.
The portfolio manager intends to purchase a particular security whenever he
believes it will contribute to the stated objective of the fund. In order to
achieve the fund's investment objective, the portfolio manager may sell a given
security, regardless of the length of time it has been held in the portfolio,
and, regardless of the gain or loss realized on the sale. The manager may sell a
portfolio security if he believes that the security is not fulfilling its
purpose because, among other things, it did not live up to the manager's
expectations, because it may be replaced with another security holding greater
promise, because it has reached its optimum potential, because of a change in
the circumstances of a particular company or industry or in general economic
conditions, or because of some combination of such reasons.
Because investment decisions are based on a particular security's anticipated
contribution to the fund's objectives, the manager believes that the rate of
portfolio turnover is irrelevant when he determines that a change is required to
pursue the fund's investment objective. As a result, the fund's annual portfolio
turnover rate cannot be anticipated and may be higher than other mutual funds
with similar investment objectives. Portfolio turnover also may affect the
character of capital gains realized and distributed by the fund, if any, since
short-term capital gains are taxable as ordinary income.
Because the manager does not take portfolio turnover rate into account in making
investment decisions, (1) the manager has no intention of maintaining any
particular rate of portfolio turnover, whether high or low, and (2) the
portfolio turnover rates in the past should not be considered as representative
of the rates that will be attained in the future.
Variations in a fund's portfolio turnover rate from year to year may be due to a
fluctuating volume of shareholder purchase and redemption activity, varying
market conditions, and/or changes in the manager's investment outlook.
------
18
TRANSACTIONS WITH SUBADVISOR AFFILIATES
As described in further detail under the section titled INVESTMENT ADVISOR, J.P.
Morgan Investment Management, Inc. (JPMIM) is the subadvisor to the fund
pursuant to an agreement with American Century Investment Management, Inc.
The subadvisor, a wholly owned subsidiary of J.P. Morgan Chase & Co. (J.P.
Morgan Chase) and a corporation organized under the laws of the State of
Delaware, is a registered investment adviser under the Investment Advisers Act
of 1940, as amended. The subadvisor is located at 245 Park Avenue, New York, New
York 10167.
J.P. Morgan Chase, a bank holding company organized under the laws of the State
of Delaware, was formed from the merger of J.P. Morgan & Co. Incorporated with
and into The Chase Manhattan Corporation. J.P. Morgan Chase, together with its
predecessors, has been in the banking and investment advisory business for over
100 years and today, through JPMIM and its other subsidiaries (such as, Morgan
Guaranty Trust Company of New York [Morgan Guaranty], J. P. Morgan Securities
Inc., and J.P. Morgan Securities Ltd.), offers a wide range of banking and
investment management services to governmental, institutional, corporate and
individual clients. These subsidiaries are hereafter referred to as Morgan
affiliates.
J.P. Morgan Securities Inc. is a broker-dealer registered with the SEC and is a
member of the Financial Industry Regulatory Authority. It is active as a dealer
in U.S. government securities and an underwriter of and dealer in U.S.
government agency securities and money market instruments.
J.P. Morgan Securities Ltd. underwrites, distributes, and trades international
securities, including Eurobonds, commercial paper, and foreign government bonds.
J.P. Morgan Chase issues commercial paper and long-term debt securities. Morgan
Guaranty and some of its affiliates issue certificates of deposit and create
bankers' acceptances.
The fund will not invest in securities issued or created by a Morgan affiliate.
Certain activities of Morgan affiliates may affect the fund's portfolio or the
markets for securities in which the fund invests. In particular, activities of
Morgan affiliates may affect the prices of securities held by the fund and the
supply of issues available for purchase by the fund. Where a Morgan affiliate
holds a large portion of a given issue, the price at which that issue is traded
may influence the price of similar securities the fund holds or is considering
purchasing.
The fund will not purchase securities directly from Morgan affiliates, and the
size of Morgan affiliates' holdings may limit the selection of available
securities in a particular maturity, yield, or price range. The fund will not
execute any transactions with Morgan affiliates and will use only unaffiliated
broker-dealers. In addition, the fund will not purchase any securities of U.S.
government agencies during the existence of an underwriting or selling group of
which a Morgan affiliate is a member, except to the extent permitted by law.
The fund's ability to engage in transactions with Morgan affiliates is
restricted by the SEC and the Federal Reserve Board. In JPMIM's opinion, these
limitations should not significantly impair the fund's ability to pursue its
investment objectives. However, there may be circumstances in which the fund is
disadvantaged by these limitations compared to other funds with similar
investment objectives that are not subject to these limitations.
In acting for its fiduciary accounts, including the fund, JPMIM will not discuss
its investment decisions or positions with the personnel of any Morgan
affiliate. JPMIM has informed the fund that, in making investment decisions, it
will not obtain or use material, non-public information in the possession of any
division or department of JPMIM or other Morgan affiliates.
The commercial banking divisions of Morgan Guaranty and its affiliates may have
deposit, loan, and other commercial banking relationships with issuers of
securities the fund purchases, including loans that may be repaid in whole or in
part with the proceeds
------
19
of securities purchased by the fund. Except as may be permitted by applicable
law, the fund will not purchase securities in any primary public offering when
the prospectus discloses that the proceeds will be used to repay a loan from
Morgan Guaranty. JPMIM will not cause the fund to make investments for the
direct purpose of benefiting other commercial interests of Morgan affiliates at
the fund's expense.
MANAGEMENT
The individuals listed below serve as trustees or officers of the fund. Each
trustee serves until his or her successor is duly elected and qualified or until
he or she retires. Effective March 2004, mandatory retirement age for
independent trustees is 73. However, the mandatory retirement age may be
extended for a period not to exceed two years with the approval of the remaining
independent trustees. Those listed as interested trustees are "interested"
primarily by virtue of their engagement as directors and/or officers of, or
ownership interest in, American Century Companies, Inc. (ACC) or its wholly
owned, direct or indirect, subsidiaries, including the fund's investment
advisor, American Century Investment Management, Inc. (ACIM or the advisor); the
fund's principal underwriter, American Century Investment Services, Inc. (ACIS);
and the fund's transfer agent, American Century Services, LLC (ACS).
The other trustees (more than three-fourths of the total number) are
independent; that is, they have never been employees, directors or officers of,
and have no financial interest in, ACC or any of its wholly owned, direct or
indirect, subsidiaries, including ACIM, ACIS and ACS. The trustees serve in this
capacity for eight registered investment companies in the American Century
family of funds.
All persons named as officers of the fund also serve in similar capacities for
the other 14 investment companies in the American Century family of funds
advised by ACIM or American Century Global Investment Management, Inc. (ACGIM),
a wholly owned subsidiary of ACIM, unless otherwise noted. Only officers with
policy-making functions are listed. No officer is compensated for his or her
service as an officer of the fund. The listed officers are interested persons of
the fund and are appointed or re-appointed on an annual basis.
Interested Trustee
--------------------------------------------------------------------------------
JONATHAN S. THOMAS, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1963
POSITION(S) HELD WITH FUND: Trustee and President (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Executive
Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC
(February 2006 to February 2007); Executive Vice President, ACC (November 2005
to February 2007). Also serves as: President, Chief Executive Officer and
Director, ACS; Executive Vice President, ACIM and ACGIM; Director, ACIM, ACGIM,
ACIS and other ACC subsidiaries. Managing Director, MORGAN STANLEY (March 2000
to November 2005)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 105
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
--------------------------------------------------------------------------------
Independent Trustees
--------------------------------------------------------------------------------
JOHN FREIDENRICH, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1937
POSITION(S) HELD WITH FUND: Trustee (since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member and Manager, REGIS
MANAGEMENT COMPANY, LLC (April 2004 to present); Partner and Founder, BAY
PARTNERS (Venture capital firm, 1976 to 2006)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 39
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
--------------------------------------------------------------------------------
------
20
RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1946
POSITION(S) HELD WITH FUND: Trustee (since 1995) and Chairman of the Board
(since 2005)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law
and Business, STANFORD LAW SCHOOL (1979 to present); Marc and Eva Stern
Professor of Law and Business, COLUMBIA UNIVERSITY SCHOOL OF LAW (1992 to
present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 39
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
--------------------------------------------------------------------------------
KATHRYN A. HALL, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: Trustee (since 2001)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer and Chief
Investment Officer, HALL CAPITAL PARTNERS, LLC (April 2002 to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 39
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
--------------------------------------------------------------------------------
PETER F. PERVERE, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1947
POSITION(S) HELD WITH FUND: Trustee (since 2007)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, formerly Vice President
and Chief Financial Officer, COMMERCE ONE, INC. (software and services provider)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 39
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, INTRAWARE, INC.
--------------------------------------------------------------------------------
MYRON S. SCHOLES, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1941
POSITION(S) HELD WITH FUND: Trustee (since 1980)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chairman, PLATINUM GROVE ASSET
MANAGEMENT, L.P. and a Partner, OAK HILL CAPITAL MANAGEMENT (1999 to present);
Frank E. Buck Professor of Finance-Emeritus, STANFORD GRADUATE SCHOOL OF
BUSINESS (1996 to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 39
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, DIMENSIONAL FUND ADVISORS
(investment advisor, 1982 to present); Director, CHICAGO MERCANTILE EXCHANGE
(2000 to present)
--------------------------------------------------------------------------------
JOHN B. SHOVEN, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1947
POSITION(S) HELD WITH FUND: Trustee (since 2002)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, STANFORD
UNIVERSITY (1973 to present)
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 39
OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, CADENCE DESIGN SYSTEMS (1992 to
present)
--------------------------------------------------------------------------------
JEANNE D. WOHLERS, 1665 Charleston Road, Mountain View, CA 94043
YEAR OF BIRTH: 1945
POSITION(S) HELD WITH FUND: Trustee (since 1984)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 39
OTHER DIRECTORSHIPS HELD BY TRUSTEE: None
--------------------------------------------------------------------------------
Officers
--------------------------------------------------------------------------------
MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1956
POSITION(S) HELD WITH FUND: Chief Compliance Officer (since 2006) and Senior
Vice President (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACIM,
ACGIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995
to August 2006); and Treasurer and Chief Financial Officer, various American
Century funds (July 2000 to August 2006). Also serves as: Senior Vice President,
ACS
--------------------------------------------------------------------------------
------
21
CHARLES A. ETHERINGTON, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1957
POSITION(S) HELD WITH FUND: General Counsel (since 2007) and Senior Vice
President (since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACC (November 2005
to present); General Counsel, ACC (March 2007 to present). Also serves as:
General Counsel, ACIM, ACGIM, ACS, ACIS and other ACC subsidiaries; and Senior
Vice President, ACIM, ACGIM and ACS
--------------------------------------------------------------------------------
ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1966
POSITION(S) HELD WITH FUND: Vice President, Treasurer and Chief Financial
Officer (all since 2006)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACS (February 2000
to present); and Controller, various American Century funds (1997 to September
2006)
--------------------------------------------------------------------------------
JON ZINDEL, 4500 Main Street, Kansas City, MO 64111
YEAR OF BIRTH: 1967
POSITION(S) HELD WITH FUND: Tax Officer (since 2000)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer and Chief
Accounting Officer, ACC (March 2007 to present); Vice President, ACC (October
2001 to present); Vice President, certain ACC subsidiaries (October 2001 to
August 2006); Vice President, Corporate Tax, ACS (April 1998 to August 2006).
Also serves as: Chief Financial Officer, Chief Accounting Officer and Senior
Vice President, ACIM, ACGIM, ACS and other ACC subsidiaries; and Chief
Accounting Officer and Senior Vice President, ACIS
--------------------------------------------------------------------------------
THE BOARD OF TRUSTEES
The Board of Trustees oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the fund, it has hired the advisor to do so. The
trustees, in carrying out their fiduciary duty under the Investment Company Act
of 1940, are responsible for approving new and existing management contracts
with the fund's advisor.
The board has the authority to manage the business of the fund on behalf of
their investors, and it has all powers necessary or convenient to carry out that
responsibility. Consequently, the trustees may adopt bylaws providing for the
regulation and management of the affairs of the fund and may amend and repeal
them to the extent that such bylaws do not reserve that right to the fund's
investors. They may fill vacancies in or reduce the number of board members, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate. They may appoint from their own number and establish and
terminate one or more committees consisting of two or more trustees who may
exercise the powers and authority of the board to the extent that the trustees
determine. They may, in general, delegate such authority as they consider
desirable to any officer of the fund, to any committee of the board and to any
agent or employee of the fund or to any custodian, transfer or investor
servicing agent, or principal underwriter. Any determination as to what is in
the interests of the fund made by the trustees in good faith shall be
conclusive.
The Advisory Board
The fund also has an Advisory Board. Members of the Advisory Board, if any,
function like fund trustees in many respects, but do not possess voting power.
Advisory Board members attend all meetings of the Board of Trustees and the
independent trustees and receive any materials distributed in connection with
such meetings. Advisory Board members may be considered as candidates to fill
vacancies on the Board of Trustees.
------
22
Committees
The board has four standing committees to oversee specific functions of the
fund's operations. Information about these committees appears in the table
below. The trustee first named serves as chairman of the committee.
--------------------------------------------------------------------------------
COMMITTEE: Audit and Compliance
MEMBERS: Peter F. Pervere, Jeanne D. Wohlers, Ronald J. Gilson
FUNCTION: The Audit and Compliance Committee approves the engagement of the
fund's independent registered public accounting firm, recommends approval of
such engagement to the independent trustees, and oversees the activities of the
fund's independent registered public accounting firm. The committee receives
reports from the advisor's Internal Audit Department, which is accountable to
the committee. The committee also receives reporting about compliance matters
affecting the fund.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 2(1)
--------------------------------------------------------------------------------
COMMITTEE: Corporate Governance
MEMBERS: Ronald J. Gilson, John Freidenrich, John B. Shoven
FUNCTION: The Corporate Governance Committee reviews board procedures and
committee structures. It also considers and recommends individuals for
nomination as trustees. The names of potential trustee candidates may be drawn
from a number of sources, including recommendations from members of the board,
management (in the case of interested trustees only) and shareholders.
Shareholders may submit trustee nominations to the Corporate Secretary, American
Century Funds, P.O. Box 410141, Kansas City, MO 64141. All such nominations will
be forwarded to the committee for consideration. The committee also may
recommend the creation of new committees, evaluate the membership structure of
new and existing committees, consider the frequency and duration of board and
committee meetings and otherwise evaluate the responsibilities, processes,
resources, performance and compensation of the board.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 1(1)
--------------------------------------------------------------------------------
COMMITTEE: Portfolio
MEMBERS: Myron S. Scholes, John Freidenrich, Kathryn A. Hall
FUNCTION: The Portfolio Committee reviews quarterly the investment activities
and strategies used to manage fund assets. The committee regularly receives
reports from portfolio managers, credit analysts and other investment personnel
concerning the fund's investments.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 2(1)
--------------------------------------------------------------------------------
COMMITTEE: Quality of Service
MEMBERS: John B. Shoven, Ronald J. Gilson, Peter F. Pervere
FUNCTION: The Quality of Service Committee reviews the level and quality of
transfer agent and administrative services provided to the fund and their
shareholders. It receives and reviews reports comparing those services to those
of fund competitors and seeks to improve such services where feasible and
appropriate.
NUMBER OF MEETINGS HELD DURING LAST FISCAL YEAR: 2(1)
--------------------------------------------------------------------------------
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD.
Compensation of Trustees
The trustees serve as trustees for eight American Century investment companies.
Each trustee who is not an interested person as defined in the Investment
Company Act receives compensation for service as a member of the board of all
such companies based on a schedule that takes into account the number of
meetings attended and the assets of the fund for which the meetings are held.
These fees and expenses are divided among these investment companies based, in
part, upon their relative net assets. Under the terms of the management
agreement with the advisor, the fund is responsible for paying such fees and
expenses.
The following table shows the aggregate compensation paid by the fund for the
periods indicated and by the investment companies served by the board to each
trustee who is not an interested person as defined in the Investment Company
Act.
------
23
AGGREGATE TRUSTEE COMPENSATION FOR FISCAL YEAR ENDED JUNE 30, 2007(1)
--------------------------------------------------------------------------------
TOTAL COMPENSATION
FROM THE
TOTAL COMPENSATION AMERICAN CENTURY
NAME OF TRUSTEE FROM THE FUND(2) FAMILY OF FUNDS(3)
--------------------------------------------------------------------------------
John Freidenrich $4,647 $58,750
--------------------------------------------------------------------------------
Ronald J. Gilson $7,413 $96,500
--------------------------------------------------------------------------------
Kathryn A. Hall $4,462 $55,250
--------------------------------------------------------------------------------
Peter F. Pervere $5,273 $62,995
--------------------------------------------------------------------------------
Myron S. Scholes $4,409 $54,333
--------------------------------------------------------------------------------
John B. Shoven $4,623 $58,333
--------------------------------------------------------------------------------
Jeanne D. Wohlers $4,676 $59,250
--------------------------------------------------------------------------------
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD.
(2) INCLUDES COMPENSATION PAID TO THE TRUSTEES FOR THE FISCAL YEAR ENDED JUNE
30, 2007, AND ALSO INCLUDES AMOUNTS DEFERRED AT THE ELECTION OF THE
TRUSTEES UNDER THE AMERICAN CENTURY MUTUAL FUNDS' INDEPENDENT DIRECTORS
DEFERRED COMPENSATION PLAN.
(3) INCLUDES COMPENSATION PAID BY THE INVESTMENT COMPANIES OF THE AMERICAN
CENTURY FAMILY OF FUNDS SERVED BY THIS BOARD. THE TOTAL AMOUNT OF DEFERRED
COMPENSATION INCLUDED IN THE PRECEDING TABLE IS AS FOLLOWS: MR. GILSON,
$96,500; MR. PERVERE, $15,749; MR. SCHOLES, $54,333; MR. SHOVEN, $58,333;
AND MS. WOHLERS, $41,475.
The following table shows the aggregate compensation paid by the fund during its
last full fiscal year.
AGGREGATE TRUSTEE COMPENSATION FOR FISCAL YEAR ENDED DECEMBER 31, 2006
--------------------------------------------------------------------------------
TOTAL COMPENSATION
FROM THE
TOTAL COMPENSATION AMERICAN CENTURY
NAME OF TRUSTEE FROM THE FUND(1) FAMILY OF FUNDS(2)
--------------------------------------------------------------------------------
John Freidenrich $12,105 $100,250
--------------------------------------------------------------------------------
Ronald J. Gilson $18,845 $165,875
--------------------------------------------------------------------------------
Kathryn A. Hall $11,459 $86,750
--------------------------------------------------------------------------------
Peter F. Pervere(3) $475 $9,500
--------------------------------------------------------------------------------
Myron S. Scholes $12,261 $104,000
--------------------------------------------------------------------------------
John B. Shoven $12,480 $108,750
--------------------------------------------------------------------------------
Jeanne D. Wohlers $11,823 $94,583
--------------------------------------------------------------------------------
(1) INCLUDES COMPENSATION PAID TO THE TRUSTEES FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2006, AND ALSO INCLUDES AMOUNTS DEFERRED AT THE ELECTION OF
THE TRUSTEES UNDER THE AMERICAN CENTURY MUTUAL FUNDS' INDEPENDENT DIRECTORS
DEFERRED COMPENSATION PLAN.
(2) INCLUDES COMPENSATION PAID BY THE INVESTMENT COMPANIES OF THE AMERICAN
CENTURY FAMILY OF FUNDS SERVED BY THIS BOARD. THE TOTAL AMOUNT OF DEFERRED
COMPENSATION INCLUDED IN THE PRECEDING TABLE IS AS FOLLOWS: MR. GILSON,
$165,875; MS. HALL, $86,750; MR. SCHOLES, $104,000; MR. SHOVEN, $108,750;
AND MS. WOHLERS, $66,208.
(3) MR. PERVERE JOINED THE TRUST'S ADVISORY BOARD ON DECEMBER 8, 2006.
The fund has adopted the American Century Mutual Funds' Independent Directors
Deferred Compensation Plan. Under the plan, the independent trustees may defer
receipt of all or any part of the fees to be paid to them for serving as
trustees of the fund.
All deferred fees are credited to an account established in the name of the
trustees. The amounts credited to the account then increase or decrease, as the
case may be, in accordance with the performance of one or more of the American
Century funds that are selected by the trustee. The account balance continues to
fluctuate in accordance with the performance of the selected fund or funds until
final payment of all amounts credited to the account. Trustees are allowed to
change their designation of mutual funds from time to time.
------
24
No deferred fees are payable until such time as a trustee resigns, retires or
otherwise ceases to be a member of the Board of Trustees. Trustees may receive
deferred fee account balances either in a lump sum payment or in substantially
equal installment payments to be made over a period not to exceed 10 years. Upon
the death of a trustee, all remaining deferred fee account balances are paid to
the trustee's beneficiary or, if none, to the trustee's estate.
The plan is an unfunded plan and, accordingly, the fund has no obligation to
segregate assets to secure or fund the deferred fees. To date, the fund has
voluntarily funded its obligations. The rights of trustees to receive their
deferred fee account balances are the same as the rights of a general unsecured
creditor of the fund. The plan may be terminated at any time by the
administrative committee of the plan. If terminated, all deferred fee account
balances will be paid in a lump sum.
OWNERSHIP OF FUND SHARES
The trustees owned shares in the fund as of December 31, 2006, as shown in the
table below.
NAME OF TRUSTEES
--------------------------------------------------------------------------------
JONATHAN S. JOHN RONALD J. KATHRYN A.
THOMAS FREIDENRICH GILSON HALL
--------------------------------------------------------------------------------
Dollar Range of Equity
Securities in the Fund:
International Bond A A B A
--------------------------------------------------------------------------------
Aggregate Dollar Range
of Equity Securities in
all Registered Investment
Companies Overseen
by Trustees in Family of
Investment Companies E C E E
--------------------------------------------------------------------------------
RANGES: A--NONE, B--$1-$10,000, C--$10,001-$50,000, D--$50,001-$100,000, E--MORE
THAN $100,000
NAME OF TRUSTEES
--------------------------------------------------------------------------------
PETER F. MYRON S. JOHN B. JEANNE D.
PERVERE SCHOLES SHOVEN WOHLERS
--------------------------------------------------------------------------------
Dollar Range of Equity
Securities in the Fund:
International Bond A A A A
--------------------------------------------------------------------------------
Aggregate Dollar Range
of Equity Securities in
all Registered Investment
Companies Overseen
by Trustees in Family of
Investment Companies A E E E
--------------------------------------------------------------------------------
RANGES: A--NONE, B--$1-$10,000, C--$10,001-$50,000, D--$50,001-$100,000, E--MORE
THAN $100,000
CODE OF ETHICS
The fund, its investment advisor, principal underwriter and subadvisor have
adopted codes of ethics under Rule 17j-1 of the Investment Company Act. They
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the fund, provided that they first
obtain approval from the compliance department before making such investments.
PROXY VOTING GUIDELINES
The advisor is responsible for exercising the voting rights associated with the
securities purchased and/or held by the fund. In exercising its voting
obligations, the advisor is guided by general fiduciary principles. It must act
prudently, solely in the interest of the fund, and for the exclusive purpose of
providing benefits to it. The advisor attempts to consider all factors of its
vote that could affect the value of the investment. The fund's Board of Trustees
has approved the advisor's proxy voting guidelines to govern the advisor's proxy
voting activities.
------
25
The advisor and the board have agreed on certain significant contributors to
shareholder value with respect to a number of matters that are often the subject
of proxy solicitations for shareholder meetings. The proxy voting guidelines
specifically address these considerations and establish a framework for the
advisor's consideration of the vote that would be appropriate for the fund. In
particular, the proxy voting guidelines outline principles and factors to be
considered in the exercise of voting authority for proposals addressing:
* Election of Directors
* Ratification of Selection of Auditors
* Equity-Based Compensation Plans
* Anti-Takeover Proposals
* Cumulative Voting
* Staggered Boards
* "Blank Check" Preferred Stock
* Elimination of Preemptive Rights
* Non-targeted Share Repurchase
* Increase in Authorized Common Stock
* "Supermajority" Voting Provisions or Super Voting Share Classes
* "Fair Price" Amendments
* Limiting the Right to Call Special Shareholder Meetings
* Poison Pills or Shareholder Rights Plans
* Golden Parachutes
* Reincorporation
* Confidential Voting
* Opting In or Out of State Takeover Laws
* Shareholder Proposals Involving Social, Moral or Ethical Matters
* Anti-Greenmail Proposals
* Changes to Indemnification Provisions
* Non-Stock Incentive Plans
* Director Tenure
* Directors' Stock Options Plans
* Director Share Ownership
Finally, the proxy voting guidelines establish procedures for voting of proxies
in cases in which the advisor may have a potential conflict of interest.
Companies with which the advisor has direct business relationships could
theoretically use these relationships to attempt to unduly influence the manner
in which American Century votes on matters for the fund. To ensure that such a
conflict of interest does not affect proxy votes cast for the fund, all
discretionary (including case-by-case) voting for these companies will be voted
in direct consultation with a committee of the independent trustees of the fund.
A copy of the advisor's proxy voting guidelines and information regarding how
the advisor voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 are available on the "About Us" page at
americancentury.com. The advisor's proxy voting record also is available on the
SEC's Web site at sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS
The advisor (ACIM) has adopted policies and procedures with respect to the
disclosure of fund portfolio holdings and characteristics, which are described
below.
Distribution to the Public
Full portfolio holdings for each fund will be made available for distribution 30
days after the end of each calendar quarter, and will be posted on
americancentury.com at approximately the same time. This disclosure is in
addition to the portfolio disclosure in annual
------
26
and semi-annual shareholder reports, and on Form N-Q, which disclosures are
filed with the Securities and Exchange Commission within 60 days of each fiscal
quarter end and also posted on americancentury.com at the time the filings are
made.
Top 10 holdings for each fund will be made available for distribution monthly 30
days after the end of each month, and will be posted on americancentury.com at
approximately the same time.
Certain portfolio characteristics determined to be sensitive and confidential
will be made available for distribution monthly 30 days after the end of each
month, and will be posted on americancentury.com at approximately the same time.
Characteristics not deemed confidential will be available for distribution at
any time. The advisor may make determinations of confidentiality on a
fund-by-fund basis, and may add or delete characteristics from those considered
confidential at any time.
So long as portfolio holdings are disclosed in accordance with the above
parameters, the advisor makes no distinction among different categories of
recipients, such as individual investors, institutional investors,
intermediaries that distribute the fund's shares, third-party service providers,
rating and ranking organizations, and fund affiliates. Because this information
is publicly available and widely disseminated, the advisor places no conditions
or restrictions on, and does not monitor, its use. Nor does the advisor require
special authorization for its disclosure.
Accelerated Disclosure
The advisor recognizes that certain parties, in addition to the advisor and its
affiliates, may have legitimate needs for information about portfolio holdings
and characteristics prior to the times prescribed above. Such accelerated
disclosure is permitted under the circumstances described below.
Ongoing Arrangements
Certain parties, such as investment consultants who provide regular analysis of
fund portfolios for their clients and intermediaries who pass through
information to fund shareholders, may have legitimate needs for accelerated
disclosure. These needs may include, for example, the preparation of reports for
customers who invest in the funds, the creation of analyses of fund
characteristics for intermediary or consultant clients, the reformatting of data
for distribution to the intermediary's or consultant's clients, and the review
of fund performance for ERISA fiduciary purposes.
In such cases, accelerated disclosure is permitted if the service provider
enters an appropriate non-disclosure agreement with the fund's distributor in
which it agrees to treat the information confidentially until the public
distribution date and represents that the information will be used only for the
legitimate services provided to its clients (i.e., not for trading).
Non-disclosure agreements require the approval of an attorney in the advisor's
legal department. The advisor's compliance department receives quarterly reports
detailing which clients received accelerated disclosure, what they received,
when they received it and the purposes of such disclosure. Compliance personnel
are required to confirm that an appropriate non-disclosure agreement has been
obtained from each recipient identified in the reports.
Those parties who have entered into non-disclosure agreements as of August 14,
2007 are as follows:
* Aetna, Inc.
* American Fidelity Assurance Co.
* AUL/American United Life Insurance Company
* Ameritas Life Insurance Corporation
* Annuity Investors Life Insurance Company
* Asset Services Company L.L.C.
* Bell Globemedia Publishing
* Bellwether Consulting, LLC
* Bidart & Ross
------
27
* Callan Associates, Inc.
* Cambridge Financial Services, Inc.
* Cleary Gull Inc.
* Commerce Bank, N.A.
* Connecticut General Life Insurance Company
* Consulting Services Group, LLC
* CRA RogersCasey, Inc.
* Defined Contribution Advisors, Inc.
* EquiTrust Life Insurance Company
* Evaluation Associates, LLC
* Evergreen Investments
* Farm Bureau Life Insurance Company
* First MetLife Investors Insurance Company
* Fund Evaluation Group, LLC
* The Guardian Life Insurance & Annuity Company, Inc.
* Hammond Associates, Inc.
* Hewitt Associates LLC
* ICMA Retirement Corporation
* ING Life Insurance Company & Annuity Co.
* Iron Capital Advisors
* J.P. Morgan Retirement Plan Services LLC
* Jefferson National Life Insurance Company
* Jefferson Pilot Financial
* Jeffrey Slocum & Associates, Inc.
* Kansas City Life Insurance Company
* Kmotion, Inc.
* Liberty Life Insurance Company
* The Lincoln National Life Insurance Company
* Lipper Inc.
* Manulife Financial
* Massachusetts Mutual Life Insurance Company
* Merrill Lynch
* MetLife Investors Insurance Company
* MetLife Investors Insurance Company of California
* Midland National Life Insurance Company
* Minnesota Life Insurance Company
* Morgan Keegan & Co., Inc.
* Morgan Stanley & Co., Incorporated
* Morningstar Associates LLC
* Morningstar Investment Services, Inc.
* National Life Insurance Company
* Nationwide Financial
* New England Pension Consultants
* Northwestern Mutual Life Insurance Co.
* NT Global Advisors, Inc.
* NYLIFE Distributors, LLC
* Principal Life Insurance Company
* Prudential Financial
* Rocaton Investment Advisors, LLC
* S&P Financial Communications
* Scudder Distributors, Inc.
* Security Benefit Life Insurance Co.
* Smith Barney
* SunTrust Bank
* Symetra Life Insurance Company
* Trusco Capital Management
* Union Bank of California, N.A.
------
28
* The Union Central Life Insurance Company
* VALIC Financial Advisors
* VALIC Retirement Services Company
* Vestek Systems, Inc.
* Wachovia Bank, N.A.
* Wells Fargo Bank, N.A.
Once a party has executed a non-disclosure agreement, it may receive any or all
of the following data for funds in which its clients have investments or are
actively considering investment:
(1) Full holdings quarterly as soon as reasonably available;
(2) Full holdings monthly as soon as reasonably available;
(3) Top 10 holdings monthly as soon as reasonably available; and
(4) Portfolio characteristics monthly as soon as reasonably available.
The types, frequency and timing of disclosure to such parties vary. In most
situations, the information provided pursuant to a non-disclosure agreement is
limited to certain portfolio characteristics and/or top 10 holdings, which
information is provided on a monthly basis. In limited situations, and when
approved by a member of the legal department and responsible chief investment
officer, full holdings may be provided.
Single Event Requests
In certain circumstances, the advisor may provide fund holding information on an
accelerated basis outside of an ongoing arrangement with manager-level or higher
authorization. For example, from time to time the advisor may receive requests
for proposals (RFPs) from consultants or potential clients that request
information about a fund's holdings on an accelerated basis. As long as such
requests are on a one-time basis, and do not result in continued receipt of
data, such information may be provided in the RFP as of the most recent month
end regardless of lag time. Such information will be provided with a
confidentiality legend and only in cases where the advisor has reason to believe
that the data will be used only for legitimate purposes and not for trading.
In addition, the advisor occasionally may work with a transition manager to move
a large account into or out of a fund. To reduce the impact to the fund, such
transactions may be conducted on an in-kind basis using shares of portfolio
securities rather than cash. The advisor may provide accelerated holdings
disclosure to the transition manager with little or no lag time to facilitate
such transactions, but only if the transition manager enters into an appropriate
non-disclosure agreement.
Service Providers
Various service providers to the fund and the fund's advisor must have access to
some or all of the fund's portfolio holdings information on an accelerated basis
from time to time in the ordinary course of providing services to the funds.
These service providers include the fund's custodian (daily, with no lag),
auditors (as needed) and brokers involved in the execution of fund trades (as
needed). Additional information about these service providers and their
relationships with the fund and the advisor are provided elsewhere in this
statement of additional information.
Additional Safeguards
The advisor's policies and procedures include a number of safeguards designed to
control disclosure of portfolio holdings and characteristics so that such
disclosure is consistent with the best interests of fund shareholders. First,
the frequency with which this information is disclosed to the public, and the
length of time between the date of the information and the date on which the
information is disclosed, are selected to minimize the possibility of a third
party improperly benefiting from fund investment decisions to the detriment of
fund shareholders. Second, distribution of portfolio holdings information,
including compliance with the advisor's policies and the resolution of any
potential conflicts that may arise, is monitored quarterly. Finally, the fund's
Board of
------
29
Trustees exercises oversight of disclosure of the fund's portfolio securities.
The board has received and reviewed a summary of the advisor's policy and is
informed on a quarterly basis of any changes to or violations of such policy
detected during the prior quarter.
Neither the advisor nor the funds receive any compensation from any party for
the distribution of portfolio holdings information.
The advisor reserves the right to change its policies and procedures with
respect to the distribution of portfolio holdings information at any time. There
is no guarantee that these policies and procedures will protect the funds from
the potential misuse of holdings information by individuals or firms in
possession of such information.
THE FUND'S PRINCIPAL SHAREHOLDERS
As of September 4, 2007, the following shareholders, beneficial or of record,
owned more than 5% of the outstanding shares of any class of the fund. Because
the B, C and R Classes are new, they are not included.
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
--------------------------------------------------------------------------------
International Bond
--------------------------------------------------------------------------------
Investor Class
Charles Schwab & Co. Inc. 22% 0%
San Francisco, California
Citigroup Global Markets Inc. 20% 0%
New York, New York
National Financial Services Corp. 15% 0%
New York, New York
Pershing LLC 7% 0%
Jersey City, New Jersey
--------------------------------------------------------------------------------
Institutional Class
SEI Private Trust Co. 51% 0%
c/o Frost National Bank
Oaks, Pennsylvania
Charles Schwab & Co. Inc 12% 0%
San Francisco, California
Commerce FBO Mori & Co. 9% 0%
Kansas City, Missouri
American Century Serv. Corp. 7% 7%
Livestrong 2015 Portfolio
Kansas City, Missouri
--------------------------------------------------------------------------------
A Class
Charles Schwab & Co. Inc. 73% 0%
San Francisco, California
Smith Barney 401K 5% 0%
Advisor Group Citigroup
Institutional Trust
Somerset, New Jersey
--------------------------------------------------------------------------------
(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.
The fund is unaware of any other shareholders, beneficial or of record, who own
more than 5% of any class of the fund's outstanding shares. The fund is unaware
of any shareholder, beneficial or of record, who owns more than 25% of the
voting securities
------
30
of the trust. A shareholder owning of record or beneficially more than 25% of
the trust's outstanding shares may be considered a controlling person. The vote
of any such person could have a more significant effect on matters presented at
a shareholders' meeting than votes of other shareholders. As of September 4,
2007, the officers and trustees of the fund, as a group, owned less than 1% of
any class of the fund's outstanding shares.
SERVICE PROVIDERS
The fund has no employees. To conduct its day-to-day activities, the trust has
hired a number of service providers. Each service provider has a specific
function to fill on behalf of the fund that is described below.
ACIM, ACS and ACIS are wholly owned, directly or indirectly, by ACC. James E.
Stowers, Jr. controls ACC by virtue of his ownership of a majority of its voting
stock.
INVESTMENT ADVISOR
American Century Investment Management, Inc. (ACIM) serves as the investment
advisor for the fund. Currently, JPMIM serves as the subadvisor for the fund. A
description of the responsibilities of the advisor (ACIM or JPMIM) appears in
the prospectus under the heading MANAGEMENT.
For the services provided to the fund, the advisor receives a unified management
fee based on a percentage of the net assets of the fund. For more information
about the unified management fee, see THE INVESTMENT ADVISOR under the heading
MANAGEMENT in the fund's prospectus. The annual rate at which this fee is
assessed is determined daily in a multi-step process. First, the trust's fund is
categorized according to the broad asset class in which it invests (e.g., money
market, bond or equity), and the assets of the fund in each category are totaled
("Fund Category Assets"). Second, the assets are totaled for certain other
accounts managed by the advisor ("Other Account Category Assets"). To be
included, these accounts must have the same management team and investment
objective as a fund in the same category with the same Board of Trustees as the
trust. Together, the Fund Category Assets and the Other Account Category Assets
comprise the "Investment Category Assets." The Investment Category Fee Rate is
then calculated by applying the fund's Investment Category Fee Schedule to the
Investment Category Assets and dividing the result by the Investment Category
Assets.
Finally, a separate Complex Fee Schedule is applied to the assets of all of the
funds in the American Century family of funds (the "Complex Assets"), and the
Complex Fee Rate is calculated based on the resulting total. The Investment
Category Fee Rate and the Complex Fee Rate are then added to determine the
Management Fee Rate payable by a class of the fund to the advisor.
For purposes of determining the assets that comprise the Fund Category Assets,
Other Account Category Assets and Complex Assets, the assets of registered
investment companies managed by the advisor that invest primarily in the shares
of other registered investment companies shall not be included.
The schedules by which the unified management fee is determined are shown below.
INVESTMENT CATEGORY FEE SCHEDULE FOR INTERNATIONAL BOND
--------------------------------------------------------------------------------
CATEGORY ASSETS FEE RATE
--------------------------------------------------------------------------------
First $1 billion 0.6100%
--------------------------------------------------------------------------------
Next $1 billion 0.5580%
--------------------------------------------------------------------------------
Next $3 billion 0.5280%
--------------------------------------------------------------------------------
Next $5 billion 0.5080%
--------------------------------------------------------------------------------
Next $15 billion 0.4950%
--------------------------------------------------------------------------------
Next $25 billion 0.4930%
--------------------------------------------------------------------------------
Thereafter 0.4925%
--------------------------------------------------------------------------------
------
31
The Complex Fee is determined according to the schedule below.
INVESTOR, A, B, C INSTITUTIONAL
AND R CLASS CLASS
COMPLEX ASSETS FEE RATE FEE RATE
--------------------------------------------------------------------------------
First $2.5 billion 0.3100% 0.1100%
--------------------------------------------------------------------------------
Next $7.5 billion 0.3000% 0.1000%
--------------------------------------------------------------------------------
Next $15 billion 0.2985% 0.0985%
--------------------------------------------------------------------------------
Next $25 billion 0.2970% 0.0970%
--------------------------------------------------------------------------------
Next $25 billion 0.2870% 0.0870%
--------------------------------------------------------------------------------
Next $25 billion 0.2800% 0.0800%
--------------------------------------------------------------------------------
Next $25 billion 0.2700% 0.0700%
--------------------------------------------------------------------------------
Next $25 billion 0.2650% 0.0650%
--------------------------------------------------------------------------------
Next $25 billion 0.2600% 0.0600%
--------------------------------------------------------------------------------
Next $25 billion 0.2550% 0.0550%
--------------------------------------------------------------------------------
Thereafter 0.2500% 0.0500%
--------------------------------------------------------------------------------
On each calendar day, each class of the fund accrues a management fee that is
equal to the class's Management Fee Rate times the net assets of the class
divided by 365 (366 in leap years). On the first business day of each month, the
fund pays a management fee to the advisor for the previous month. The fee for
the previous month is the sum of the calculated daily fees for each class of the
fund during the previous month.
The management agreement between the trust and the advisor shall continue in
effect until the earlier of the expiration of two years from the date of its
execution or until the first meeting of fund shareholders following such
execution and for as long thereafter as its continuance is specifically approved
at least annually by
(1) the fund's Board of Trustees, or a majority of outstanding shareholder
votes (as defined in the Investment Company Act); and
(2) the vote of a majority of the trustees of the fund who are not parties to
the agreement, or interested persons of the advisor, cast in person at a
meeting called for the purpose of voting on such approval.
The management agreement states that the fund's Board of Trustees or a majority
of outstanding shareholder votes may terminate the management agreement at any
time without payment of any penalty on 60 days' written notice to the advisor.
The management agreement shall be automatically terminated if it is assigned.
The management agreement states that the advisor shall not be liable to the fund
or its shareholders for anything other than willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the advisor and its officers,
trustees or directors and employees may engage in other business, render
services to others, and devote time and attention to any other business whether
of a similar or dissimilar nature.
Certain investments may be appropriate for the fund and also for other clients
advised by the advisor or the subadvisor. Investment decisions for the fund and
other clients are made with a view to achieving their respective investment
objectives after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investment generally.
A particular security may be bought or sold for only one client or fund, or in
different amounts and at different times for more than one but less than all
clients or funds. A particular security may be bought for one client or fund on
the same day it is sold for another client or fund, and a client or fund may
hold a short position in a particular security at the same time another client
or fund holds a long position. In addition, purchases or sales of the same
security may be made for two or more clients or funds on the same date. The
advisor has adopted procedures designed to ensure
------
32
such transactions will be allocated among clients and funds in a manner believed
by the advisor to be equitable to each. In some cases this procedure could have
an adverse effect on the price or amount of the securities purchased or sold by
the fund.
The subadvisor may aggregate purchase and sale orders of the fund with purchase
and sale orders of its other clients when the subadvisor believes that such
aggregation provides the best execution for the fund. The Board of Trustees has
approved the policy of the advisor and subadvisor with respect to the
aggregation of portfolio transactions.
Unified management fees incurred by the fund for the six-month fiscal period
ended June 30, 2007, and the fiscal periods ended December 31, 2006, 2005 and
2004, are indicated in the following table. As new classes, information
regarding the B, C and R Classes of International Bond Fund was not available as
of the fiscal year end.
UNIFIED MANAGEMENT FEES
--------------------------------------------------------------------------------
FUND 2007(1) 2006 2005 2004
--------------------------------------------------------------------------------
International Bond $6,155,259 $10,145,324 $9,511,642 $5,792,890
--------------------------------------------------------------------------------
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD. FOR THE YEARS BEFORE 2007, THE FUND'S FISCAL YEAR END WAS
DECEMBER 31.
SUBADVISOR
The investment management agreement provides that the advisor may delegate
certain responsibilities under the agreement to a subadvisor. Currently, JP
Morgan Investment Management, Inc. ("JPMIM") serves as subadvisor to the fund
under a subadvisory agreement between ACIM and JPMIM dated August 1, 1997, that
was approved by shareholders on July 30, 1997. This supersedes subadvisory
agreements dated June 1, 1995, June 1, 1994 and December 31, 1991. The
subadvisory agreement continues for an initial period of two years and
thereafter so long as continuance is specifically approved by vote of a majority
of the fund's outstanding voting securities or by vote of a majority of the
fund's trustees, including a majority of those trustees who are neither parties
to the agreement nor interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The subadvisory
agreement is subject to termination without penalty on 60 days' written notice
by the advisor, the Board of Trustees, or a majority of the fund's outstanding
shareholder votes or 12 months' written notice by JPMIM and will terminate
automatically in the event of (i) its assignment or (ii) termination of the
investment advisory agreement between the fund and the advisor.
The subadvisory agreement provides that JPMIM will make investment decisions for
the fund in accordance with the fund's investment objective, policies, and
restrictions, and whatever additional written guidelines it may receive from the
advisor from time to time. For these services, the advisor pays JPMIM a monthly
fee at an annual rate of 0.20% of the fund's average daily net assets up to $200
million; and 0.15% of average daily net assets over $200 million. Under the 1991
subadvisory agreement, the advisor paid JPMIM a monthly fee at an annual rate of
0.25% of average daily net assets up to $200 million, and 0.05% of average daily
net assets in excess of $200 million, with a minimum annual fee of $250,000.
For the six-month fiscal period ended June 30, 2007, and the fiscal years ended
December 31, 2006, 2005 and 2004, the advisor paid JPMIM subadvisory fees as
listed in the following table:
JPMIM SUBADVISORY FEES
--------------------------------------------------------------------------------
2007(1) $1,011,560
--------------------------------------------------------------------------------
2006 $2,042,061
--------------------------------------------------------------------------------
2005 $1,921,553
--------------------------------------------------------------------------------
2004 $1,075,322
--------------------------------------------------------------------------------
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD. FOR THE YEARS BEFORE 2007, THE FUND'S FISCAL YEAR END WAS
DECEMBER 31.
------
33
PORTFOLIO MANAGER
The information provided under this heading has been provided by the subadvisor.
Other Accounts Managed
The portfolio manager also is responsible for the day-to-day management of other
accounts, as indicated by the following table.
OTHER ACCOUNTS MANAGED (AS OF JUNE 30, 2007)
REGISTERED OTHER POOLED
INVESTMENT INVESTMENT OTHER
COMPANIES VEHICLES(1) ACCOUNTS(1)
--------------------------------------------------------------------------------
International Bond
--------------------------------------------------------------------------------
Jon B. Number
Jonsson of Other
Accounts
Managed 2 49 41
-----------------------------------------------------------------------
Assets in
Other
Accounts
Managed $703.83 million $13,511.60 million $12,696.34 million
--------------------------------------------------------------------------------
(1) TWO OF THE 49 OTHER POOLED INVESTMENT VEHICLES, TOTALING $555.79 MILLION IN
ASSETS, AND TWO OF THE 41 OTHER ACCOUNTS, TOTALING $279.67 MILLION IN
ASSETS, HAVE AN ADVISORY FEE THAT IS BASED ON THE PERFORMANCE OF THE
ACCOUNT.
Potential Conflicts of Interest
The chart above shows the number, type and market value as of June 30, 2007, of
the accounts other than the fund that are managed by the fund's portfolio
manager. The potential for conflicts of interest exists when portfolio managers
manage other accounts with similar investment objectives and strategies as the
fund ("Similar Accounts"). Potential conflicts may include, for example,
conflicts between investment strategies and conflicts in the allocation of
investment opportunities.
Responsibility for managing client portfolios of the subadvisor and its
affiliates is organized according to investment strategies within asset classes.
Generally, client portfolios with similar strategies are managed by portfolio
managers in the same portfolio management group using the same objectives,
approach and philosophy. Underlying sectors or strategy allocations within a
larger portfolio are likewise managed by portfolio managers who use the same
approach and philosophy as similarly managed portfolios. Therefore, portfolio
holdings, relative position sizes and industry and sector exposures tend to be
similar across similar portfolios and strategies, which minimizes the potential
for conflicts of interest.
The subadvisor and/or its affiliates may receive more compensation with respect
to certain Similar Accounts than that received with respect to the fund or may
receive compensation based in part on the performance of certain Similar
Accounts. This may create a potential conflict of interest for the subadvisor
and its affiliates or its portfolio managers by providing an incentive to favor
these Similar Accounts when, for example, placing securities transactions. In
addition, the subadvisor or its affiliates could be viewed as having a conflict
of interest to the extent that the subadvisor or an affiliate has a proprietary
investment in Similar Accounts, the portfolio managers have personal investments
in Similar Accounts or the Similar Accounts are investment options in the
subadvisor's and its affiliates' employee benefit plans. Potential conflicts of
interest may arise with both the aggregation and allocation of securities
transactions and allocation of limited investment opportunities because of
market factors or investment restrictions imposed upon the subadvisor and its
affiliates by law, regulation, contract or internal policies. Allocations of
aggregated trades, particularly trade orders that were only partially completed
due to limited availability, and allocation of investment opportunities
generally, could raise a potential conflict of interest, as the subadvisor or
its affiliates may have an incentive to allocate securities that are expected to
increase in value to favored accounts. Initial public offerings, in particular,
are frequently of very limited availability. The subadvisor and its affiliates
may be perceived as causing accounts they manage to participate in an offering
to increase the subadvisor's or its affiliates overall allocation of securities
in that offering.
------
34
A potential conflict of interest also may be perceived to arise if transactions
in one account closely follow related transactions in a different account, such
as when a purchase increases the value of securities previously purchased by
another account, or when a sale in one account lowers the sale price received in
a sale by a second account. If the subadvisor or its affiliates manage accounts
that engage in short sales of securities of the type in which the fund invests,
the subadvisor could be seen as harming the performance of the fund for the
benefit of the accounts engaging in short sales if the short sales cause the
market value of the securities to fall.
As an internal policy matter, the subadvisor may from time to time maintain
certain overall investment limitations on the securities positions or positions
in other financial instruments the subadvisor or its affiliates will take on
behalf of its various clients due to, among other things, liquidity concerns and
regulatory restrictions. It should be recognized that such policies may preclude
an account from purchasing particular securities or financial instruments, even
if such securities or financial instruments would otherwise meet the account's
objectives.
The goal of the subadvisor and its affiliates is to meet their fiduciary
obligation with respect to all clients. The subadvisor and its affiliates have
policies and procedures designed to manage the conflicts. The subadvisor and its
affiliates monitor a variety of areas, including compliance with fund
guidelines, review of allocation decisions and compliance with JP Morgan's Codes
of Ethics and JPMC's Code of Conduct. With respect to the allocation of
investment opportunities, the subadvisor and its affiliates also have certain
policies designed to achieve fair and equitable allocation of investment
opportunities among its clients over time. For example:
Orders for the same equity security are aggregated on a continual basis
throughout each trading day consistent with the subadvisor's duty of best
execution for its clients. If aggregated trades are fully executed, accounts
participating in the trade will be allocated their pro rata share on an average
price basis. Partially completed orders generally will be allocated among the
participating accounts on a pro-rata average price basis, subject to certain
limited exceptions. For example, accounts that would receive a DE MINIMIS
allocation relative to their size may be excluded from the order. Another
exception may occur when thin markets or price volatility require that an
aggregated order be completed in multiple executions over several days. If
partial completion of the order would result in an uneconomic allocation to an
account due to fixed transaction or custody costs, the subadvisor or its
affiliates may exclude small orders until 50% of the total order is completed.
Then the small orders will be executed. Following this procedure, small orders
will lag in the early execution of the order, but will be completed before
completion of the total order.
Purchases of money market instruments and fixed income securities cannot always
be allocated pro-rata across the accounts with the same investment strategy and
objective. However, the subadvisor and its affiliates attempt to mitigate any
potential unfairness by basing non-pro rata allocations traded through a single
trading desk or system upon an objective predetermined criteria for the
selection of investments and a disciplined process for allocating securities
with similar duration, credit quality and liquidity in the good faith judgment
of the subadvisor so that fair and equitable allocation will occur over time.
Compensation
The subadvisor's portfolio managers participate in a competitive compensation
program that is designed to attract and retain outstanding people and closely
link the performance of investment professionals to client investment
objectives. The total compensation program includes a base salary fixed from
year to year and a variable performance bonus consisting of cash incentives and
restricted stock and, in some cases, mandatory deferred compensation. These
elements reflect individual performance and the performance of the subadvisor's
business as a whole.
------
35
Each portfolio manager's performance is formally evaluated annually based on a
variety of factors including the aggregate size and blended performance of the
portfolios such portfolio manager manages. Individual contribution relative to
client goals carries the highest impact. Portfolio manager compensation is
primarily driven by meeting or exceeding clients' risk and return objectives,
relative performance to competitors or competitive indices and compliance with
firm policies and regulatory requirements. In evaluating each portfolio
manager's performance with respect to the mutual funds he or she manages, the
funds' pre-tax performance is compared to the appropriate market peer group and
to each fund's benchmark index listed in the fund's prospectus over one, three
and five year periods (or such shorter time as the portfolio manager has managed
the fund). Investment performance is generally more heavily weighted to the
long-term.
Awards of restricted stock are granted as part of an employee's annual
performance bonus and comprise from 0% to 35% of a portfolio manager's total
bonus. As the level of incentive compensation increases, the percentage of
compensation awarded in restricted stock also increases. Up to 50% of the
restricted stock portion of a portfolio manager's bonus may instead be subject
to a mandatory notional investment in selected mutual funds advised by the
subadvisor. When these deferred amounts vest, the portfolio manager receives
cash equal to the market value of the notional investment in the selected mutual
funds.
Ownership of Securities
The fund's portfolio manager did not beneficially own any shares of the fund as
of June 30, 2007, the fund's most recent fiscal year end.
TRANSFER AGENT AND ADMINISTRATOR
American Century Services, LLC (ACS), 4500 Main Street, Kansas City, Missouri
64111, serves as transfer agent and dividend-paying agent for the fund. It
provides physical facilities, computer hardware and software and personnel, for
the day-to-day administration of the fund and the advisor. The advisor pays
ACS's costs for serving as transfer agent and dividend-payment agent for the
fund out of the advisor's unified management fee. For a description of this fee
and the terms of its payment, see the above discussion under the caption
INVESTMENT ADVISOR on page 31.
From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the advisor.
DISTRIBUTOR
The fund's shares are distributed by American Century Investment Services, Inc.
(ACIS), a registered broker-dealer. The distributor is a wholly owned subsidiary
of ACC, and its principal business address is 4500 Main Street, Kansas City,
Missouri 64111.
The distributor is the principal underwriter of the fund's shares. The
distributor makes a continuous, best-efforts underwriting of the fund's shares.
This means the distributor has no liability for unsold shares. The advisor pays
ACIS's costs for serving as principal underwriter of the fund's shares out of
the advisor's unified management fee. For a description of this fee and the
terms of its payment, see the above discussion under the caption INVESTMENT
ADVISOR on page 31. ACIS does not earn commissions for distributing the fund's
shares.
Certain financial intermediaries unaffiliated with the distributor or the fund
may perform various administrative and shareholder services for their clients
who are invested in the fund. These services may include assisting with fund
purchases, redemptions and exchanges, distributing information about the fund
and its
------
36
performance, preparing and distributing client account statements, and other
administrative and shareholder services that would otherwise be provided by the
distributor or its affiliates. The distributor may pay fees out of its own
resources to such financial intermediaries for providing these services.
CUSTODIAN BANKS
State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri 64105, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri
64105, each serves as custodian of the fund's assets. State Street also performs
certain investment accounting and recordkeeping functions on behalf of the fund.
The custodians take no part in determining the investment policies of the fund
or in deciding which securities are purchased or sold by the fund. The fund,
however, may invest in certain obligations of the custodians and may purchase or
sell certain securities from or to the custodians.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP is the independent registered public accounting firm
of the fund. The address of PricewaterhouseCoopers LLP is 1055 Broadway, 10th
Floor, Kansas City, Missouri 64105. As the independent registered public
accounting firm of the fund, PricewaterhouseCoopers LLP provides services
including:
(1) auditing the annual financial statements for the fund, and
(2) assisting and consulting in connection with SEC filings.
BROKERAGE ALLOCATION
Under the management agreement between the fund and the advisor, and under the
subadvisory agreement between the advisor and the subadvisor, the subadvisor has
the responsibility of selecting brokers and dealers to execute portfolio
transactions. In many transactions, the selection of the broker or dealer is
determined by the availability of the desired security and its offering price.
In other transactions, the selection of broker or dealer is a function of the
selection of market and the negotiation of price, as well as the broker's
general execution and operational and financial capabilities in the type of
transaction involved. The subadvisor will seek to obtain prompt execution of
orders at the most favorable prices or yields. The subadvisor may choose to
purchase and sell portfolio securities from and to dealers who provide
statistical and other information and services, including research, to the fund
and to the subadvisor. Such information or services will be in addition to and
not in lieu of the services required to be performed by the subadvisor, and the
expenses of the subadvisor will not necessarily be reduced as a result of the
receipt of such supplemental information.
Purchases of securities from underwriters typically include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market-makers typically include a dealer's mark-up (i.e., a spread
between the bid and asked prices). During the six-month fiscal period ended June
30, 2007, and fiscal years ended December 31, 2006, 2005 and 2004, the fund did
not pay any brokerage commissions.
REGULAR BROKER-DEALERS
As of the end of its most recently completed fiscal year, the fund listed below
owned securities of its regular brokers or dealers (as defined by Rule 10b-1
under the Investment Company Act of 1940) or of their parent companies.
VALUE OF SECURITIES
BROKER, DEALER OWNED AS OF
FUND OR PARENT JUNE 30, 2007
--------------------------------------------------------------------------------
International
Bond Barclays Bank plc $13,532,381
--------------------------------------------------------------------------------
------
37
INFORMATION ABOUT FUND SHARES
The Declaration of Trust permits the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in series (or funds). The fund is a series of shares issued
by the trust, and shares of the fund have equal voting rights. In addition, each
series (or fund) may be divided into separate classes. See MULTIPLE CLASS
STRUCTURE which follows. Additional funds and classes may be added without a
shareholder vote.
Voting rights are not cumulative, so that investors holding more than 50% of the
trust's (all funds') outstanding shares may be able to elect a Board of
Trustees. The trust undertakes dollar-based voting, meaning that the number of
votes a shareholder is entitled to is based upon the dollar amount of the
shareholder's investment. The election of trustees is determined by the votes
received from all the trust's shareholders without regard to whether a majority
of shares of any one fund voted in favor of a particular nominee or all nominees
as a group.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
Shares of the fund have equal voting rights.
The trust shall continue unless terminated by (1) approval of at least
two-thirds of the shares of each fund entitled to vote or (2) the trustees by
written notice to shareholders of each fund. Any fund may be terminated by (1)
approval of at least two-thirds of the shares of that fund or (2) the trustees
by written notice to shareholders of that fund.
Upon termination of the trust or a fund, as the case may be, the trust shall pay
or otherwise provide for all charges, taxes, expenses and liabilities belonging
to the trust or the fund. Thereafter, the trust shall reduce the remaining
assets belonging to each fund (or the particular fund) to cash, shares of other
securities or any combination thereof, and distribute the proceeds belonging to
each fund (or the particular fund) to the shareholders of that fund ratably
according to the number of shares of that fund held by each shareholder on the
termination date.
Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the trust. The Declaration of Trust provides that the
trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the trust may maintain
appropriate insurance (for example, fidelity, bonding and errors and omissions
insurance) for the protection of the trust, its shareholders, trustees,
officers, employees and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss as a result of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the trust is unable to meet its obligations.
The assets belonging to each series or class of shares are held separately by
the custodian and the shares of each series or class represent a beneficial
interest in the principal, earnings and profit (or losses) of investments and
other assets held for each fund or class. Within their respective series or
class, all shares have equal redemption rights. Each share, when issued, is
fully paid and non-assessable.
MULTIPLE CLASS STRUCTURE
The Board of Trustees has adopted a multiple class plan pursuant to Rule 18f-3
adopted by the SEC. The plan is described in the fund's prospectus. Pursuant to
such plan, the fund may issue up to six classes of shares: an Investor Class,
Institutional Class, A Class, B Class, C Class and R Class.
------
38
The Investor Class is made available to investors directly from American Century
and/or through some financial intermediaries. Investor Class shares charge a
single unified management fee, without any load or commission payable to
American Century. Additional information regarding eligibility for Investor
Class shares may be found in the fund's prospectus. The Institutional Class is
made available to institutional shareholders or through financial intermediaries
whose clients do not require the same level of shareholder and administrative
services from the advisor as Investor Class shareholders. As a result, the
advisor is able to charge this class a lower total management fee. The A, B and
C Classes also are made available through financial intermediaries, for purchase
by individual investors who receive advisory and personal services from the
intermediary. The R Class is made available through financial intermediaries and
is generally used in 401(k) and other retirement plans. The unified management
fee for the A, B, C and R Classes is the same as for Investor Class, but the A,
B, C and R Class shares each are subject to a separate Master Distribution and
Individual Shareholder Services Plan (the A Class Plan, B Class Plan, C Class
Plan and R Class Plan, respectively and collectively, the plans) described
below. The plans have been adopted by the fund's Board of Trustees in accordance
with Rule 12b-1 adopted by the SEC under the Investment Company Act.
Rule 12b-1
Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by its Board of
Trustees and approved by its shareholders. Pursuant to such rule, the Board of
Trustees of the fund's A, B, C, and R Classes have approved and entered into the
A Class Plan, B Class Plan, C Class Plan and R Class Plan, respectively. The
plans are described below.
In adopting the plans, the Board of Trustees (including a majority of trustees
who are not interested persons of the fund [as defined in the Investment Company
Act], hereafter referred to as the independent trustees) determined that there
was a reasonable likelihood that the plans would benefit the fund and the
shareholders of the affected class. Some of the anticipated benefits include
improved name recognition of the fund generally; and growing assets in existing
funds, which helps retain and attract investment management talent, provides a
better environment for improving fund performance, and can lower the total
expense ratio for funds with stepped-fee schedules. Pursuant to Rule 12b-1,
information about revenues and expenses under the plans is presented to the
Board of Trustees quarterly for its consideration in continuing the plans.
Continuance of the plans must be approved by the Board of Trustees, including a
majority of the independent trustees, annually. The plans may be amended by a
vote of the Board of Trustees, including a majority of the independent trustees,
except that the plans may not be amended to materially increase the amount spent
for distribution without majority approval of the shareholders of the affected
class. The plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent trustees or by a
majority of the outstanding shareholder votes of the affected class.
All fees paid under the plans will be made in accordance with Section 2830 of
the Conduct Rules of the Financial Industry Regulatory Authority (FINRA).
A Class Plan
As described in the prospectus, the A Class shares of the fund are made
available to participants in employer-sponsored retirement plans and to persons
purchasing through broker-dealers, banks, insurance companies and other
financial intermediaries that provide various administrative, shareholder and
distribution services. The fund's distributor enters into contracts with various
banks, broker-dealers, insurance companies and other financial intermediaries,
with respect to the sale of the fund's shares and/or the use of the fund's
shares in various investment products or in connection with various financial
services.
Certain recordkeeping and administrative services that are provided by the
fund's transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for A Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
------
39
To enable the fund's shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the fund's
Board of Trustees has adopted the A Class Plan. Pursuant to the A Class Plan,
the A Class pays the fund's distributor 0.25% annually of the average daily net
asset value of the A Class shares. The distributor may use these fees to pay for
certain ongoing shareholder and administrative services (as described below) and
for distribution services, including past distribution services (as described
below). This payment is fixed at 0.25% and is not based on expenses incurred by
the distributor. Effective September 4, 2007, the Advisor Class shares of the
fund were reclassified as A Class shares. Accordingly, no fees were paid under
the A Class Plan as of June 30, 2007.
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the A Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
fund.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of A Class shares, which services
may include but are not limited to:
(a) paying sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell A Class shares
pursuant to selling agreements;
(b) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the fund's A Class
shares;
(c) compensating and paying expenses (including overhead and telephone
expenses) of the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the fund's shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution
of fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
------
40
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the FINRA; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the fund pursuant to the terms of the agreement between
the trust and the fund's distributor and in accordance with Rule 12b-1 of
the Investment Company Act.
B Class Plan
As described in the prospectus, the B Class shares of the fund are made
available to participants in employer-sponsored retirement plans and to persons
purchasing through broker-dealers, banks, insurance companies and other
financial intermediaries that provide various administrative, shareholder and
distribution services. The fund's distributor enters into contracts with various
banks, broker-dealers, insurance companies and other financial intermediaries,
with respect to the sale of the fund's shares and/or the use of the fund's
shares in various investment products or in connection with various financial
services.
Certain recordkeeping and administrative services that are provided by the
fund's transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for B Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the fund's shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the fund's
Board of Trustees has adopted the B Class Plan. Pursuant to the B Class Plan,
the B Class pays the fund's distributor 1.00% annually of the average daily net
asset value of the fund's B Class shares, 0.25% of which is paid for certain
ongoing individual shareholder and administrative services (as described below)
and 0.75% of which is paid for distribution services, including past
distribution services (as described below). This payment is fixed at 1.00% and
is not based on expenses incurred by the distributor. The B Class was not
offered as of fiscal year end June 30, 2007, therefore no fees have been paid.
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the B Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
fund.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of B Class shares, which services
may include but are not limited to:
------
41
(a) paying sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell B Class shares
pursuant to selling agreements;
(b) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the fund's B Class
shares;
(c) compensating and paying expenses (including overhead and telephone
expenses) of the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the fund's shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution
of fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the FINRA; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the fund pursuant to the terms of the agreement between
the trust and the fund's distributor and in accordance with Rule 12b-1 of
the Investment Company Act.
C Class Plan
As described in the prospectus, the C Class shares of the fund are made
available to participants in employer-sponsored retirement plans and to persons
purchasing through broker-dealers, banks, insurance companies and other
financial intermediaries that provide various administrative, shareholder and
distribution services. The fund's distributor enters into contracts with various
banks, broker-dealers, insurance companies and other financial intermediaries,
with respect to the sale of the fund's shares and/or the use of the fund's
shares in various investment products or in connection with various financial
services.
Certain recordkeeping and administrative services that are provided by the
fund's transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for C Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the fund's shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the fund's
Board of Trustees has adopted the C Class Plan. Pursuant to the C Class Plan,
the C Class pays the fund's distributor 1.00% annually of the average daily net
asset value of the C Class shares, 0.25% of which is paid for certain ongoing
individual shareholder and administrative services (as described below) and
0.75% of which is paid for distribution services, including past distribution
services (as described below). This payment is fixed at 1.00% and is not based
on expenses incurred by the distributor. The C Class was not offered as of
fiscal year end June 30, 2007, therefore no fees have been paid.
------
42
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the C Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
fund.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of C Class shares, which services
may include but are not limited to:
(a) paying sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell C Class shares
pursuant to selling agreements;
(b) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the fund's C Class
shares;
(c) compensating and paying expenses (including overhead and telephone
expenses) of the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the fund's shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution
of fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
investors, as contemplated by the Conduct Rules of the FINRA; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the fund pursuant to the terms of the agreement between
the trust and the fund's distributor and in accordance with Rule 12b-1 of
the Investment Company Act.
------
43
R Class Plan
As described in the prospectus, the R Class shares of the fund are made
available to participants in employer-sponsored retirement plans and to persons
purchasing through broker-dealers, banks, insurance companies and other
financial intermediaries that provide various administrative, shareholder and
distribution services. The fund's distributor enters into contracts with various
banks, broker-dealers, insurance companies and other financial intermediaries,
with respect to the sale of the fund's shares and/or the use of the fund's
shares in various investment products or in connection with various financial
services.
Certain recordkeeping and administrative services that are provided by the
fund's transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for R Class
investors. In addition to such services, the financial intermediaries provide
various individual shareholder and distribution services.
To enable the fund's shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the fund's
Board of Trustees has adopted the R Class Plan. Pursuant to the R Class Plan,
the R Class pays the fund's distributor 0.50% annually of the average daily net
asset value of the R Class shares. The distributor may use these fees to pay for
certain ongoing shareholder and administrative services (as described below) and
for distribution services, including past distribution services (as described
below). This payment is fixed at 0.50% and is not based on expenses incurred by
the distributor. The R Class was not offered as of fiscal year end June 30,
2007, therefore no fees have been paid.
The distributor then makes these payments to the financial intermediaries
(including underwriters and broker-dealers, who may use some of the proceeds to
compensate sales personnel) who offer the R Class shares for the services
described below. No portion of these payments is used by the distributor to pay
for advertising, printing costs or interest expenses.
Payments may be made for a variety of individual shareholder services,
including, but not limited to:
(a) providing individualized and customized investment advisory services,
including the consideration of shareholder profiles and specific goals;
(b) creating investment models and asset allocation models for use by
shareholders in selecting appropriate funds;
(c) conducting proprietary research about investment choices and the market in
general;
(d) periodic rebalancing of shareholder accounts to ensure compliance with the
selected asset allocation;
(e) consolidating shareholder accounts in one place; and
(f) other individual services.
Individual shareholder services do not include those activities and expenses
that are primarily intended to result in the sale of additional shares of the
fund.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of R Class shares, which services
may include but are not limited to:
(a) paying sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell R Class shares
pursuant to selling agreements;
(b) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the fund's R Class
shares;
------
44
(c) compensating and paying expenses (including overhead and telephone
expenses) of the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e) preparing, printing and distributing sales literature and advertising
materials provided to the fund's shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective shareholders
about fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution
of fund shares;
(k) organizing and conducting of sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
shareholders, as contemplated by the Conduct Rules of the FINRA; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the fund pursuant to the terms of the agreement between
the trust and the fund's distributor and in accordance with Rule 12b-1 of
the Investment Company Act.
Advisor Class Plan(1)
As described in the prospectus, the fund's Advisor Class shares are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through broker-dealers, banks, insurance companies and
other financial intermediaries that provide various administrative, shareholder
and distribution services. The fund's distributor enters into contracts with
various banks, broker-dealers, insurance companies and other financial
intermediaries, with respect to the sale of the fund's shares and/or the use of
the fund's shares in various investment products or in connection with various
financial services.
Certain recordkeeping and administrative services that are provided by the
fund's transfer agent for the Investor Class shareholders may be performed by a
plan sponsor (or its agents) or by a financial intermediary for Advisor Class
investors. In addition to such services, the financial intermediaries provide
various distribution services.
To enable the fund's shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the fund's
advisor has reduced its management fee by 0.25% per annum with respect to the
Advisor Class shares and the fund's Board of Trustees has adopted a Master
Distribution and Shareholder Services Plan (the Advisor Class Plan). Pursuant to
the Advisor Class Plan, the Advisor Class pays the fund's distributor a fee of
0.50% annually of the aggregate average daily asset value of the fund's Advisor
Class shares, 0.25% of which is paid for ongoing shareholder and administrative
services (as described below) and 0.25% of which is paid for distribution
services, including past distribution services (described below). This payment
is
(1) AS OF SEPTEMBER 4, 2007, THE ADVISOR CLASS OF THE FUND WAS RENAMED A CLASS
AND BECAME SUBJECT TO THE A CLASS PLAN.
------
45
fixed at 0.50% and is not based on expenses incurred by the distributor. The
distributor then makes these payments to the financial intermediaries (including
underwriters and broker-dealers, who may use some of the proceeds to compensate
sales personnel) who offer the Advisor Class shares for the services described
below. No portion of these payments is used by the distributor to pay for
advertising, printing costs or interest expenses. During the fiscal year ended
June 30, 2007, the aggregate amount of fees paid under the plan was $178,626.(1)
During the fiscal year ended December 31, 2006, the aggregate amount of fees
paid under the plan was $290,242.
Payments may be made for a variety of shareholder services, including, but not
limited to:
(a) receiving, aggregating and processing purchase, exchange and redemption
requests from beneficial owners of shares (including contract owners of
insurance products that utilize the fund as underlying investment media)
and placing purchase, exchange and redemption orders with the fund's
distributors;
(b) providing shareholders with a service that invests the assets of their
accounts in shares pursuant to specific or pre-authorized instructions;
(c) processing dividend payments from the fund on behalf of shareholders and
assisting shareholders in changing dividend options, account designations
and addresses;
(d) providing and maintaining elective services such as check writing and wire
transfer services;
(e) acting as shareholder of record and nominee for beneficial owners;
(f) maintaining account records for shareholders and/or other beneficial
owners;
(g) issuing confirmations of transactions;
(h) providing subaccounting with respect to shares beneficially owned by
customers of third parties or providing the information to the fund as
necessary for such subaccounting;
(i) preparing and forwarding investor communications from the fund (such as
proxies, shareholder reports, annual and semi-annual financial statements
and dividend, distribution and tax notices) to shareholders and/or other
beneficial owners; and
(j) providing other similar administrative and sub-transfer agency services.
Shareholder services do not include those activities and expenses that are
primarily intended to result in the sale of additional shares of the fund.
During the fiscal year ended June 30, 2007, the amount of fees paid under the
Advisor Class Plan for shareholder services was $89,313.(1) During the fiscal
year ended December 31, 2006, the amount of fees paid under the Advisor Class
Plan for shareholder services was $145,121.
Distribution services include any activity undertaken or expense incurred that
is primarily intended to result in the sale of Advisor Class shares, which
services may include, but are not limited to:
(a) paying sales commissions, on-going commissions and other payments to
brokers, dealers, financial institutions or others who sell Advisor Class
shares pursuant to Selling Agreements;
(b) compensating registered representatives or other employees of the
distributor who engage in or support distribution of the fund's Advisor
Class shares;
(c) compensating and paying expenses (including overhead and telephone
expenses) of the distributor;
(d) printing prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD.
------
46
(e) preparing, printing and distributing sales literature and advertising
materials provided to the fund's shareholders and prospective shareholders;
(f) receiving and answering correspondence from prospective shareholders,
including distributing prospectuses, statements of additional information,
and shareholder reports;
(g) providing facilities to answer questions from prospective investors about
fund shares;
(h) complying with federal and state securities laws pertaining to the sale of
fund shares;
(i) assisting shareholders in completing application forms and selecting
dividend and other account options;
(j) providing other reasonable assistance in connection with the distribution
of fund shares;
(k) organizing and conducting sales seminars and payments in the form of
transactional and compensation or promotional incentives;
(l) profit on the foregoing;
(m) paying service fees for providing personal, continuing services to
shareholders, as contemplated by the Conduct Rules of the FINRA; and
(n) such other distribution and services activities as the advisor determines
may be paid for by the fund pursuant to the terms of the agreement between
the trust and the fund's distributor and in accordance with Rule 12b-1 of
the Investment Company Act.
During the fiscal year ended June 30, 2007, the amount of fees paid under the
Advisor Class Plan for distribution services was $89,313.(1) During the fiscal
year ended December 31, 2006, the amount of fees paid under the Advisor Class
Plan for distribution services was $145,121.
Sales Charges
The sales charges applicable to the A, B and C Classes of the fund are described
in the prospectus for those classes in the section titled INVESTING THROUGH A
FINANCIAL INTERMEDIARY. Shares of the A Class are subject to an initial sales
charge, which declines as the amount of the purchase increases pursuant to the
schedule set forth in the prospectus. This charge may be waived in the following
situations:
* Employer-sponsored retirement plan purchases
* Certain individual retirement account rollovers
* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having sales
agreements with the advisor or the distributor
* Wrap accounts maintained for clients of certain financial intermediaries who
have entered into agreements with American Century
* Purchases by current and retired employees of American Century and their
immediate family members (spouses and children under age 21) and trusts or
employer-sponsored retirement plans established by those persons
* Purchases by certain other investors that American Century deems appropriate,
including but not limited to current or retired directors, trustees and
officers of funds managed by the advisor and trusts and employer-sponsored
retirement plans established by those persons
There are several ways to reduce the sales charges applicable to a purchase of A
Class shares. These methods are described in the relevant prospectus. You or
your financial advisor must indicate at the time of purchase that you intend to
take advantage of one of these reductions.
(1) JANUARY 1, 2007 THROUGH JUNE 30, 2007. THE FUND'S FISCAL YEAR END WAS
CHANGED FROM DECEMBER 31 TO JUNE 30, RESULTING IN A SIX-MONTH ANNUAL
REPORTING PERIOD.
------
47
Shares of the A, B and C Classes are subject to a contingent deferred sales
charge (CDSC) upon redemption of the shares in certain circumstances. The
specific charges and when they apply are described in the relevant prospectus.
The CDSC may be waived for certain redemptions by some shareholders, as
described in the prospectus.
An investor may terminate his relationship with an intermediary at any time. If
the investor does not establish a relationship with a new intermediary and
transfer any accounts to that new intermediary, such accounts may be exchanged
to the Investor Class of the fund, if such class is available. The investor will
be the shareholder of record of such accounts. In this situation, any applicable
CDSCs will be charged when the exchange is made.
Shares of the B Class, C Class and R Class of the fund have not been offered
prior to the date of this statement of additional information.
Payments to Dealers
The fund's distributor expects to pay sales commissions to the financial
intermediaries who sell A, B and/or C Class shares of the fund at the time of
such sales. Payments for A Class shares will be as follows:
PURCHASE AMOUNT DEALER CONCESSION
--------------------------------------------------------------------------------
less than $99,999 4.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.00%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 1.75%
--------------------------------------------------------------------------------
$1,000,000 - $3,999,999 1.00%
--------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.50%
--------------------------------------------------------------------------------
more than $10,000,000 0.25%
--------------------------------------------------------------------------------
No concession will be paid on purchases by employer-sponsored retirement plans.
Payments will equal 4.00% of the purchase price of B Class shares and 1.00% of
the purchase price of the Class shares sold by the intermediary. The distributor
will retain the 12b-1 fee paid by the C Class of funds for the first 12 months
after the shares are purchased. This fee is intended in part to permit the
distributor to recoup a portion of on-going sales commissions to dealers plus
financing costs, if any. Beginning with the first day of the 13th month, the
distributor will make the C Class distribution and individual shareholder
services fee payments described above to the financial intermediaries involved
on a quarterly basis. In addition, B and C Class purchases, and A Class
purchases greater than $1,000,000, are subject to a CDSC as described in the
prospectus.
From time to time, the distributor may provide additional payments to dealers,
including but not limited to payment assistance for conferences and seminars,
provision of sales or training programs for dealer employees and/or the public
(including, in some cases, payment for travel expenses for registered
representatives and other dealer employees who participate), advertising and
sales campaigns about a fund or funds, and assistance in financing
dealer-sponsored events. Other payments may be offered as well, and all such
payments will be consistent with applicable law, including the then-current
rules of the Financial Industry Regulatory Authority. Such payments will not
change the price paid by investors for shares of the fund.
------
48
BUYING AND SELLING FUND SHARES
Information about buying, selling, exchanging and, if applicable, converting
fund shares is contained in the fund's prospectus. The prospectus is available
to investors without charge and may be obtained by calling us.
American Century considers employer-sponsored retirement plans to include the
following:
* 401(a) plans
* pension plans
* profit sharing plans
* 401(k) plans
* money purchase plans
* target benefit plans
* Taft-Hartley multi-employer pension plans
* SERP and "Top Hat" plans
* ERISA trusts
* employee benefit trusts
* 457 plans
* KEOGH plans
* employer-sponsored 403(b) plans (including self-directed)
* nonqualified deferred compensation plans
* nonqualified excess benefit plans
* nonqualified retirement plans
* SIMPLE IRAs
* SEP IRAs
* SARSEP
Traditional and Roth IRAs are not considered employer-sponsored retirement
plans. The following table indicates the types of shares that may be purchased
through employer-sponsored retirement plans, Traditional IRAs and Roth IRAs.
EMPLOYER-
SPONSORED TRADITIONAL
RETIREMENT AND
PLANS ROTH IRAS
--------------------------------------------------------------------------------
A Class Shares may be Yes Yes
purchased at NAV(1)
--------------------------------------------------------------------------------
A Class shares may be Yes, for Yes
purchased with dealer plans under
concessions and $1 million
sales charge
--------------------------------------------------------------------------------
B Class shares may No Yes
be purchased(2)
--------------------------------------------------------------------------------
C Class shares may be Yes, for Yes
purchased with dealer plans under
concessions and CDSC(2) $1 million
--------------------------------------------------------------------------------
C Class shares may be Yes No
purchased with no dealer
concessions and CDSC(1) (2)
--------------------------------------------------------------------------------
Institutional Class shares Yes Yes
may be purchased
--------------------------------------------------------------------------------
Investor Class shares Yes Yes
may be purchased
--------------------------------------------------------------------------------
R Class shares may Yes No
be purchased
--------------------------------------------------------------------------------
(1) REFER TO THE PROSPECTUS REGARDING SALES CHARGES AND CDSC WAIVERS.
(2) REFER TO THE PROSPECTUS FOR MAXIMUM PURCHASE REQUIREMENTS.
------
49
VALUATION OF THE FUND'S SECURITIES
All classes of the fund except the A Class are offered at their net asset value,
as described below. The A Class of the fund is offered at its public offering
price, which is the net asset value plus the appropriate sales charge. This
calculation may be expressed as a formula:
Offering Price = Net Asset Value/(1 - Sales Charge as a % of Offering Price)
For example, if the net asset value of a fund's A Class shares is $5.00, the
public offering price would be $5.00/(1-5.75%) = $5.31.
The fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the NYSE), each day the NYSE is open
for business. The NYSE usually closes at 4 p.m. Eastern time. The NYSE typically
observes the following holidays: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Although the fund expects the same holidays
to be observed in the future, the NYSE may modify its holiday schedule at any
time.
The fund's NAV is calculated by adding the value of all portfolio securities and
other assets, deducting liabilities and dividing the result by the number of
shares outstanding. Expenses and interest earned on portfolio securities are
accrued daily.
Debt securities not traded on a principal securities exchange are valued through
valuations obtained from a commercial pricing service or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Trustees.
The subadvisor typically completes its trading on behalf of the fund in various
markets before the NYSE closes for the day. Foreign currency exchange rates also
are determined prior to the close of the NYSE. If an event were to occur after
the value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, then
that security would be valued as determined in accordance with procedures
adopted by the Board of Trustees.
Securities maturing within 60 days of the valuation date may be valued at cost,
plus or minus an amortized discount or premium, unless the trustees determine
that this would not result in fair valuation of a given security. Other assets
and securities for which quotations are not readily available are valued in good
faith using methods approved by the Board of Trustees.
The value of an exchange-traded foreign security is determined in its national
currency as of the close of trading on the foreign exchange on which it is
traded or as of the close of business on the NYSE, if that is earlier. That
value is then translated to dollars at the prevailing foreign exchange rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the NYSE is open. If an event were to occur after
the value of a security was established, but before the net asset value per
share was determined, that was likely to materially change the net asset value,
then that security would be valued as determined in accordance with procedures
adopted by the Board of Trustees.
Trading of these securities in foreign markets may not take place on every day
that the NYSE is open. In addition, trading may take place in various foreign
markets and on some electronic trading networks on Saturdays or on other days
when the NYSE is not open and on which the fund's net asset values are not
calculated. Therefore, such calculations do not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation, and the value of the fund's portfolios may be affected on days
when shares of the fund may not be purchased or redeemed.
------
50
TAXES
FEDERAL INCOME TAX
The fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, the fund should be exempt from federal income taxes to the extent
that it distributes substantially all of its net investment income and net
realized capital gains (if any) to investors. If the fund fails to qualify as a
regulated investment company, it will be liable for taxes, significantly
reducing its distributions to investors and eliminating investors' ability to
treat distributions from the fund in the same manner in which they were realized
by the fund.
If fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, unless they are designated as qualified dividend income and you
meet a minimum required holding period with respect to your shares of a fund, in
which case such distributions are taxed as long-term capital gains. Qualified
dividend income is a dividend received by a fund from the stock of a domestic or
qualifying foreign corporation, provided that the fund has held the stock for a
required holding period. The required holding period for qualified dividend
income is met if the underlying shares are held more than 60 days in the 121-day
period beginning 60 days prior to the ex-dividend date. Dividends received by
the fund on shares of stock of domestic corporations may qualify for the 70%
dividends received deduction to the extent that the fund held those shares for
more than 45 days.
Distributions from gains on assets held by the fund longer than 12 months are
taxable as long-term gains regardless of the length of time you have held your
shares in the fund. If you purchase shares in the fund and sell them at a loss
within six months, your loss on the sale of those shares will be treated as a
long-term capital loss to the extent of any long-term capital gains dividends
you received on those shares.
As of June 30, 2007, the fund had the following capital loss carryover, which
expires in the years and amounts listed. When a fund has a capital loss
carryover, it does not make capital gains distributions until the loss has been
offset or expired.
CAPITAL LOSS CARRYOVER
--------------------------------------------------------------------------------
FUND 2008 2009 2010 2011 2012 2013 2014 2015
--------------------------------------------------------------------------------
International
Bond -- -- -- -- -- -- ($9,602,222) ($1,415,007)
--------------------------------------------------------------------------------
Dividends and interest received by the fund on foreign securities may give rise
to withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Foreign countries generally do not impose taxes on capital
gains with respect to investments by non-resident investors. Any foreign taxes
paid by the fund will reduce its dividends distributions to investors.
If more than 50% of the value of the fund's total assets at the end of its
fiscal year consists of securities of foreign corporations, the fund may qualify
for and make an election with the Internal Revenue Service with respect to such
fiscal year so that fund shareholders may be able to claim a foreign tax credit
in lieu of a deduction for foreign income taxes paid by the fund. If such an
election is made, the foreign taxes paid by the fund will be treated as income
received by you. In order for you to utilize the foreign tax credit, you must
have held your shares for 16 days or more during the 31-day period, beginning 15
days prior to the ex-dividend date for the mutual fund shares. The mutual fund
must meet a similar holding period requirement with respect to foreign
securities to which a dividend is attributable. Any portion of the foreign tax
credit that is ineligible as a result of the fund not meeting the holding period
requirement will be deducted in computing net investment income.
------
51
If you have not complied with certain provisions of the Internal Revenue Code
and Regulations, either American Century or your financial intermediary is
required by federal law to withhold and remit to the IRS the applicable federal
withholding rate of reportable payments (which may include dividends, capital
gains distributions and redemption proceeds). Those regulations require you to
certify that the Social Security number or tax identification number you provide
is correct and that you are not subject to withholding for previous
under-reporting to the IRS. You will be asked to make the appropriate
certification on your account application. Payments reported by us to the IRS
that omit your Social Security number or tax identification number will subject
us to a non-refundable penalty of $50, which will be charged against your
account if you fail to provide the certification by the time the report is
filed.
A redemption of shares of the fund (including a redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
you generally will recognize gain or loss in an amount equal to the difference
between the basis of the shares and the amount received. If a loss is realized
on the redemption of fund shares, the reinvestment in additional fund shares
within 30 days before or after the redemption may be subject to the "wash sale"
rules of the Code, resulting in a postponement of the recognition of such loss
for federal income tax purposes.
The fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the fund, defer fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also may require the fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were sold), which may cause the fund
to recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the 90% and 98% distribution requirements for
relief from income and excise taxes, respectively. The fund will monitor its
transactions and may make such tax elections as fund management deems
appropriate with respect to foreign currency, options, futures contracts or
forward contracts. The fund's status as a regulated investment company may limit
its transactions involving foreign currency, futures, options and forward
contracts.
Under the Code, gains or losses attributable to fluctuations in exchange rates
that occur between the time the fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, in disposing of
debt securities denominated in foreign currencies, certain forward currency
contracts, or other instruments, gains or losses attributable to fluctuations in
the value of a foreign currency between the date the security, contract, or
other instrument is acquired and the date it is disposed of are also usually
treated as ordinary income or loss. Under Section 988 of the Code, these gains
or losses may increase or decrease the amount of the fund's investment company
taxable income distributed to shareholders as ordinary income.
STATE AND LOCAL TAXES
Distributions by the fund also may be subject to state and local taxes, even if
all or a substantial part of such distributions are derived from interest on
U.S. government obligations which, if you received such interest directly, would
be exempt from state income tax. However, most but not all states allow this tax
exemption to pass through to fund shareholders when a fund pays distributions to
its shareholders. You should consult your tax advisor about the tax status of
such distributions in your state.
------
52
FINANCIAL STATEMENTS
The financial statements of the fund have been audited by PricewaterhouseCoopers
LLP, independent registered public accounting firm. Their Report of Independent
Registered Public Accounting Firm and the financial statements included in the
fund's annual report for the fiscal period ended June 30, 2007, are incorporated
herein by reference.
EXPLANATION OF FIXED-INCOME
SECURITIES RATINGS
As described in the prospectus, the fund may invest in fixed-income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the prospectus. The following is a summary of the rating categories
referenced in the prospectus.
RATINGS OF CORPORATE DEBT SECURITIES
--------------------------------------------------------------------------------
Standard & Poor's
--------------------------------------------------------------------------------
AAA This is the highest rating assigned by S&P to a debt obligation.
It indicates an extremely strong capacity to pay interest and
repay principal.
--------------------------------------------------------------------------------
AA Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal. It differs from
the highest-rated obligations only in small degree.
--------------------------------------------------------------------------------
A Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
--------------------------------------------------------------------------------
BBB Debt rated in this category is regarded as having an
adequate capacity to pay interest and repay principal.
While it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories. Debt rated below BBB is regarded
as having significant speculative characteristics.
--------------------------------------------------------------------------------
BB Debt rated in this category has less near-term vulnerability
to default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and
principal payments. The BB rating also is used for debt
subordinated to senior debt that is assigned an actual or
implied BBB rating.
--------------------------------------------------------------------------------
B Debt rated in this category is more vulnerable to nonpayment
than obligations rated BB, but currently has the capacity to pay
interest and repay principal. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to pay interest and repay principal.
--------------------------------------------------------------------------------
CCC Debt rated in this category is currently vulnerable to
nonpayment and is dependent upon favorable business,
financial, and economic conditions to meet timely payment
of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied B or B- rating.
--------------------------------------------------------------------------------
CC Debt rated in this category is currently highly vulnerable to
nonpayment. This rating category is also applied to debt
subordinated to senior debt that is assigned an actual or
implied CCC rating.
--------------------------------------------------------------------------------
C The rating C typically is applied to debt subordinated to senior
debt, and is currently highly vulnerable to nonpayment of
interest and principal. This rating may be used to cover a
situation where a bankruptcy petition has been filed or similar
action taken, but debt service payments are being continued.
--------------------------------------------------------------------------------
D Debt rated in this category is in default. This rating is used
when interest payments or principal repayments are not
made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments
will be made during such grace period. It also will be used
upon the filing of a bankruptcy petition or the taking of a
similar action if debt service payments are jeopardized.
--------------------------------------------------------------------------------
------
53
Moody's Investors Service, Inc.
--------------------------------------------------------------------------------
Aaa This is the highest rating assigned by Moody's to a debt
obligation. It indicates an extremely strong capacity to
pay interest and repay principal.
--------------------------------------------------------------------------------
Aa Debt rated in this category is considered to have a very
strong capacity to pay interest and repay principal and
differs from Aaa issues only in a small degree. Together
with Aaa debt, it comprises what are generally known as
high-grade bonds.
--------------------------------------------------------------------------------
A Debt rated in this category possesses many favorable
investment attributes and is to be considered as upper-
medium-grade debt. Although capacity to pay interest
and repay principal are considered adequate, it is
somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions
than debt in higher-rated categories.
--------------------------------------------------------------------------------
Baa Debt rated in this category is considered as medium-
grade debt having an adequate capacity to pay interest
and repay principal. While it normally exhibits adequate
protection parameters, adverse economic conditions
or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated
categories. Debt rated below Baa is regarded as
having significant speculative characteristics.
--------------------------------------------------------------------------------
Ba Debt rated Ba has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions that could lead to
inadequate capacity to meet timely interest and principal
payments. Often the protection of interest and principal
payments may be very moderate.
--------------------------------------------------------------------------------
B Debt rated B has a greater vulnerability to default,
but currently has the capacity to meet financial
commitments. Assurance of interest and principal
payments or of maintenance of other terms of the
contract over any long period of time may be small. The
B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied Ba or
Ba3 rating.
--------------------------------------------------------------------------------
Caa Debt rated Caa is of poor standing, has a currently
identifiable vulnerability to default, and is dependent
upon favorable business, financial and economic
conditions to meet timely payment of interest and
repayment of principal. In the event of adverse
business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay
principal. Such issues may be in default or there may
be present elements of danger with respect to principal
or interest. The Caa rating is also used for debt
subordinated to senior debt that is assigned an actual
or implied B or B3 rating.
--------------------------------------------------------------------------------
Ca Debt rated in this category represent obligations that are
speculative in a high degree. Such debt is often in
default or has other marked shortcomings.
--------------------------------------------------------------------------------
C This is the lowest rating assigned by Moody's, and debt
rated C can be regarded as having extremely poor prospects
of attaining investment standing.
--------------------------------------------------------------------------------
Fitch Investors Service, Inc.
--------------------------------------------------------------------------------
AAA Debt rated in this category has the lowest expectation of
credit risk. Capacity for timely payment of financial
commitments is exceptionally strong and highly unlikely to
be adversely affected by foreseeable events.
--------------------------------------------------------------------------------
AA Debt rated in this category has a very low expectation of
credit risk. Capacity for timely payment of financial
commitments is very strong and not significantly vulnerable
to foreseeable events.
--------------------------------------------------------------------------------
A Debt rated in this category has a low expectation of credit
risk. Capacity for timely payment of financial commitments
is strong, but may be more vulnerable to changes in
circumstances or in economic conditions than debt rated in
higher categories.
--------------------------------------------------------------------------------
BBB Debt rated in this category currently has a low
expectation of credit risk and an adequate capacity for
timely payment of financial commitments. However,
adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is
the lowest investment grade category.
--------------------------------------------------------------------------------
BB Debt rated in this category has a possibility of developing
credit risk, particularly as the result of adverse economic
change over time. However, business or financial
alternatives may be available to allow financial commitments
to be met. Securities rated in this category are not
investment grade.
--------------------------------------------------------------------------------
------
54
Fitch Investors Service, Inc.
--------------------------------------------------------------------------------
B Debt rated in this category has significant credit risk, but
a limited margin of safety remains. Financial commitments
currently are being met, but capacity for continued debt
service payments is contingent upon a sustained, favorable
business and economic environment.
--------------------------------------------------------------------------------
CCC, CC, C Debt rated in these categories has a real possibility for
default. Capacity for meeting financial commitments
depends solely upon sustained, favorable business or
economic developments. A CC rating indicates that
default of some kind appears probable; a C rating
signals imminent default.
--------------------------------------------------------------------------------
DDD, DD, D The ratings of obligations in these categories are
based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor.
While expected recovery values are highly speculative
and cannot be estimated with any precision, the
following serve as general guidelines. DDD obligations
have the highest potential for recovery, around 90%-
100% of outstanding amounts and accrued interest.
DD indicates potential recoveries in the range of
50%-90% and D the lowest recovery potential, i.e.,
below 50%. Entities rated in these categories have
defaulted on some or all of their obligations. Entities
rated DDD have the highest prospect for resumption
of performance or continued operation with or without
a formal reorganization process. Entities rated DD and
D are generally undergoing a formal reorganization or
liquidation process; those rated DD are likely to satisfy
a higher portion of their outstanding obligations, while
entities rated D have a poor prospect of repaying all
obligations.
--------------------------------------------------------------------------------
To provide more detailed indications of credit quality, the Standard & Poor's
ratings from AA to CCC may be modified by the addition of a plus or minus sign
to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1, 2, 3) to designate relative standing within
its major bond rating categories. Fitch also rates bonds and uses a ratings
system that is substantially similar to that used by Standard & Poor's.
COMMERCIAL PAPER RATINGS
--------------------------------------------------------------------------------
S&P MOODY'S DESCRIPTION
--------------------------------------------------------------------------------
A-1 Prime-1(P-1) This indicates that the degree of safety regarding
timely payment is strong. Standard & Poor's rates
those issues determined to possess extremely strong
safety characteristics as A-1+.
--------------------------------------------------------------------------------
A-2 Prime-2(P-2) Capacity for timely payment on commercial paper
is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
Earnings trends and coverage ratios, while sound,
will be more subject to variation. Capitalization
characteristics, while still appropriated, may be
more affected by external conditions. Ample
alternate liquidity is maintained.
--------------------------------------------------------------------------------
A-3 Prime-3(P-3) Satisfactory capacity for timely repayment. Issues
that carry this rating are somewhat more vulnerable
to the adverse changes in circumstances than
obligations carrying the higher designations.
--------------------------------------------------------------------------------
NOTE RATINGS
--------------------------------------------------------------------------------
S&P MOODY'S DESCRIPTION
------------------------------------------------------------------------------
SP-1 MIG-1; VMIG-1 Notes are of the highest quality enjoying strong
protection from established cash flows of funds
for their servicing or from established and
broad-based access to the market for refinancing,
or both.
------------------------------------------------------------------------------
SP-2 MIG-2; VMIG-2 Notes are of high quality with margins of
protection ample, although not so large as in the
preceding group.
------------------------------------------------------------------------------
SP-3 MIG-3; VMIG-3 Notes are of favorable quality with all security
elements accounted for, but lacking the undeniable
strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less
well established.
------------------------------------------------------------------------------
SP-4 MIG-4; VMIG-4 Notes are of adequate quality carrying specific
risk but having protection and not distinctly
or predominantly speculative.
--------------------------------------------------------------------------------
------
55
MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the fund's
investments and the market conditions and investment strategies that
significantly affected the fund's performance during the most recent fiscal
period.
You can receive a free copy of the annual and semiannual reports, and ask any
questions about the fund, online at americancentury.com, by contacting us at one
of the addresses or telephone numbers listed below or by contacting your
financial intermediary.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the fund from the Securities and Exchange
Commission (SEC). The SEC charges a duplicating fee to provide copies of this
information.
IN PERSON SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location and hours.
ON THE INTERNET * EDGAR database at sec.gov
* By email request at publicinfo@sec.gov
BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-6441
AMERICAN CENTURY INVESTMENTS
americancentury.com
Banks and Trust Companies, Broker-Dealers,
Self-Directed Retail Investors Financial Professionals, Insurance Companies
P.O. Box 419200 P.O. Box 419786
Kansas City, Missouri 64141-6200 Kansas City, Missouri 64141-6786
1-800-345-2021 or 816-531-5575 1-800-345-6488
SH-SAI-55350 0705
AMERICAN CENTURY INTERNATIONAL BOND FUNDS
PART C OTHER INFORMATION
Item 23. Exhibits
(a) (1) Amended and Restated Agreement and Declaration of Trust, dated
March 26, 2004 (filed electronically as Exhibit a to Post-Effective Amendment
No. 19 to the Registration Statement of the Registrant on April 29, 2004, File
No. 33-43321, and incorporated herein by reference).
(2) Amendment No. 1 to the Amended and Restated Agreement and
Declaration of Trust, dated June 14, 2004 (filed electronically as Exhibit a2 to
Post-Effective Amendment No. 21 to the Registration Statement of the Registrant
on July 29, 2004, File No. 33-43321, and incorporated herein by reference).
(3) Amendment No. 2 to the Amended and Restated Agreement and
Declaration of Trust, dated March 8, 2007 (filed electronically as Exhibit a3 to
Post-Effective Amendment No. 25 to the Registration Statement of the Registrant
on April 30, 2007, File No. 33-43321, and incorporated herein by reference).
(4) Amendment No. 3 to the Amended and Restated Agreement and
Declaration of Trust, dated August 31, 2007, is included herein.
(b) Amended and Restated Bylaws, dated August 26, 2004 (filed
electronically as Exhibit b to Post-Effective Amendment No. 22 to the
Registration Statement of the Registrant on February 17, 2005, File No.
33-43321, and incorporated herein by reference).
(c) Registrant hereby incorporates by reference, as though set forth fully
herein, Article III, IV, V, VI and Article VIII of Registrant's Amended and
Restated Agreement and Declaration of Trust, appearing as Exhibit a to
Post-Effective Amendment No. 19 to the Registration Statement of the Registrant;
and Article II, Article VII, Article VIII and Article IX of Registrant's Amended
and Restated Bylaws, incorporated by reference as Exhibit b herein.
(d) (1) Investment Sub-Advisory Agreement with J.P. Morgan Investment
Management, Inc., dated August 1, 1997 (filed electronically as Exhibit 5c to
Post-Effective Amendment No. 10 to the Registration Statement of the Registrant
on September 30, 1997, File No. 33-43321, and incorporated herein by reference).
(2) Amended and Restated Management Agreement with American Century
Investment Management, Inc., dated August 1, 2007, is included herein.
(e) (1) Amended and Restated Distribution Agreement between American
Century International Bond Funds and American Century Investment Services, Inc.,
dated September 4, 2007, is included herein.
(2) Form of Dealer/Agency Agreement (filed electronically as Exhibit
e2 to Post-Effective Amendment No. 25 to the Registration Statement of the
Registrant on April 30, 2007, File No. 333-43321 and incorporated herein by
reference).
(f) Not applicable.
(g) (1) Master Agreement with Commerce Bank, N.A., dated January 22, 1997
(filed electronically as Exhibit b8e to Post-Effective Amendment No. 76 to the
Registration Statement of American Century Mutual Funds, Inc. on February 28,
1997, File No. 2-14213, and incorporated herein by reference).
(2) Custodian and Investment Accounting Agreement with State Street
Bank and Trust Company, dated May 27, 2005 (filed electronically as Exhibit g6
to Post-Effective Amendment No. 27 to the Registration Statement of American
Century Investment Trust on May 27, 2005, File No. 33-65170, and incorporated
herein by reference).
(3) Amendment No. 1 to Custodian and Investment Accounting Agreement
with State Street Bank and Trust Company, effective September 30, 2005 (filed
electronically as Exhibit g8 to Post-Effective Amendment No. 41 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
September 29, 2005, File No. 33-19589, and incorporated herein by reference).
(4) Amendment No. 2 to Custodian and Investment Accounting Agreement
with State Street Bank and Trust Company, effective March 31, 2006 (filed
electronically as Exhibit g9 to Post-Effective Amendment No. 32 to the
Registration Statement of American Century Investment Trust on March 31, 2006,
File No. 33-65170, and incorporated herein by reference).
(h) (1) Amended and Restated Transfer Agency Agreement with American
Century Services Corporation, dated as of August 1, 2007, is included herein.
(2) Credit Agreement with JP Morgan Chase Bank, as Administrative
Agent, dated December 17, 2003 (filed electronically as Exhibit h9 to
Post-Effective Amendment No. 39 to the Registration Statement of American
Century Target Maturities Trust on January 30, 2004, File No. 2-94608, and
incorporated herein by reference).
(3) Termination, Replacement and Restatement Agreement with JPMorgan
Chase Bank N.A., as Administrative Agent, dated December 13, 2006 (filed
electronically as Exhibit h16 to Post-Effective Amendment No. 41 to the
Registration Statement of American Century California Tax-Free and Municipal
Funds on December 28, 2006, File No. 2-82734, and incorporated herein by
reference).
(4) Customer Identification Program Reliance Agreement (filed
electronically as Exhibit h2 to Pre-Effective Amendment No. 1 to the
Registration Statement of American Century Growth Funds, Inc. on May 30, 2006,
File No. 333-132114, and incorporated herein by reference).
(i) Opinion and Consent of Counsel, dated September 27, 2007, is included
herein.
(j) Consent of PricewaterhouseCoopers LLP, independent registered public
accounting firm, dated September 24, 2007, is included herein.
(k) Not applicable.
(l) Not applicable.
(m) (1) Master Distribution and Individual Shareholder Services Plan (A
Class), dated September 4, 2007, is included herein.
(2) Master Distribution and Individual Shareholder Services Plan (B
Class), dated September 4, 2007, is included herein.
(3) Master Distribution and Individual Shareholder Services Plan (C
Class), dated September 4, 2007, is included herein.
(4) Master Distribution and Individual Shareholder Services Plan (R
Class), dated September 4, 2007, is included herein.
(n) Amended and Restated Multiple Class Plan, dated September 4, 2007, is
included herein.
(o) Reserved.
(p) (1) American Century Investments Code of Ethics (filed electronically
as Exhibit p1 to Post-Effective Amendment No. 41 to the Registration Statement
of American Century California Tax-Free and Municipal Funds on December 28,
2006, File No. 2-82734, and incorporated herein by reference).
(2) J.P. Morgan Investment Management, Inc. Code of Ethics (filed
electronically as Exhibit p3 to Post-Effective Amendment No. 20 to the
Registration Statement of American Century Capital Portfolios, Inc. on April 20,
2001, File No. 33-64872, and incorporated herein by reference).
(3) Independent Directors' Code of Ethics amended February 28, 2000
(filed electronically as Exhibit p2 to Post-Effective Amendment No. 40 to the
Registration Statement of American Century Target Maturities Trust on November
30, 2004, File No. 2-94608, and incorporated herein by reference).
(q) (1) Power of Attorney, dated September 7, 2007 (filed electronically
as Exhibit q1 to Post-Effective Amendment No. 55 to the Registration Statement
of American Century Government Income Trust on September 26, 2007, File No.
2-99222, and incorporated herein by reference).
(2) Secretary's Certificate, dated September 7, 2007 (filed
electronically as Exhibit q2 to Post-Effective Amendment No. 55 to the
Registration Statement of American Century Government Income Trust on September
26, 2007, File No. 2-99222, and incorporated herein by reference).
Item 24. Persons Controlled by or Under Common Control with Registrant
The persons who serve as the trustees or directors of the Registrant also
serve, in substantially identical capacities, the following investment
companies:
American Century California Tax-Free and Municipal Funds
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Quantitative Equity Funds, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios II, Inc.
Because the boards of each of the above-named investment companies are
identical, these companies may be deemed to be under common control.
Item 25. Indemnification
As stated in Article VII, Section 3 of the Amended and Restated Declaration
of Trust, incorporated herein by reference to Exhibit (a1)to the Registration
Statement, "The Trustees shall be entitled and empowered to the fullest extent
permitted by law to purchase insurance for and to provide by resolution or in
the Bylaws for indemnification out of Trust assets for liability and for all
expenses reasonably incurred or paid or expected to be paid by a Trustee or
officer in connection with any claim, action, suit, or proceeding in which he
becomes involved by virtue of his capacity or former capacity with the Trust.
The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution of
the Trustees."
Registrant hereby incorporates by reference, as though set forth fully
herein, Article VI of the Registrant's Amended and Restated Bylaws, amended
August 26, 2004, and incorporated herein by reference as Exhibit b hereto.
The Registrant has purchased an insurance policy insuring its officers and
directors against certain liabilities which such officers and directors may
incur while acting in such capacities and providing reimbursement to the
Registrant for sums which it may be permitted or required to pay to its officers
and directors by way of indemnification against such liabilities, subject in
either case to clauses respecting deductibility and participation.
Item 26. Business and other Connections of Investment Advisor
In addition to serving as the Registrant's investment advisor, American
Century Investment Management, Inc. provides portfolio management services for
other investment companies as well as for other business and institutional
clients. Business backgrounds of the directors and principal executive officers
of the advisor that also hold positions with the Registrant are included under
"Management" in the Statement of Additional Information included in this
registration statement. The remaining principal executive officers and directors
of the advisor and their principal occupations during the past 2 fiscal years
are as follows:
James E. Stowers, Jr. (Director). Founder, Co-Chairman, Director and
Controlling Shareholder, American Century Companies, Inc. (ACC);
Co-Vice Chairman, ACC (January 2005-February 2007), Chairman, ACC
(January 1995 to December 2004); Director, American Century Global
Investment Management, Inc. (ACGIM), American Century Services, LLC
(ACS), American Century Investment Services, Inc. (ACIS) and other ACC
subsidiaries, as well as a number of American Century-advised
investment companies.
Enrique Chang (President, Chief Executive Officer and Chief Investment
Officer of ACIM and ACGIM). Served as President and Chief Executive
Officer, Munder Capital Management, 2002 to 2006.
The principal address for all American Century entities other than
ACGIM is 4500 Main Street, Kansas City, MO 64111. The principal address for
ACGIM is 666 Third Avenue, 23rd Floor, New York, NY 10017.
The subadvisor for International Bond is J.P. Morgan Investment
Management, Inc. (JPMIM). Additional information about the business and other
connections of JPMIM is available in Part I of JPMIM's Form ADV and the
schedules thereto (SEC file number 801-21011).
Item 27. Principal Underwriters
I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:
American Century Asset Allocation Portfolios, Inc.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century Growth Funds, Inc.
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Quantitative Equity Funds, Inc.
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century Variable Portfolios II, Inc.
American Century World Mutual Funds, Inc.
ACIS is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
ACIS is located at 4500 Main Street, Kansas City, Missouri 64111. ACIS is a
wholly-owned subsidiary of American Century Companies, Inc.
(b) The following is a list of the directors, executive officers and
partners of ACIS:
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
------------------------------------------------------------------------
James E. Stowers, Jr. Director none
Jonathan S. Thomas Director President and
Trustee
Brian Jeter President and Chief none
Executive Officer
Jon W. Zindel Senior Vice President Tax Officer
and Chief Accounting Officer
David K. Anderson Chief Financial Officer none
Donna Byers Senior Vice President none
Mark Killen Senior Vice President none
David Larrabee Senior Vice President none
Barry Mayhew Senior Vice President none
David C. Tucker Senior Vice President none
Joseph S. Reece Chief Compliance Officer none
--------------------
* All addresses are 4500 Main Street, Kansas City, Missouri 64111
(c) Not applicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, and the rules promulgated thereunder, are in the
possession of American Century Investment Management, Inc., 4500 Main Street,
Kansas City, MO 64111 and 1665 Charleston Road, Mountain View, CA 94043;
American Century Services, LLC, 4500 Main Street, Kansas City, MO 64111; State
Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City, MO 64105;
and Commerce Bank, N.A., 1000 Walnut, Kansas City, MO 64105. Certain records
relating to the day-to-day portfolio management of International Bond are kept
in the offices of the subadvisor, J.P. Morgan Investment Management, Inc., 20
Finsbury Street, London EC2Y 9AQ United Kingdom.
Item 29. Management Services - Not Applicable.
Item 30. Undertakings - Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement amendment pursuant
to Rule 485(b) promulgated under the Securities Act of 1933, as amended, and has
duly caused this amendment to be signed on its behalf by the undersigned, duly
authorized, in the City of Kansas City, State of Missouri, on the 27th day of
September, 2007.
AMERICAN CENTURY INTERNATIONAL BOND FUNDS
(Registrant)
By: /*/
------------------------------------------
Jonathan S. Thomas
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement amendment has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* President and September 27, 2007
--------------------------- Trustee
Jonathan S. Thomas
* Vice President, September 27, 2007
--------------------------- Treasurer and Chief
Robert J. Leach Financial Officer
* Trustee September 27, 2007
---------------------------
John Freidenrich
* Chairman of the September 27, 2007
--------------------------- Board and Trustee
Ronald J. Gilson
* Trustee September 27, 2007
---------------------------
Kathryn A. Hall
* Trustee September 27, 2007
---------------------------
Peter F. Pervere
* Trustee September 27, 2007
---------------------------
Myron S. Scholes
* Trustee September 27, 2007
---------------------------
John B. Shoven
* Trustee September 27, 2007
---------------------------
Jeanne D. Wohlers
*By /s/ Christine J. Crossley
----------------------------------------
Christine J. Crossley
Attorney-in-Fact
(pursuant to Power of Attorney
dated September 7, 2007)
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER
EXHIBIT (a)(4) Amendment No. 3 to the Amended and Restated Agreement and
Declaration of Trust, dated August 31, 2007.
EXHIBIT (d)(2) Amended and Restated Management Agreement with American
Century Investment Management, Inc., dated August 1, 2007.
EXHIBIT (e)(1) Amended and Restated Distribution Agreement between American
Century International Bond Funds and American Century
Investment Services, Inc., dated September 4, 2007.
EXHIBIT (h)(1) Amended and Restated Transfer Agency Agreement with American
Century Services Corporation, dated as of August 1, 2007.
EXHIBIT (i) Opinion and Consent of Counsel, dated September 27, 2007.
EXHIBIT (j) Consent of PricewaterhouseCoopers LLP, independent registered
public accounting firm, dated September 24, 2007.
EXHIBIT (m)(1) Master Distribution and Individual Shareholder Services Plan
(A Class), dated September 4, 2007.
EXHIBIT (m)(2) Master Distribution and Individual Shareholder Services Plan
(B Class), dated September 4, 2007.
EXHIBIT (m)(3) Master Distribution and Individual Shareholder Services Plan
(C Class), dated September 4, 2007.
EXHIBIT (m)(4) Master Distribution and Individual Shareholder Services Plan
(R Class), dated September 4, 2007.
EXHIBIT (n) Amended and Restated Multiple Class Plan, dated September 4,
2007.