Document 2

485BPOS 1 doc-2.htm PEA 17 Document 2

485BPOS
Post-Effective Amendment

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 17 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 18 [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 64141-6200
_________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (816) 531-5575

David C. Tucker, Esquire, 4500 Main Street, Kansas City, MO 64141-6200
_________________________________________________________________
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: May 1, 2002

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2002 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.

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Your
American Century
prospectus

INVESTOR CLASS May 1, 2002

International Bond Fund

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.

American Century Investment Services, Inc.

[american century logo and text logo (reg. sm)]

Dear Investor,

American Century is committed to helping people make the most of their financial
opportunities. That's why we are focused on achieving superior results and
building long-term relationships with investors. We believe our relationship
with you begins with providing a prospectus that's easy to read, and more
importantly, that gives you the information you need to have confidence in the
investment decisions you have made or are soon to make.

This year you'll find some new information in your Prospectus to take note of.
The Securities and Exchange Commission (SEC) has adopted a rule requiring mutual
funds to disclose standardized after-tax returns. We've added this information
to the Fund Performance History section. It is included to help you understand
the impact that taxes may have on mutual fund performance. Please note that
disclosure of after-tax returns is not required for money market funds or funds
offered only in tax-deferred accounts, such as variable annuities.

Naturally, you may have questions about investing after you read through the
Prospectus. Our Web site, www.americancentury.com, offers information that could
answer many of your questions. Or, an Investor Relations Representative will be
happy to help weekdays, 7 a.m. to 7 p.m., and Saturdays, 9 a.m. to 2 p.m.
Central time. Give us a call at 1-800-345-2021.

Sincerely,

/s/Mark Killen

Mark Killen
Senior Vice President
American Century Investment Services, Inc.

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[american century logo and text logo (reg. sm)]

American Century
Investments

P.O. Box 419200
Kansas City, MO
64141-6200

Table of Contents

AN OVERVIEW OF THE FUND ................................................... 2

FUND PERFORMANCE HISTORY .................................................. 3

FEES AND EXPENSES ......................................................... 5

OBJECTIVES, STRATEGIES AND RISKS .......................................... 6

BASICS OF FIXED-INCOME INVESTING .......................................... 8

MANAGEMENT ................................................................ 10

INVESTING WITH AMERICAN CENTURY ........................................... 12

SHARE PRICE AND DISTRIBUTIONS ............................................. 17

TAXES ..................................................................... 18

MULTIPLE CLASS INFORMATION ................................................ 20

FINANCIAL HIGHLIGHTS ...................................................... 21

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Throughout this book you'll find definitions of key investment terms and
phrases. When you see a word printed in GREEN ITALICS, look for its definition
in the margin.

[triangle]
This symbol highlights special information and helpful tips.

AN OVERVIEW OF THE FUND

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The fund seeks high total return by investing in high-quality,
nondollar-denominated government and corporate debt securities outside the
United States.

WHAT ARE THE FUND'S PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?

The fund invests most of its assets in high-quality bonds or DEBT SECURITIES
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

* interest rate risk

* currency risk

* political and economic risk

* foreign market and trading risk

* principal loss

Additional important information about the fund's investment strategies and
risks begins on page 6.

WHO MAY WANT TO INVEST IN THE FUND?

The fund may be a good investment if you are

* seeking diversification of your portfolio through investment in
nondollar-denominated foreign debt securities

* seeking to protect your income against a decline in the purchasing power of
the U.S. dollar relative to foreign currencies

* comfortable with the fund's other investment risks

WHO MAY NOT WANT TO INVEST IN THE FUND?

The fund may not be a good investment if you are

* seeking current income from your investment

* uncomfortable with the risks associated with investing in foreign securities

* uncomfortable with rapid fluctuations in the value of your investment

* looking for the added security of FDIC insurance

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DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and debentures.

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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.

FUND PERFORMANCE HISTORY

INTERNATIONAL BOND FUND

Annual Total Returns

The following bar chart shows the performance of the fund's Investor Class
shares for each full calendar year in the life of the fund. It indicates the
volatility of the fund's historical returns from year to year. Account fees are
not reflected in the chart below. If they had been included, returns would be
lower than those shown.

[bar chart data below]

International Bond
--------------------------------------------------------------------------------
2001 -1.66%
2000 -1.20%
1999 -10.36%
1998 17.87%
1997 -5.88%
1996 6.38%
1995 24.40%
1994 1.52%
1993 11.79%

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

Highest Lowest
--------------------------------------------------------------------------------
International Bond 13.84% (1Q 1995) -6.79% (1Q 1997)

Average Annual Total Returns

The following table shows the average annual total returns of the fund's shares
calculated three different ways.

Return Before Taxes shows the actual change in the value of fund shares over the
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.

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The performance information on this page is designed to help you see how fund
returns can vary. Keep in mind that past performance does not predict how the
fund will perform in the future.

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For current performance information, including yields, please call us at
1-800-345-2021 or visit us at www.americancentury.com.

The benchmark is an unmanaged index that has no operating costs and is included
in the table for performance comparison.

For the calendar year ended December 31, 2001 1 year 5 years Life of Fund(1)
-------------------------------------------------------------------------------------------
International Bond

Return Before Taxes -1.66% -0.68% 4.51%

Return After Taxes on Distributions -1.66% -1.55% 2.90%

Return After Taxes on Distributions
and Sale of Fund Shares -1.01% -0.90% 2.94%

J.P. Morgan Global Traded Government Bond Index(2) -1.16% 0.00% 4.68%
(reflects no deduction for fees, expenses or taxes)

(1) The inception date for the fund is January 7, 1992.

(2) From the fund's inception to December 31, 1997, the benchmark was the
J.P. Morgan ECU-Weighted European Index. Since January 1, 1998, the
benchmark has been the J.P. Morgan Global Traded Government Index
(excluding the U.S. and with Japan weighted at 15%.)

FEES AND EXPENSES

There are no sales loads, fees or other charges

* to buy fund shares directly from American Century

* to reinvest dividends in additional shares

* to exchange into the Investor Class shares of other American Century funds

* to redeem your shares other than a $10 fee to redeem by wire

The following table describes the fees and expenses you may pay if you buy and
hold shares of the fund.

ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

Management Distribution and Other Total Annual Fund
Fee(1) Service (12b-1) Fees Expenses(2) Operating Expenses
----------------------------------------------------------------------------------------------------
International Bond 0.84% None 0.02% 0.86%

(1) Based on assets under management during the fund's most recent fiscal
year. The fund has a stepped-fee schedule. As a result,
the fund's management fee rate generally decreases as fund assets
increase and increases as fund assets decrease.

(2) Other expenses include the fees and expenses of the fund's
independent trustees and their legal counsel, as well as interest.

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.
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
-------------------------------------------------------------------------------
International Bond $88 $274 $476 $1,057

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[triangle]
Use this example to compare the costs of investing in other funds. Of course,
your actual costs may be higher or lower.

OBJECTIVES, STRATEGIES AND RISKS

INTERNATIONAL BOND FUND

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The fund seeks high total return by investing in high-quality,
nondollar-denominated government and corporate debt securities outside the
United States.

HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVE?

The fund will invest at least 80% of its net assets in HIGH-QUALITY,
nondollar-denominated foreign government and foreign corporate debt securities.

The fund managers select the fund's investments by using a combination of
fundamental research and bond and currency valuation models.

* ECONOMIC/POLITICAL FUNDAMENTALS. The fund managers evaluate each country's
economic climate and political discipline for controlling deficits and
inflation.

* EXPECTED RETURN. Using economic forecasts, the fund managers project the
expected return for each country.

* RELATIVE VALUE. By contrasting expected risks and returns for investments in
each
country, the fund managers select those countries expected to produce the
best return at reasonable risk.

Generally, the fund will only purchase 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 20% of
its total assets into U.S. dollars when the fund managers consider the dollar to
be attractive relative to foreign currencies.

The weighted average maturity of the fund is expected to be between two and 10
years.

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A HIGH-QUALITY debt security is one that has been determined to be in the top
two credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. Details of the
fund's credit quality standards are described in the Statement of Additional
Information.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

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
short-term and limited-term funds.

At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by 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 primarily 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.

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 fund managers decide 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 fund managers calculate
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 fund
managers 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
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Weighted Average Maturity 10 years

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.

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The longer a fund's weighted average maturity, the more sensitive it is to
interest rate changes.

WEIGHTED AVERAGE MATURITY is a tool the fund managers use to approximate the
remaining term to maturity of a fund's investment portfolio.

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%
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10 years $100.00 $93.20 -6.80%
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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 fund managers do not invest solely on the basis of a debt security's credit
rating; they also consider 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.

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.

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[triangle]
Credit quality may be lower when the issuer has any of the following

* a high debt level

* a short operating history

* a senior level of debt

* a difficult, competitive environment

* a less stable cash flow

MANAGEMENT

WHO MANAGES THE FUND?

The Board of Trustees, investment advisor and fund management teams 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 two-thirds of the trustees are independent of the fund's advisor; that
is, they are not employed by and have no financial interest in the advisor.

THE INVESTMENT ADVISOR

The fund's investment advisor is American Century Investment Management, Inc.
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 portfolios 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.

For the services it provided to the fund during the most recent fiscal year, the
advisor received a unified management fee of 0.84% of the average net assets of
the Investor Class shares of the fund. The rate of the management fee for the
fund is determined monthly on a class-by-class basis using a two-step formula
that takes into account the fund's strategy (money market, bond or equity) and
the total amount of mutual fund assets the advisor manages. The management fee
is paid monthly in arrears.

The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor paid 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 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 FUND MANAGEMENT TEAM

The advisor uses a team of portfolio managers, assistant portfolio managers and
analysts to manage the fund. The team meets regularly to review portfolio
holdings and discuss purchase and sale activity. Team members buy and sell
securities for the fund as they see fit, guided by the fund's investment
objective and strategy.

The advisor and the Board of Trustees have hired and supervise J.P. Morgan
Investment Management, Inc. (JPMIM), a subadvisor, to make investment decisions
for the fund.

The portfolio managers on the investment team are identified below:

DAVID M. GIBBON

Mr. Gibbon, Vice President and Fixed-Income Portfolio Manager, has been a member
of the team that manages International Bond since December 1998. He joined J.P.
Morgan, New York in 1992 and has worked in London since 1997. He has a
bachelor's degree in physics from Princeton University. He is a CFA
charterholder.

RICHARD SHERRY

Mr. Sherry, Portfolio Manager in the International Fixed-Income Group, has been
a member of the team that manages International Bond since November 2000. He
joined J.P. Morgan in November 1999. He previously spent five years at Zurich
Investment Management (Australia), including four years serving as a
quantitative analyst in equity and balanced funds. He has a bachelor's degree in
economics and master's degree in applied finance from Macquarie University, a
master's degree in business from the University of Technology, Sydney, and a
master's of science degree in mathematics from Oxford University.

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 may change any other policies and
investment strategies.

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CODE OF ETHICS

American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the fund.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or profiting from the purchase and sale of the same security within 60 calendar
days. In addition, the Code of Ethics requires portfolio managers and other
employees with access to information about the purchase or sale of securities by
the fund to obtain approval before executing permitted personal trades.

INVESTING WITH AMERICAN CENTURY

SERVICES AUTOMATICALLY AVAILABLE TO YOU

Most accounts automatically will have access to the services listed below 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). If you want to add services later, you can complete an Investor
Service Options form. 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.

WAYS TO MANAGE YOUR ACCOUNT
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BY TELEPHONE

Investor Relations
1-800-345-2021

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.

MAKE ADDITIONAL INVESTMENTS

Call or use our Automated Information Line if you have authorized us to invest
from your bank account.

SELL SHARES

Call a Service Representative.

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ONLINE

www.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.

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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.

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.

YOUR GUIDE TO SERVICES AND POLICIES

When you open an account, you will receive a services guide, which explains the
services available to you and the policies of the fund and the transfer agent.

WAYS TO MANAGE YOUR ACCOUNT
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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 privilege, you can purchase shares on a regular
basis. You must invest at least $600 per year per account.

SELL SHARES

If you have at least $10,000 in your account, you may sell shares automatically
by establishing Check-A-Month or Automatic Redemption plans.

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BY WIRE

[triangle] Please remember, if you request redemptions by wire, $10 will be
deducted from the amount redeemed. Your bank also may charge a fee.

OPEN AN ACCOUNT

Call to set up your account or mail a completed application to the address
provided in the By mail section. Give your bank the following information to
wire money.

* Our bank information
Commerce Bank N.A.
Routing No. 101000019
Account No. Please call for the appropriate account number
* The fund name
* Your American Century account number, if known*
* Your name
* The contribution year (for IRAs only)

*For additional investments only

MAKE ADDITIONAL INVESTMENTS

Follow the wire instructions provided in the Open an account section.

SELL SHARES

You can receive redemption proceeds by wire or electronic transfer.

EXCHANGE SHARES

Not available.

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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 St 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5:30 p.m., Monday - Friday 8 a.m. to 6 p.m., Monday - Friday
8 a.m. to noon, Saturday

1665 Charleston Road 10350 Park Meadows Drive
Mountain View, California Littleton, Colorado
8 a.m. to 5 p.m., Monday - Friday 8:30 am. to 5:30 p.m., Monday - Friday

MINIMUM INITIAL INVESTMENT AMOUNTS

To open an account, the minimum investments are:
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Individual or Joint $2,500
--------------------------------------------------------------------------------
Traditional IRA $2,500
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Roth IRA $2,500
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Coverdell Education Savings Account (CESA)(1) $2,000
--------------------------------------------------------------------------------
UGMA/UTMA $2,500
--------------------------------------------------------------------------------
403(b) $1,000(2)
--------------------------------------------------------------------------------
Qualified Retirement Plans $2,500(3)

(1) Formerly Education IRA

(2) For each fund you select for your 403(b) plan, American Century will waive
the fund minimum if you make a contribution of at least $50 a month. If your
contribution is less than $50 a month, you may make only one fund choice.

(3) The minimum investment requirements may be different for some types of
retirement accounts.

ACCOUNT MAINTENANCE FEE

We charge a $12.50 semiannual account maintenance fee to investors whose total
investments with American Century are less than $10,000. We will determine the
amount of your total investments twice per year, generally the last Friday in
October and April. If your total investments are less than $10,000 at that time,
we will redeem shares automatically in one of your accounts to pay the $12.50
fee. Please note that you may incur a tax liability as a result of the
redemption. In determining your total investment amount, we will include your
investments in American Century funds held in all PERSONAL ACCOUNTS and IRAs
including SEP-, SARSEP- and SIMPLE-IRAs (but no other retirement plan accounts)
registered under your Social Security number. We will not charge you 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 www.americancentury.com/info/demo.

REDEMPTIONS

Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order. Each time
you make an investment with American Century, there is a seven-day holding
period before you can redeem those shares, unless you provide us with
satisfactory proof that your purchase funds have cleared. This seven-day holding
period begins the day after your investment is processed. However, investments
by wire require only a one-day holding period.

In addition, we reserve the right to delay delivery of redemption proceeds--up
to seven days--or to honor certain redemptions with securities, rather than
cash, as described in the next section.

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PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA
accounts, personal trusts, Education Savings Accounts (formerly Education IRAs)
and traditional, Roth and Rollover IRAs. 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.

A fund's NET ASSET VALUE, or NAV, is the price of the fund's shares.

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A redemption is the sale of all or a portion of the shares in an account,
including those sold as a part of an exchange to another American Century
account.

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 the 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 fund
managers would select these securities from the fund's portfolio. A payment in
securities can help the fund's remaining shareholders avoid tax liabilities that
they might otherwise have incurred had the fund sold securities prematurely to
pay the entire redemption amount in cash.

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.

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 the fund and its remaining investors.

REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS

If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record.

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 the fund.

ABUSIVE TRADING PRACTICES

We do not permit market timing or other abusive trading practices in our funds.

Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the fund and its shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control.

INVESTING THROUGH FINANCIAL INTERMEDIARIES

If you do business with us through a financial intermediary or a retirement
plan, your ability to purchase, exchange and redeem shares will depend on the
policies of that entity. Some policy differences may include

* minimum investment requirements

* exchange policies

* fund choices

* cutoff time for investments

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
intermediary or plan sponsor.

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, American Century will pay the
service provider a fee for performing those services.

Although fund share transactions may be made directly with American Century at
no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the fund.

The fund has authorized certain financial intermediaries to accept orders on the
fund's behalf. American Century has contracts with these 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 intermediary on a 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 contract,
they will be priced at the net asset value next determined after your request is
received in the form required by the intermediary.

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Financial intermediaries include banks, broker-dealers, insurance companies and
investment advisors.

SHARE PRICE AND DISTRIBUTIONS

SHARE PRICE

American Century determines the NAV of the fund as of the close of regular
trading on the New York Stock Exchange (usually 4 p.m. Eastern time) on each day
the Exchange is open. On days when the Exchange is closed (including certain
U.S. holidays), we do not calculate the NAV. A fund share's NAV is the current
value of the fund's assets, minus any liabilities, divided by the number of fund
shares outstanding.

If current market prices of securities owned by a fund are not readily
available, the advisor may determine their fair value in accordance with
procedures adopted by the fund's Board. Trading of securities in foreign markets
may not take place every day the Exchange is open. Also, trading in some foreign
markets and on some electronic trading networks may take place on weekends or
holidays when a fund's NAV is not calculated. So, the value of a fund's
portfolio may be affected on days when you can't purchase or redeem shares of
the fund.

We will price your purchase, exchange or redemption at the NAV next determined
after we receive your transaction request in GOOD ORDER.

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 will not be subject to state or federal
income tax on amounts distributed. The distributions generally consist of
dividends and interest received by a fund, as well as CAPITAL GAINS realized by
a fund on the sale of its investment securities.

The fund pays distributions of substantially all its income quarterly.
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 employer-sponsored retirement or savings plans must reinvest all
distributions. For investors investing through taxable accounts, we will
reinvest distributions unless you elect to receive them in cash. Please consult
your services guide for further information about distributions and your options
for receiving them.

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GOOD ORDER means that your instructions have been received in the form required
by American Century. This may include, for example, providing the fund name and
account number, the amount of the transaction and all required signatures.

CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased.

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 the fund from its investments, or capital gains generated by the fund from
the sale of its investment securities. Distributions of income are taxed as
ordinary income. Distributions of capital gains are classified either as short
term or long term and are taxed as follows:

Tax Rate for 10% Tax Rate for
Type of Distribution and 15% Brackets All Other Brackets
--------------------------------------------------------------------------------
Short-term capital gains Ordinary income rate Ordinary income rate
--------------------------------------------------------------------------------
Long-term capital gains (1-5 years) 10% 20%
--------------------------------------------------------------------------------
Long-term capital gains (>5 years) 8% 20%(1)

(1) The reduced rate for these gains will not begin until 2006 because the
security holding period must start after December 31, 2000. Once the security
has been held for more than 5 years, the rate will be 18%.

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 a financial intermediary will inform you of the tax status of fund
distributions for each calendar year in an annual tax mailing (Form 1099-DIV).

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.

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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 the 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.

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.

MULTIPLE CLASS INFORMATION

American Century offers two classes of the fund: Investor Class and Advisor
Class. The shares offered by this Prospectus are Investor Class shares and have
no up-front or deferred charges, commissions, or 12b-1 fees.

American Century offers the Advisor class of shares primarily through
employer-sponsored retirement plans or through institutions like banks,
broker-dealers and insurance companies. The Advisor Class has different fees,
expenses and/or minimum investment requirements from the Investor Class. The
difference in the fee structures between the classes is the result of their
separate arrangements for shareholder and distribution services and not the
result of any difference in amounts charged by the advisor for core investment
advisory services. Accordingly, the core investment advisory expenses do not
vary by class. Different fees and expenses will affect performance. For
additional information concerning the Advisor Class shares, call us at
1-800-345-3533. You also can contact a sales representative or financial
intermediary who offers that class of shares.

Except as described below, all classes of shares of the fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences between 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; and (d) each class
may have different exchange privileges.

FINANCIAL HIGHLIGHTS

UNDERSTANDING THE FINANCIAL HIGHLIGHTS

The table on the next page itemizes what contributed to the changes in share
price during the most recently ended fiscal year. It also shows the changes in
share price for this period in comparison to changes over the last five fiscal
years.

On a per-share basis, the 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

The 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 buying and selling activity

The Financial Highlights have been audited by PricewaterhouseCoopers LLP,
independent accountants. Their Independent Accountants' Report and the financial
statements are included in the fund's Annual Report, which is available upon
request.

INTERNATIONAL BOND FUND

Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31

Per-Share Data

2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------

Net Asset Value, Beginning of Period $10.25 $10.55 $12.44 $10.92 $11.79
---------- ---------- --------- ---------- ----------
Income From Investment Operations

Net Investment Income 0.39(1) 0.38(1) 0.36(1) 0.47(1) 0.65

Net Realized and Unrealized Gain (Loss) (0.56) (0.51) (1.62) 1.47 (1.34)
---------- ---------- --------- ---------- ----------
Total From Investment Operations (0.17) (0.13) (1.26) 1.94 (0.69)
---------- ---------- --------- ---------- ----------

Distributions

From Net Investment Income -- (0.11) (0.43) (0.17) (0.04)

From Net Realized Gains -- (0.06) (0.20) (0.25) (0.14)
---------- ---------- --------- ---------- ----------
Total Distributions -- (0.17) (0.63) (0.42) (0.18)
---------- ---------- --------- ---------- ----------
Net Asset Value, End of Period $10.08 $10.25 $10.55 $12.44 $10.92
========== ========== ========= ========== ==========
Total Return(2) (1.66)% (1.20)% (10.36)% 17.87% (5.88)%

Ratios/Supplemental Data

2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------

Ratio of Operating Expenses to Average Net Assets 0.86% 0.87% 0.85% 0.84% 0.84%

Ratio of Net Investment Income to Average Net Assets 3.87% 3.85% 3.27% 4.11% 4.82%

Portfolio Turnover Rate 147% 221% 239% 322% 163%

Net Assets, End of Period (in thousands) $115,172 $111,320 $112,968 $157,412 $165,731

(1) Computed using average shares outstanding throughout the period.

(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. 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.

NOTES

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, by contacting American Century at the
address or telephone numbers listed below.

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 www.sec.gov

* By email request at publicinfo@sec.gov

By mail SEC Public Reference Section
Washington, D.C. 20549-0102

FUND REFERENCE (INVESTOR CLASS)

Fund Code Ticker Newspaper Listing
-------------------------------------------------------------------------------
International Bond 992 BEGBX IntlBnd

Investment Company Act File No. 811-6441

[american century logo and text logo (reg. sm)]

American Century Investments
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575

www.americancentury.com

0205
SH-PRS-29339

Your
American Century
prospectus

ADVISOR CLASS May 1, 2002

International Bond Fund

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.

American Century Investment Services, Inc.

[american century logo and text logo (reg. sm)]

Dear Investor,

Naturally, you may have questions about investing after you read through the
Prospectus. Please contact your investment professional with questions or for
more information about our funds.

Sincerely,

/s/W. Gordon Snyder

W. Gordon Snyder
President, Chief Marketing Officer
American Century Investment Services, Inc.

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[american century logo and text logo (reg. sm)]

American Century
Investments

P.O. Box 419385
Kansas City, MO
64141-6385

Table of Contents

AN OVERVIEW OF THE FUND ................................................... 2

FUND PERFORMANCE HISTORY .................................................. 3

FEES AND EXPENSES ......................................................... 4

OBJECTIVES, STRATEGIES AND RISKS .......................................... 5

BASICS OF FIXED-INCOME INVESTING .......................................... 7

MANAGEMENT ................................................................ 9

INVESTING WITH AMERICAN CENTURY ........................................... 11

SHARE PRICE AND DISTRIBUTIONS ............................................. 14

TAXES ..................................................................... 15

MULTIPLE CLASS INFORMATION ................................................ 17

FINANCIAL HIGHLIGHTS ...................................................... 18

PERFORMANCE INFORMATION OF OTHER CLASS .................................... 20

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Throughout this book you'll find definitions of key investment terms and
phrases. When you see a word printed in GREEN ITALICS, look for
its definition in the margin.

[triangle]
This symbol highlights special information and helpful tips.

AN OVERVIEW OF THE FUND

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The fund seeks high total return by investing in high-quality,
nondollar-denominated government and corporate debt securities outside the
United States.

WHAT ARE THE FUND'S PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?

The fund's primary investment risks include

* interest rate risk

* currency risk

* political and economic risk

* foreign market and trading risk

* principal loss

Additional important information about the fund's investment strategies and
risks begins on page 5.

WHO MAY WANT TO INVEST IN THE FUND?

The fund may be a good investment if you are

* seeking diversification of your portfolio through investment in
nondollar-denominated foreign debt securities

* seeking to protect your income against a decline in the purchasing power of
the U.S. dollar relative to foreign currencies

* comfortable with the fund's other investment risks

WHO MAY NOT WANT TO INVEST IN THE FUND?

The fund may not be a good investment if you are

* seeking current income from your investment

* uncomfortable with the risks associated with investing in foreign securities

* uncomfortable with rapid fluctuations in the value of your investment

* looking for the added security of FDIC insurance

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DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and debentures.

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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.

FUND PERFORMANCE HISTORY

INTERNATIONAL BOND FUND

Annual Total Returns

The following bar chart shows the performance of the fund's Advisor Class shares
for each full calendar year in the life of the class. It indicates the
volatility of the fund's historical returns from year to year.

[bar chart data below]

International Bond
--------------------------------------------------------------------------------
2001 -1.96%
2000 -1.35%
1999 -10.61%

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

Highest Lowest
--------------------------------------------------------------------------------
International Bond 8.25% (3Q 2001) -5.86% (1Q 1999)

Average Annual Total Returns

The following table shows the average annual total returns of the fund's shares
calculated three different ways.

The benchmark is an unmanaged index that has no operating costs and is included
in the table for performance comparison.

For the calendar year ended December 31, 2001 1 year Life of Class(1)
--------------------------------------------------------------------------------
International Bond

Return Before Taxes -1.96% -3.84%

Return After Taxes on Distributions -1.96% -4.17%

Return After Taxes on Distributions
and Sale of Fund Shares -1.19% -2.93%

J.P. Morgan Global Traded Government Bond Index(2) -1.16% -3.11%
(reflects no deduction for fees, expenses or taxes)

(1) The inception date for the Advisor Class of the fund is October 27, 1998.

(2) Excluding the U.S. and with Japan weighted at 15%. Benchmark since
10/31/1998, the date closest to the class' inception for which data is
available.

Performance Information of Other Class

The fund's original class of shares was the Investor Class. For information
about the historical performance of the original class of shares, see page 20.

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The performance information on this page is designed to help you see how fund
returns can vary. Keep in mind that past performance does not predict how the
fund will perform in the future.

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For current performance information, including yields, please call us at
1-800-345-3533 or visit us at www.americancentury.com.

FEES AND EXPENSES

There are no sales loads, fees or other charges

* to buy fund shares directly from American Century

* to reinvest dividends in additional shares

* to exchange into the Advisor Class shares of other American Century funds

* to redeem your shares other than a $10 fee to redeem by wire

The following table describes the fees and expenses you may pay if you buy and
hold shares of the fund.

ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

Management Distribution and Other Total Annual Fund
Fee(1) Service (12b-1) Fees(2) Expenses(3) Operating Expenses
--------------------------------------------------------------------------------------------
International Bond 0.59% 0.50% 0.02% 1.11%

(1) Based on assets under management during the fund's most recent fiscal year.
The fund has a stepped-fee schedule. As a result, the fund's management
fee rate generally decreases as fund assets increase and increases as fund
assets decrease.

(2) The 12b-1 fee is designed to permit investors to purchase Advisor Class
shares through broker-dealers, banks, insurance companies and other
financial intermediaries. A portion of the fee is used to compensate them
for ongoing recordkeeping and administrative services that would otherwise
be performed by an affiliate of the advisor, and a portion is used to
compensate them for distribution and other shareholder services. For more
information, see Service and Distribution Fees, page 17.

(3) Other expenses include the fees and expenses of the fund's independent
trustees and their legal counsel, as well as interest.

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.
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
--------------------------------------------------------------------------------
International Bond $113 $352 $609 $1,345

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When purchasing through a financial intermediary you may be charged a fee.

Use this example to compare the costs of investing in other funds. Of course,
your actual costs may be higher or lower.

OBJECTIVES, STRATEGIES AND RISKS

INTERNATIONAL BOND FUND

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The fund seeks high total return by investing in high-quality,
nondollar-denominated government and corporate debt securities outside the
United States.

HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVE?

The fund will invest at least 80% of its net assets in HIGH-QUALITY,
nondollar-denominated foreign government and foreign corporate debt securities.

The fund managers select the fund's investments by using a combination of
fundamental research and bond and currency valuation models.

* ECONOMIC/POLITICAL FUNDAMENTALS. The fund managers evaluate each country's
economic climate and political discipline for controlling deficits and
inflation.

* EXPECTED RETURN. Using economic forecasts, the fund managers project the
expected return for each country.

* RELATIVE VALUE. By contrasting expected risks and returns for investments in
each country, the fund managers select those countries expected to produce
the best return at reasonable risk.

The weighted average maturity of the fund is expected to be between two and 10
years.

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A HIGH-QUALITY debt security is one that has been determined to be in the top
two credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. Details of the
fund's credit quality standards are described in the Statement of Additional
Information.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by 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.

BASICS OF FIXED-INCOME INVESTING

DEBT SECURITIES

The fund managers decide 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

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The longer a fund's weighted average maturity, the more sensitive it is to
interest rate changes.

WEIGHTED AVERAGE MATURITY is a tool the fund managers use to approximate the
remaining term to maturity of a fund's investment portfolio.

TYPES OF RISK

The basic types of risk the fund faces are described below.

Interest Rate Risk

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

Liquidity Risk

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Credit quality may be lower when the issuer has any of the following

* a high debt level

* a short operating history

* a senior level of debt

* a difficult, competitive environment

* a less stable cash flow

MANAGEMENT

WHO MANAGES THE FUND?

The Board of Trustees, investment advisor and fund management teams play key
roles in the management of the fund.

THE BOARD OF TRUSTEES

THE INVESTMENT ADVISOR

For the services it provided to the fund during the most recent fiscal year, the
advisor received a unified management fee of 59% of the average net assets of
the Advisor Class shares of the fund. The rate of the management fee for the
fund is determined monthly on a class-by-class basis using a two-step formula
that takes into account the fund's strategy (money market, bond or equity) and
the total amount of mutual fund assets the advisor manages. The management fee
is paid monthly in arrears.

THE FUND MANAGEMENT TEAM

The advisor and the Board of Trustees have hired and supervise J.P. Morgan
Investment Management, Inc. (JPMIM), a subadvisor, to make investment decisions
for the fund.

The portfolio managers who lead the investment team are identified below:

DAVID M. GIBBON

Mr. Gibbon, Vice President and Fixed-Income Portfolio Manager, has been a member
of the team that manages International Bond since December 1998. He joined
J.P. Morgan, New York in 1992 and has worked in London since 1997. He has a
bachelor's degree in physics from Princeton University. He is a CFA
charterholder.

RICHARD SHERRY

FUNDAMENTAL INVESTMENT POLICIES

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CODE OF ETHICS

INVESTING WITH AMERICAN CENTURY

ELIGIBILITY FOR ADVISOR CLASS SHARES

The Advisor Class shares are intended for purchase by participants in
employer-sponsored retirement or savings plans and for persons purchasing shares
through broker-dealers, banks, insurance companies and other financial
intermediaries that provide various administrative and distribution services.

MINIMUM INITIAL INVESTMENT AMOUNTS

(1) Formerly Education IRA

(2) For each fund you select for your 403(b) plan, American Century will waive
the fund minimum if you make a contribution of at least $50 a month. If
your contribution is less than $50 a month, you may make only one
fund choice.

(3) The minimum investment requirements may be different for some types of
retirement accounts.

INVESTING THROUGH FINANCIAL INTERMEDIARIES

* minimum investment requirements

* exchange policies

* fund choices

* cutoff time for investments

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Financial intermediaries include banks, broker-dealers, insurance companies and
investment advisors.

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 the fund.

ABUSIVE TRADING PRACTICES

We do not permit market timing or other abusive trading practices in our funds.

YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS

REDEMPTIONS

In addition, we reserve the right to delay delivery of redemption proceeds--up
to seven days--or to honor certain redemptions with securities, rather than
cash, as described in the next section.

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A fund's NET ASSET VALUE, or NAV, is the price of the fund's shares.

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A redemption is the sale of all or a portion of the shares in an account,
including those sold as a part of an exchange to another American Century
account.

SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS

REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS

SHARE PRICE AND DISTRIBUTIONS

SHARE PRICE

We will price your purchase, exchange or redemption at the NAV next determined
after we receive your transaction request in GOOD ORDER.

DISTRIBUTIONS

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CAPITAL GAINS are increases in the values of capital assets, such as stock,
from the time the assets are purchased.

TAXES

Tax-Deferred Accounts

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

(1) The reduced rate for these gains will not begin until 2006 because the
security holding period must start after December 31, 2000. Once the
security has been held for more than 5 years, the rate will be 18%.

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.

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BUYING A DIVIDEND

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.

Taxes on Transactions

MULTIPLE CLASS INFORMATION

American Century offers two classes of the fund: Investor Class and Advisor
Class. The shares offered by this Prospectus are Advisor Class shares and are
offered primarily through employer-sponsored retirement plans or through
institutions like banks, broker-dealers and insurance companies.

The Investor Class of shares has no up-front or deferred charges, commissions,
or 12b-1 fees. It also has different fees, expenses and/or minimum investment
requirements from the Advisor Class. The difference in the fee structures
between the classes is the result of their separate arrangements for shareholder
and distribution services and not the result of any difference in amounts
charged by the advisor for core investment advisory services. Accordingly, the
core investment advisory expenses do not vary by class. Different fees and
expenses will affect performance. For additional information concerning the
Investor Class shares, call us at 1-800-345-2021. You also can contact a sales
representative or financial intermediary who offers that class of shares.

SERVICE AND DISTRIBUTION 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. The fund's Advisor Class shares have a 12b-1 Plan. Under the Plan,
the fund's Advisor Class pays an annual fee of 0.50% of Advisor Class average
net assets, half for certain shareholder and administrative services and half
for distribution services. The advisor, as paying agent for the fund, pays all
or a portion of such fees to the banks, broker-dealers and insurance companies
that make such shares available. 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 other types of sales charges. For
additional information about the Plan and its terms, see Multiple Class
Structure - Master Distribution and Shareholder Services Plan in the Statement
of Additional Information.

FINANCIAL HIGHLIGHTS

UNDERSTANDING THE FINANCIAL HIGHLIGHTS

On a per-share basis, the 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

The 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 buying and selling activity

INTERNATIONAL BOND FUND

Advisor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)

Per-Share Data

2001 2000 1999 1998(1)
---------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.23 $10.52 $12.44 $12.50
---------- ---------- --------- ----------

Income From Investment Operations

Net Investment Income(2) 0.36 0.35 0.45 0.08

Net Realized and Unrealized Gain (Loss) (0.56) (0.50) (1.74) 0.19
---------- ---------- --------- ----------
Total From Investment Operations (0.20) (0.15) (1.29) 0.27
---------- ---------- --------- ----------

Distributions

From Net Investment Income -- (0.08) (0.43) (0.17)

From Net Realized Gains -- (0.06) (0.20) (0.16)
---------- ---------- --------- ----------
Total Distributions -- (0.14) (0.63) (0.33)
---------- ---------- --------- ----------
Net Asset Value, End of Period $10.03 $10.23 $10.52 $12.44
========== ========== ========= ==========
Total Return(3) (1.96)% (1.35)% (10.61)% 2.12%

Ratios/Supplemental Data

2001 2000 1999 1998(1)
---------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 1.11% 1.12% 1.10% 1.08%(4)

Ratio of Net Investment Income to Average Net Assets 3.62% 3.60% 3.02% 3.71%(4)

Portfolio Turnover Rate 147% 221% 239% 322%(5)

Net Assets, End of Period (in thousands) $1,983 $918 $727 $34

(1) October 27, 1998 (commencement of sale) through December 31, 1998.

(2) Computed using average shares outstanding throughout the period.

(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net
asset values to two decimal places. If net asset values were calculated to
three decimal places, the total return differences would more closely
reflect the class expense differences. The calculation of net asset values
to two decimal places is made in accordance with SEC guidelines and does
not result in any gain or loss of value between one class and another.

(4) Annualized.

(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 1998.

PERFORMANCE INFORMATION OF OTHER CLASS

The following financial information is provided to show the performance of the
fund's original class of shares. This class, the Investor Class, has a total
expense ratio that is 0.25% lower than the Advisor Class. Therefore, the Advisor
Class performance would have been lower because of the additional expense.

The table on the next page itemizes what contributed to the changes in the
Investor Class share price during the most recently ended fiscal year. It also
shows the changes in share price for this period in comparison to changes over
the last five fiscal years.

On a per-share basis, the 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

The 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 buying and selling activity

INTERNATIONAL BOND FUND

Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31

Per-Share Data

2001 2000 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.25 $10.55 $12.44 $10.92 $11.79
---------- ---------- --------- ---------- -----------

Income From Investment Operations

Net Investment Income 0.39(1) 0.38(1) 0.36(1) 0.47(1) 0.65

Net Realized and Unrealized Gain (Loss) (0.56) (0.51) (1.62) 1.47 (1.34)
---------- ---------- --------- ---------- -----------

Total From Investment Operations (0.17) (0.13) (1.26) 1.94 (0.69)
---------- ---------- --------- ---------- -----------

Distributions

From Net Investment Income -- (0.11) (0.43) (0.17) (0.04)

From Net Realized Gains -- (0.06) (0.20) (0.25) (0.14)
---------- ---------- --------- ---------- -----------
Total Distributions -- (0.17) (0.63) (0.42) (0.18)
---------- ---------- --------- ---------- -----------
Net Asset Value, End of Period $10.08 $10.25 $10.55 $12.44 $10.92
========== ========== ========= ========== ===========
Total Return(2) (1.66)% (1.20)% (10.36)% 17.87% (5.88)%

Ratios/Supplemental Data

2001 2000 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 0.86% 0.87% 0.85% 0.84% 0.84%

Ratio of Net Investment Income to Average Net Assets 3.87% 3.85% 3.27% 4.11% 4.82%

Portfolio Turnover Rate 147% 221% 239% 322% 163%

Net Assets, End of Period (in thousands) $115,172 $111,320 $112,968 $157,412 $165,731

(1) Computed using average shares outstanding throughout the period.

(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. 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.

MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS

Annual and Semiannual Reports

Statement of Additional Information (SAI)

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 www.sec.gov

*By email request at publicinfo@sec.gov

By mail SEC Public Reference Section
Washington, D.C. 20549-0102

FUND REFERENCE (ADVISOR CLASS)

Fund Code Ticker
------------------------------------------------------------------------------
International Bond 792 AIBDX

Investment Company Act File No. 811-6441

[american century logo and text logo (reg. sm)]

American Century Investments
P.O. Box 419385
Kansas City, Missouri 64141-6385
1-800-345-3533 OR 816-531-5575

0205
SH-PRS-29340

American Century
statement of
additional information

MAY 1, 2002

American Century International Bond Funds

International Bond Fund

This Statement of Additional Information adds to the discussion in the fund's
Prospectus, dated May 1, 2002, 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 a 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 www.americancentury.com.

This Statement of Additional Information incorporates by reference certain
information that appears in the fund's annual and semiannual report, which is
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.

[american century logo and text logo (reg. sm)]

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Table of Contents

The Fund's History ........................................................ 2
Fund Investment Guidelines ................................................ 2
Portfolio Composition ................................................ 2
Currency Management .................................................. 3
Fund Investments and Risks ................................................ 3
Investment Strategies and Risks ...................................... 3
Investment Policies .................................................. 12
Temporary Defensive Measures ......................................... 14
Portfolio Turnover ................................................... 14
Transactions with Subadvisor Affiliates .............................. 14
Management ................................................................ 16
The Board of Trustees ................................................ 19
Ownership of Fund Shares ............................................. 22
Code of Ethics ....................................................... 22
The Fund's Principal Shareholders ......................................... 23
Service Providers ......................................................... 23
Investment Advisor ................................................... 23
Transfer Agent and Administrator ..................................... 26
Distributor .......................................................... 26
Other Service Providers ................................................... 27
Custodian Banks ........................................................... 27
Independent Accountants .............................................. 27
Brokerage Allocation ...................................................... 27
Information about Fund Shares ............................................. 27
Multiple Class Structure ............................................. 28
Buying and Selling Fund Shares ....................................... 31
Valuation of the Fund's Securities ................................... 31
Taxes ..................................................................... 32
Federal Income Tax ................................................... 32
State and Local Taxes ................................................ 33
How Fund Performance Information is Calculated ............................ 34
Performance Comparisons .............................................. 35
Permissible Advertising Information .................................. 36
Multiple Class Performance Advertising ............................... 36
Financial Statements ...................................................... 36
Explanation of Fixed-Income Securities Ratings ............................ 37

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 January 1997, 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 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 Fund Investor Class BEGBX 01/07/1992
-------------------------------------------------------------------------------
Advisor Class AIBDX 10/27/1998
-------------------------------------------------------------------------------

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 3. In the case of the fund's principal investment
strategies, these descriptions elaborate upon discussion contained in the
Prospectus.

The fund is nondiversified as defined in the Investment Company Act of 1940 (the
Investment Company Act). This means that the fund may take larger positions in
individual issuer's securities; for example, the fund may invest more than 5% of
its assets in the securities of a single issuer. This can increase the amount of
risk in the portfolio because it may become concentrated in fewer issuers than
diversified funds.

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 fund managers intend 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 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 Prospectus, 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
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 15% of total assets.

For an explanation of the securities ratings referred to in the Prospectus and
this Statement of Additional Information, see Performance Comparisons on
page 35.

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.

FUND INVESTMENTS AND RISKS

INVESTMENT STRATEGIES AND RISKS

This section describes investment vehicles and techniques the fund managers 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.

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 pledge 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.

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.

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.

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 also 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.

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 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.

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 (typically
15 to 45 days, but not more than 120 days, later).

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, 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 securities on its record in an amount sufficient to cover
its obligations under the futures contracts and options. 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.

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;

* Certificates of Deposit and Euro Dollar Certificates of Deposit;

* Bankers' Acceptances;

* Short-term notes, bonds, debentures or other debt instruments; and

* Repurchase agreements.

Under the Investment Company Act, the fund's investment in other investment
companies (including money market funds) currently is limited to (a) 3% of the
total voting stock of any one investment company; (b) 5% of the fund's total
assets with respect to any one investment company; and (c) 10% of the fund's
total assets in the aggregate. Any investments in money market funds must be
consistent with the investment policies and restrictions of the fund making the
investment.

Other Investment Companies

The fund may invest up to 10% of its total assets in other investment companies,
such as mutual funds, provided that the investment is consistent with the fund's
investment policies and restrictions. These investments may include investments
in money market funds managed by the advisor or subadvisor. Under the Investment
Company Act, a fund's investment in such securities, subject to certain
exceptions, currently is limited to

(a) 3% of the total voting stock of any one investment company,

(b) 5% of the fund's total assets with respect to any one investment company and

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 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.

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 fund managers 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 Australasia, Far East Index (MSCI EAFE)
and Morgan Stanley Capital International Emerging Markets Free Index (MSCI EMF).
The managers 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. 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 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 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 fund managers apply a hedge at an inappropriate
time or judge 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 fund managers consider 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 fund
managers 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 fund managers 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 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 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 or securities on its records in an amount sufficient
to cover its obligations under the futures contracts and options.

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 net 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 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 The fund may not issue senior securities, except as permitted
Securities under the Investment Company Act.
--------------------------------------------------------------------------------
Borrowing The fund may not borrow money, except 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 restrictions 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 ACIM-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.

For purposes of the investment restriction 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 (and repurchase
agreements secured by such 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,

(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 and The fund may enter into futures contracts and write and
Options buy 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 money than it invested.
--------------------------------------------------------------------------------
Issuers with The fund may invest a portion of its assets in the
Limited securities of issuers with limited operating histories.
Operating An issuer is considered to have a limited operating history
Histories if that issuer has 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.
--------------------------------------------------------------------------------

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

* money market funds

PORTFOLIO TURNOVER

The portfolio turnover rate of the fund is listed in the Financial Highlights
table in the Prospectus.

The fund managers 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 fund managers intend to purchase a particular security whenever they believe
it will contribute to the stated objective of the fund. In order to achieve the
fund's investment objective, the fund managers 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 managers may sell a
portfolio security if they believe that the security is not fulfilling its
purpose because, among other things, it did not live up to the managers'
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 managers believe that the rate of
portfolio turnover is irrelevant when they determine 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. Higher turnover would generate
correspondingly greater brokerage commissions, which is a cost the fund pays
directly. 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 managers do not take portfolio turnover rate into account in making
investment decisions, (1) the managers have 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.

For International Bond, turnover on both the European and Japanese portions of
the fund was lower than in the previous year. Low inter-market volatility within
Europe produced few security selection opportunities, and a change in the
withholding tax treatment of Japanese bonds prompted us to turn these positions
over less frequently.

TRANSACTIONS WITH SUBADVISOR AFFILIATES

As described in further detail under the section titled Management, J.P. Morgan
Investment Management, Inc. (JPMIM) is 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 advisor under the Investment Advisers Act
of 1940, as amended. The subadvisor is located at 522 Fifth Avenue, New York,
New York 10036.

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 National Association of Securities Dealers. 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 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 benefitting other commercial interests of
Morgan affiliates at the fund's expense.

MANAGEMENT

The individuals listed below serve as trustees or officers of the fund. Those
listed as interested trustees are "interested" primarily by virtue of their
engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned subsidiaries, including the fund's investment advisor, American
Century Investment Management, Inc. (ACIM); the fund's principal underwriter,
American Century Investment Services, Inc. (ACIS); and the fund's transfer
agent, American Century Services Corporation (ACSC).

The other trustees (more than two-thirds of the total number) are independent;
that is, they are not employees or officers of, and have no financial interest
in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS and ACSC.

All persons named as officers of the fund also serve in similar capacities for
other funds advised by ACIM. 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.

Number of
Portfolios
in Fund
Length Complex Other
Position(s) of Time Overseen Directorships
Held with Served Principal Occupation(s) by Held by
Name, Address (Age) Fund (years) During Past 5 Years Trustee Trustee
----------------------------------------------------------------------------------------------------------------------
Independent Trustees
----------------------------------------------------------------------------------------------------------------------
Albert Eisenstat Trustee 6 General Partner, 38 Independent Director,
1665 Charleston Road Discovery Ventures Sungard Data
Mountain View, CA 94043 (Venture capital firm, Systems (1991 to
(71) 1996 to 1998) present)
Independent Director,
Business Objects S/A
(1994 to present)
----------------------------------------------------------------------------------------------------------------------
Ronald J. Gilson Trustee 6 Charles J. Meyers Professor 38 None
1665 Charleston Road of Law and Business,
Mountain View, CA 94043 Stanford Law School
(55) (1979 to present)
Mark and Eva Stern
Professor of Law and
Business, Columbia
University School of Law
(1992 to present)
Counsel, Marron, Reid &
Sheehy (a San Francisco
law firm, 1984 to present)
----------------------------------------------------------------------------------------------------------------------
Kathryn A. Hall Advisory 0 President and Chief Investment Not Director, Princeton
1665 Charleston Road Board Member Officer, Offit Hall applicable University Investment
Mountain View, CA 94043 Capital Management LLC Company (1997
(44) (2002 to present) to present)
President and Managing Director, Standford
Director, Laurel Management Management Company
Company, LLC (1996 to 2002) (2001 to present)
Director, UCSF
Foundation (2000 to
present)
Director, San
Francisco Day School
(1999 to present)
----------------------------------------------------------------------------------------------------------------------
Myron S. Scholes Trustee 21 Partner, Oak Hill Capital 38 Director, Dimensional
1665 Charleston Road Management, (1999-present) Fund Advisors
Mountain View, CA 94043 Principal, Long-Term (investment advisor,
(60) Capital Management (1982 to present)
(investment advisor, Director, Smith
1993 to January 1999) Breeden
Frank E. Buck Professor Family of Funds
of Finance, Stanford (1992 to present)
Graduate School of Business
(1981 to present)
----------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott Trustee 30 Ralph M. Parsons Professor 38 Director, RCM Capital
1665 Charleston Road of Law and Business, Funds, Inc.
Mountain View, CA 94043 Stanford Law School (1994 to present)
(73) (1972 to present)
----------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers Trustee 17 Director and Partner,, 38 Director, Indus
1665 Charleston Road Windy Hill Productions, LP International
Mountain View, CA 94043 (educational software, (software solutions,
(57) 1994 to 1998) January 1999 to
present)
Director, Quintus
Corporation
(automation solutions,
1995 to present)
----------------------------------------------------------------------------------------------------------------------

Number of
Portfolios
in Fund
Length Complex Other
Position(s) of Time Overseen Directorships
Held with Served Principal Occupation(s) by Held by
Name, Address (Age) Fund (years) During Past 5 Years Trustee Trustee
----------------------------------------------------------------------------------------------------------------------
Officers
----------------------------------------------------------------------------------------------------------------------
William M. Lyons President 1 See entry above under 38 See entry above under
4500 Main Street "Interested Trustees". "Interested Trustees".
Kansas City, MO 64111
(46)
----------------------------------------------------------------------------------------------------------------------
Robert T. Jackson Executive 1 Chief Administrative Officer Not Not applicable
4500 Main St. Vice and Chief Financial Officer, applicable
Kansas City, MO 64111 President ACC (August 1997 to present)
(55) and President, ACSC
Chief (January 1999 to present)
Financial Executive Vice President, ACC
Officer (May 1995 to present)
Also serves as: Executive
Vice President and Chief
Financial Officer, ACIM, ACIS
and other ACC subsidiaries
----------------------------------------------------------------------------------------------------------------------
Maryanne Roepke, CPA Senior Vice 1 Senior Vice President and Not Not applicable
4500 Main St. President, Assistant Treasurer, ACSC applicable
Kansas City, MO 64111 Treasurer
(46) and Chief
Accounting
Officer
-----------------------------------------------------------------------------------------------------------------
David C. Tucker Senior Vice 1 Senior Vice President, ACIM, Not Not applicable
4500 Main St. President ACIS, ACSC and other ACC applicable
Kansas City, MO 64111 and subsidiaries
(43) General (June 1998 to present)
Counsel General Counsel, ACC,
ACIM, ACIS, ACSC and
other ACC subsidiaries
(June 1998 to present)
Consultant to mutual
fund industry
(May 1997 to April 1998)
-----------------------------------------------------------------------------------------------------------------
Robert Leach Controller 4 Vice President, ACSC Not Not applicable
4500 Main St. February 2000 to present applicable
Kansas City, MO 64111 Controller-Fund Accounting,
(35) ACSC
----------------------------------------------------------------------------------------------------------------------
C. Jean Wade Controller 5 Vice President, ACSC Not Not applicable
4500 Main St. (February 2000 to present) applicable
Kansas City, MO 64111 Controller-Fund Accounting,
(38) ACSC
----------------------------------------------------------------------------------------------------------------------
Jon Zindel Tax Officer 4 Vice President, Corporate Tax, Not Not applicable
4500 Main Street ACSC (April 1998 to present) applicable
Kansas City, MO 64111 Vice President, ACIM, ACIS
(34) and other ACC subsidiaries
(April 1999 to present)
President, American Century
Employee Benefit Services, Inc.
(January 2000 to December 2000)
Treasurer, American Century
Ventures, Inc.
(December 1999 to January 2001)
Director of Taxation, ACSC
(July 1996 to April 1998)
----------------------------------------------------------------------------------------------------------------------

THE BOARD OF TRUSTEES

The Board of Trustees and the Advisory Board oversee the management of the fund
and meet 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. In carrying out these responsibilities, the
Trustees and the Advisory Board review material factors to evaluate such
contracts, including (but not limited to) assessment of information related to
the advisor's performance and expense ratios, estimates of income and indirect
benefits (if any) accruing to the advisor, the advisor's overall management and
projected profitability, and services provided to the fund and its investors.

The board has the authority to manage the business of the fund on behalf of its
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.

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.

Number of
Meetings Held
During Last
Committee Members Function Fiscal Year
----------------------------------------------------------------------------------------------------------
Audit Jeanne D. Wohlers The Audit Committee recommends the 4
Albert Eisenstat engagement of the fund's independent
Kenneth E. Scott auditors and oversees its activities.
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 Trust.
----------------------------------------------------------------------------------------------------------
Nominating Kenneth E. Scott The Nominating Committee primarily 4
Ronald J. Gilson considers and recommends
Albert Eisenstat individuals recommends individuals
Myron S. Scholes for nomination as trustees. The
Jeanne D. Wohlers names of potential trustee
candidates are drawn from a
number of sources, including
recommendations from members
of the board, management and
shareholders. This committee
also reviews and makes
recommendations to the board with
respect to the composition of board
committees and other
board-related matters, including its
organization, size, composition,
responsibilities, functions
and compensation.
----------------------------------------------------------------------------------------------------------
Portfolio Myron S. Scholes The Portfolio Committee reviews 4
Ronald J. Gilson 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.
----------------------------------------------------------------------------------------------------------
Quality Ronald J. Gilson The Quality of Service Committee 4
of Myron S. Scholes reviews the level and quality of
Service William M. Lyons transfer agent and administrative
services provided to the
fund and its shareholders. It
receives and reviews reports
comparing those services to those of
fund competitors and seeks to
improve such services where feasible
and appropriate.
----------------------------------------------------------------------------------------------------------

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
eight 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 the eight investment companies based,
in part, upon their relative net assets. Under the terms of the management
agreement with the advisor, the funds are responsible for paying such fees and
expenses.

The following table shows the aggregate compensation paid by the funds for the
periods indicated and by the eight investment companies served by the board to
each trustee who is not an interested person as defined in the Investment
Company Act.

AGGREGATE TRUSTEE COMPENSATION FOR FISCAL YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------------------------------
Total Total Compensation
Compensation from the
from the American Century
Name of Trustee Fund(1) Family of Funds(2)
--------------------------------------------------------------------------------
Albert A. Eisenstat $4,093 $79,250
--------------------------------------------------------------------------------
Ronald J. Gilson $4,133 $87,250
--------------------------------------------------------------------------------
Myron S. Scholes $4,051 $70,250
--------------------------------------------------------------------------------
Kenneth E. Scott $4,107 $81,500
--------------------------------------------------------------------------------
Jeanne D. Wohlers $4,077 $75,500
--------------------------------------------------------------------------------
Kathryn A. Hall( (3)) $16 $3,250
--------------------------------------------------------------------------------

(1) Includes compensation paid to the trustees during the fiscal year ended
December 31, 2001 and also includes amounts deferred at the election of the
trustees under the American Century Mutual Funds' Independent Directors
Deferred Compensation Plan. The total amount of deferred compensation included
in the preceding table is as follows: Mr. Gilson, $4,133; Mr. Scholes, $4,051;
Mr. Scott, $2,054; and Ms. Wohlers, $2,691.

(2) Includes compensation paid by the eight investment company members of the
American Century family of funds served by this board at the end of the fiscal
year.

(3) Received compensation as a member of the Advisory Board.

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.

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.

No deferred fees were paid to any trustee under the plan during the fiscal year
ended December 31, 2001.

OWNERSHIP OF FUND SHARES

The trustees owned shares in the fund as of December 31, 2001, as shown in the
table below:

NAME OF TRUSTEES
------------------------------------------------------
James E. William M. Albert Ronald J.
Stowers III Lyons Eisenstat Gilson
-------------------------------------------------------------------------------------------------------
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 E E E E
-------------------------------------------------------------------------------------------------------

NAME OF TRUSTEES
------------------------------------------------------
Myron S. Kenneth E. Jeanne D.
Scholes Scott Wohlers
-------------------------------------------------------------------------------------------------------
Dollar Range of Equity Securities in the Fund:

International Bond A A A
-------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in all Registered Investment
Companies Overseen by Trustees in
Family of Investment Companies 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 a code of ethics under Rule 17j-1 of the Investment Company Act. The
code of ethics permits personnel subject to the code 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.

THE FUND'S PRINCIPAL SHAREHOLDERS

As of April 1, 2002, the following companies were the record owners of more than
5% of the fund's outstanding shares of any class of the fund:

Percentage of
Fund Shareholder Outstanding Shares
Owned
--------------------------------------------------------------------------------
International Bond
--------------------------------------------------------------------------------
Investor
Charles Schwab & Co., Inc.
San Francisco, California 40%
National Financial Services Corp.
New York, NY 7%
--------------------------------------------------------------------------------
Advisor
Charles Schwab & Co., Inc.
San Francisco, California 98%
--------------------------------------------------------------------------------

Although Charles Schwab & Co., Inc., San Francisco, CA is the record owner of
more than 25% of the shares of American Century International Bond Funds, it is
not a control person because it is not the beneficial owner of such 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. As of April 1, 2002 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 fund 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, ACSC and ACIS are wholly owned by ACC. James E. Stowers, Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its voting stock.

INVESTMENT ADVISOR

American Century Investment Management, Inc. serves as the investment advisor
for the fund. A description of the responsibilities of the advisor appears in
the Prospectus under the heading Management.

For the services provided to the fund, the advisor receives a monthly fee based
on a percentage of the average net assets of the fund. The annual rate at which
this fee is assessed is determined monthly in a two-step process. First, a fee
rate schedule is applied to the assets of all the funds of its investment
category managed by the advisor (the Investment Category Fee). The three
investment categories are money market funds, bond funds and equity funds. When
calculating the fee for a money market fund, for example, all of the assets of
the money market funds managed by the advisor are aggregated and the fee rate is
applied to the total. Second, a separate fee rate schedule is applied to the
assets of all the funds managed by the advisor (the Complex Fee). The amounts
calculated using the Investment Category Fee and the Complex Fee are then added
to determine the unified management fee payable by a fund to the advisor. The
schedules by which the unified management fee is determined are shown in the
following tables. The Investment Category Fees are determined according to the
schedule below.

INVESTMENT CATEGORY FEE SCHEDULE FOR INTERNATIONAL BOND (INVESTOR CLASS)

-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
Complex Assets Fee Rate Fee Rate
Class Investor Class Advisor Class
-------------------------------------------------------------------------------
First $2.5 billion 0.3100% 0.0600%

Next $7.5 billion 0.3000% 0.0500%

Next $15 billion 0.2985% 0.0485%

Next $25 billion 0.2970% 0.0470%

Next $50 billion 0.2960% 0.0460%

Next $100 billion 0.2950% 0.0450%

Next $100 billion 0.2940% 0.0440%

Next $200 billion 0.2930% 0.0430%

Next $250 billion 0.2920% 0.0420%

Next $500 billion 0.2910% 0.0410%

Thereafter 0.2900% 0.0400%
--------------------------------------------------------------------------------

The Complex Fee schedule for the Advisor Class is lower by 0.2500% at each
graduated step.

On the first business day of each month, the fund pays a management fee to the
advisor for the previous month at the specified rate. The fee for the previous
month is calculated by multiplying the applicable fee for the fund by the
aggregate average daily closing value of the fund's net assets during the
previous month. This number is then multiplied by a fraction, the numerator of
which is the number of days in the previous month and the denominator of which
is 365 (366 in leap years).

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 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. In
addition, purchases or sales of the same security may be made for two or more
clients or funds on the same date. Such transactions will be allocated among
clients in a manner believed by the subadvisor 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. Where portfolio transactions have been
aggregated, the fund participates at the average share price for all
transactions in that security on a given day and allocates transaction costs on
a pro rata basis. The subadvisor will not aggregate portfolio transactions of
the fund unless it believes such aggregation is consistent with its duty to seek
best execution on behalf of the fund and the terms of the management agreement.
The subadvisor receives no additional compensation or remuneration as a result
of such aggregation.

Unified management fees incurred by the fund for the fiscal periods ended
December 31, 2001, 2000 and 1999, are indicated in the following table.

UNIFIED MANAGEMENT FEES
--------------------------------------------------------------------------------
Fund 2001 2000 1999
--------------------------------------------------------------------------------
International Bond
Investor $945,083 $834,265 $1,110,645
Advisor 9,211 5,210 1,966

The investment management agreement provides that the advisor may delegate
certain responsibilities under the agreement to a subadvisor. Currently, JPMIM
serves as subadvisor to the fund under a subadvisory agreement between the
manager 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 fiscal years ended December 31, 2001, 2000 and 1999, the manager paid
JPMIM subadvisory fees as listed in the following table:

JPMIM Subadvisory Fees
--------------------------------------------------------------------------------
2001 $226,521
--------------------------------------------------------------------------------
2000 $194,490
--------------------------------------------------------------------------------
1999 $278,674
--------------------------------------------------------------------------------

TRANSFER AGENT AND ADMINISTRATOR

American Century Services Corporation (ACSC), 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
ACSC for these services.

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.

OTHER SERVICE PROVIDERS

CUSTODIAN BANKS

State Street Corporation, 225 Franklin Street, Boston, Massachusetts 02101, and
Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serves as
custodian of the fund's assets. 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 ACCOUNTANTS

PricewaterhouseCoopers LLP are the independent accountants of the fund. The
address of PricewaterhouseCoopers LLP is 1055 Broadway, 10th Floor, Kansas City,
Missouri 64105. As the independent accountant of the fund,
PricewaterhouseCoopers LLP provides services including

(1) auditing the annual financial statements for the fund,

(2) assisting and consulting in connection with SEC filings, and

(3) reviewing the annual federal income tax return filed for the fund.

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 fiscal years ended December 31,
1999, 2000 and 2001, the fund did not pay any brokerage commissions.

INFORMATION ABOUT FUND SHARES

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.

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). Shares issued are fully paid and
nonassessable and have no preemptive, conversion or similar rights.

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.

Shares of each fund have equal voting rights, although each fund votes
separately on matters affecting that fund exclusively.

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.

In the event of complete liquidation or dissolution of the fund, shareholders of
each series or class of shares will be entitled to receive, pro rata, all of the
assets less the liabilities of that series or class.

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.

MULTIPLE CLASS STRUCTURE

The Trust's Board of Trustees has adopted a multiple class plan (the Multiclass
Plan) pursuant to Rule 18f-3 adopted by the SEC. Pursuant to such plan, the fund
may issue up to two classes of shares: an Investor Class and an Advisor Class.

The Investor Class is made available to investors directly without any load or
commission, for a single unified management fee. The Advisor Class is made
available to institutional shareholders or through financial intermediaries that
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. In addition to the management
fee, however, Advisor Class shares are subject to a Master Distribution and
Shareholder Services Plan (the Plan) described below. The Plan has been adopted
by the fund's Board of Trustees and initial shareholder 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 and initial shareholder of the fund's Advisor Class have approved and
entered into a Master Distribution and Shareholder Services Plan (the Plan).

In adopting the Plan, 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 Plan would benefit the fund and the
shareholders of the affected class. Pursuant to Rule 12b-1, information with
respect to revenues and expenses under the Plan is presented to the Board of
Trustees quarterly for its consideration in connection with its deliberations as
to the continuance of the Plan. Continuance of the Plan must be approved by the
Board of Trustees (including a majority of the independent trustees) annually.
The Plan may be amended by a vote of the Board of Trustees (including a majority
of the independent trustees), except that the Plan may not be amended to
materially increase the amount to be spent for distribution without majority
approval of the shareholders of the affected class. The Plan terminates
automatically in the event of an assignment and may be terminated upon a vote of
a majority of the independent trustees or by vote of a majority of the
outstanding voting securities of the affected class.

All fees paid under the Plan will be made in accordance with Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers (NASD).

Master Distribution and Shareholder Services Plan (Advisor Class Plan)

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 financial intermediaries, such as banks,
broker-dealers and insurance companies. 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 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 Shareholder Services (described below) and
0.25% of which is paid for distribution services. During the fiscal year ended
December 31, 2001, the aggregate amount of fees paid under the Plan were $7,856.

Payments may be made for a variety of shareholder services, including, but are
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;

(j) providing other similar administrative and sub-transfer agency services; an

(k) paying service fees for the provision of personal, continuing services to
the shareholders as contemplated by the Rules of Fair Practice of the NASD.

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 December 31, 2001, the amount of fees paid under
the Advisor Class Plan for shareholder services were $3,928.

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) payment of 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) compensation to registered representatives or other employees of the
Distributor who engage in or support distribution of the fund's Advisor
Class shares;

(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 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 the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the NASD; 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 December 31, 2001, the amount of fees paid under
the Advisor Class Plan for distribution services were $3,928.

BUYING AND SELLING FUND SHARES

Information about buying, selling and exchanging fund shares is contained in the
fund's Prospectus and in Your Guide to American Century Services. The Prospectus
and guide are available to investors without charge and may be obtained by
calling us.

VALUATION OF THE FUND'S SECURITIES

The fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange), each day the Exchange is
open for business. The Exchange usually closes at 4 p.m. Eastern time. The
Exchange 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 Exchange 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 Exchange closes for the day. Foreign currency exchange rates
also are determined prior to the close of the Exchange. 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 at fair value 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 any amortized discount or premium, unless the directors 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 at their fair value using methods approved by the Board of Directors.

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 New York Stock Exchange, 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 New York Stock Exchange 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 at fair value as determined
in accordance with procedures adopted by the Board of Directors.

Trading of these securities in foreign markets may not take place on every day
that the Exchange 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 Exchange is not open and on which the funds' 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 funds' portfolios may be affected on days
when shares of the funds may not be purchased or redeemed.

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 will 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. 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.

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 30-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.

As of December 31, 2001, the fund had the following capital loss carryover.
When a fund has a capital loss carryover, it does not make capital gains
distributions until the loss has been offset or expired.

Fund Capital Loss Carryover
--------------------------------------------------------------------------------
International Bond $2,352,831 (expiring in 2008)

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.

HOW FUND PERFORMANCE INFORMATION IS CALCULATED

The fund may quote performance in various ways. Fund performance may be shown by
presenting one or more performance measurements, including cumulative total
return, average annual total return or yield.

All performance information advertised by the fund is historical in nature and
is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.

Yield quotations are based on the investment income per share earned during a
particular 30-day period, less expenses accrued during the period (net
investment income), and are computed by dividing a fund's net investment income
by its share price on the last day of the period, according to the following
formula:

YIELD = 2 [(a - b / cd + 1)(6) - 1]

where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.

The following table sets forth yield quotations for the two classes of the fund
for the 30-day period ended December 31, 2001 (the last day of the fiscal year
pursuant to computation methods prescribed by the SEC).

Fund Investor Class Advisor Class
--------------------------------------------------------------------------------
International Bond 3.38% 3.12%

Total returns quoted in advertising and sales literature reflect all aspects of
the fund's return, including the effect of reinvesting dividends and capital
gain distributions (if any) and any change in a fund's NAV per share during the
period.

Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the fund during a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.

The following tables set forth the average annual total return for the various
classes of the fund for the one-, five- and 10-year periods (or the period since
inception) ended December 31, 2001, the last day of the fund's most recent
fiscal year.

Average annual total returns for periods of less than one year are calculated by
determining the fund's total return for the period, extending that return for a
full year (assuming that performance remains constant throughout the year), and
quoting the result as an annual return. Because the fund's return may not remain
constant over the course of a year, these performance figures should be viewed
as strictly hypothetical.

In addition to average annual total returns, the fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period, including periods other than one, five and 10 years.
Average annual and cumulative total returns may be quoted as percentages or as
dollar amounts and may be calculated for a single investment, a series of
investments, or a series of redemptions over any time period.

Total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to total return.

Return before taxes shows the actual change in the value of the 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 the 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 periods shown. Return after
taxes on distributions and the 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.

AVERAGE ANNUAL TOTAL RETURNS - INVESTOR CLASS
(Fiscal Year Ended December 31, 2001)
--------------------------------------------------------------------------------
Fund One year Five years Life of fund
--------------------------------------------------------------------------------
International Bond(1)

Return Before Taxes -1.66% -0.68% 4.51%

Return After Taxes on Distributions -1.66% -1.55% 2.90%

Return After Taxes on Distributions
and Sale of Fund Shares -1.01% -0.90% 2.94%

(1) Commenced operations on January 7, 1992.

AVERAGE ANNUAL TOTAL RETURNS -- ADVISOR CLASS
-------------------------------------------------------------------------------
Fund One year Life of Fund
-------------------------------------------------------------------------------
International Bond(1)

Return Before Taxes -1.96% -3.84%

Return After Taxes on Distributions -1.96% -4.17%

Return After Taxes on Distributions
and Sale of Fund Shares -1.19% -2.93%

(1) Commenced operations on October 27, 1998.

PERFORMANCE COMPARISONS

The fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that are sold with a sales
charge or deferred sales charge. Sources of economic data that may be used for
such comparisons may include, but are not limited to, U.S. Treasury bill, note
and bond yields, money market fund yields, U.S. government debt and percentage
held by foreigners, the U.S. money supply, net free reserves, and yields on
current-coupon GNMAs (source: Board of Governors of the Federal Reserve System);
the federal funds and discount rates (source: Federal Reserve Bank of New York);
yield curves for U.S. Treasury securities and AA/AAA-rated corporate securities
(source: Bloomberg Financial Markets); yield curves for AAA-rated tax-free
municipal securities (source: Telerate); yield curves for foreign government
securities (sources: Bloomberg Financial Markets and Data Resources, Inc.);
total returns on foreign

bonds (source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper Analytical Services, Inc. or Morningstar,
Inc.; mutual fund rankings published in major, nationally distributed
periodicals; data provided by the Investment Company Institute; Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation; major indices of stock market
performance; and indices and historical data supplied by major securities
brokerage or investment advisory firms. The fund also may utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance.

PERMISSIBLE ADVERTISING INFORMATION

From time to time, the fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders:

(1) discussions of general economic or financial principles (such as the effects
of compounding and the benefits of dollar-cost averaging);

(2) discussions of general economic trends;

(3) presentations of statistical data to supplement such discussions;

(4) descriptions of past or anticipated portfolio holdings for the fund;

(5) descriptions of investment strategies for the fund;

(6) descriptions or comparisons of various savings and investment products
(including, but not limited to, qualified retirement plans and individual
stocks and bonds), which may or may not include the fund;

(7) comparisons of investment products (including the fund) with relevant market
or industry indices or other appropriate benchmarks;

(8) discussions of fund rankings or ratings by recognized rating organizations;
and

(9) testimonials describing the experience of persons that have invested in the
fund.

The fund may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of the fund.

MULTIPLE CLASS PERFORMANCE ADVERTISING

Pursuant to the Multiple Class Plan, the Trust may issue additional classes of
its existing fund or introduce new funds with multiple classes available for
purchase. To the extent a new class is added to an existing fund, the manager
may, in compliance with SEC and NASD rules, regulations and guidelines, market
the new class of shares using the historical performance information of the
original class of shares. When quoting performance information for a new class
of shares for periods prior to the first full quarter after inception, the
original class' performance will be restated to reflect the expenses of the new
class and for periods after the first full quarter after inception, actual
performance of the new class will be used.

FINANCIAL STATEMENTS

The financial statements of the fund have been audited by PricewaterhouseCoopers
LLP, independent accountants. Their Independent Accountants' Report and the
financial statements included in the fund's Annual Report for the fiscal year
ended December 31, 2001, are incorporated herein by reference.

EXPLANATION OF FIXED-INCOME SECURITIES RATINGS

As described in the Prospectus, the funds 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 disclosure.

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 for the taking of a similar action if
debt service payments are jeopardized.
--------------------------------------------------------------------------------

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 implies 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, 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.
--------------------------------------------------------------------------------
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.

Fitch, Inc.
--------------------------------------------------------------------------------
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 this category 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 this category 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.

COMMERCIAL PAPER RATINGS
--------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely
(P-1) payment is strong. Standard & Poor's rates those issues
determined to possess extremely strong safety
characteristics as A-1+.
--------------------------------------------------------------------------------
A-2 Prime-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 Satisfactory capacity for timely repayment. Issues that carry
(P-3) 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; Notes are of the highest quality enjoying strong protection fro
VMIG-1 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; Notes are of high quality with margins of protection ample,
VMIG-2 although not so large as in the preceding group.
--------------------------------------------------------------------------------
SP-3 MIG-3; Notes are of favorable quality with all security elements
VMIG-3 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; Notes are of adequate quality, carrying specific risk but havin
VMIG-4 protection and not distinctly or predominantly speculative.
--------------------------------------------------------------------------------

MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS

Annual and Semiannual Reports

You can receive a free copy of the annual and semiannual reports, and ask any
questions about the fund, by contacting us at one of the addresses or telephone
numbers listed below.

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 www.sec.gov
* By email request at publicinfo@sec.gov

By mail SEC Public Reference Section
Washington, D.C.
20549-6009

Investment Company Act File No. 811-6411

[american century logo and text logo (reg. sm)]

American Century Investments
P.O. Box 419200
Kansas City, Missouri 64141-6200

Investor Relations
1-800-345-2021 or 816-531-5575

Automated Information Line
1-800-345-8765

www.americancentury.com

Fax
816-340-7962

Telecommunications Device for the Deaf
1-800-634-4113 or 816-444-3485

Business, Not-For-Profit and
Employer-Sponsored Retirement Plans
1-800-345-353

SH-SAI-29342 0205

--------------------------------------------------------------------------------

PART C OTHER INFORMATION

Item 23 EXHIBITS (all exhibits not filed herewith are being incorporated herein
by reference).

(a) Amended and Restated Declaration of Trust of American Century
International Bond Funds dated March 1, 1999 (filed electronically as
Exhibit a to Post-Effective Amendment No. 14 of the Registrant on April
30, 1999, File No.33-43321).

(b) Amended and Restated Bylaws dated March 9, 1998 (filed electronically
as Exhibit b to Post-Effective Amendment No. 23 to the Registration
Statement of American Century Municipal Trust on March 26, 1998, File
2-91229).

(c) Registrant hereby incorporates by reference, as though set forth fully
herein, Article III and Article VIII of Registrant's Amended and
Restated Declaration of Trust, appearing as Exhibit (a) to
Post-Effective Amendment No. 14 on Form N-1A of the Registrant; and
Article II, Article VII and Article VIII of Registrant's Amended and
Restated Bylaws, appearing as Exhibit (b) to Post-Effective Amendment
No. 23 to the Registration Statement on Form N-1A of American Century
Municipal Trust, File No. 2-91229.

(d) (1) Investor Class Management Agreement between American Century
International Bond Funds and American Century Investment Management,
Inc., dated August 1, 1997, (filed electronically as Exhibit 5 to
Post-Effective Amendment No. 33 to the Registration Statement of
American Century Government Income Trust on July 31, 1997, File No.
2-99222).

(2) Amendment to Investor Class Management Agreement between American
Century International Bond Funds and American Century Investment
Management, Inc., dated March 31, 1998 (filed electronically as Exhibit
5b to Post-Effective Amendment No. 23 of American Century Municipal
Trust on March 26, 1998, File No. 2-91229).

(3) Amendment to the Investor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated July 1, 1998 (filed electronically
as Exhibit d3 to Post-Effective Amendment No. 39 to the Registration
Statement of American Century Government Income Trust on July 28, 1999,
File No. 2-99222).

(4) Amendment No. 1 to the Investor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated September 16, 2000 (filed
electronically as Exhibit d4 to Post-Effective Amendment No. 30 to the
Registration Statement of American Century California Tax-Free and
Municipal Funds on December 29, 2000, File No. 2-82734).

(5) Amendment No. 2 to the Investor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated August 1, 2001 (filed electronically
as Exhibit d5 to Post-Effective Amendment No. 44 to the Registration
Statement of American Century Government Income Trust on July 31, 2001,
File No. 2-99222).

(6) Amendment No. 3 to the Investor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated December 3, 2001 (filed
electronically as Exhibit d6 to Post-Effective Amendment No. 16 to the
Registration Statement of American Century Investment Trust on November
30, 2001, File No. 33-65170).

(7) Advisor Class Management Agreement between American Century
International Bond Funds and American Century Investment Management,
Inc., dated August 1, 1997, (filed electronically as Exhibit d3 to
Post-Effective Amendment No. 27 of American Century Target Maturities
Trust on August 28, 1997, File No. 2-94608).

(8) Amendment to the Advisor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated June 1, 1998 (filed electronically
as Exhibit 5b to Post-Effective Amendment No. 9 to the Registration
Statement of American Century Investment Trust on June 30, 1999, File
No. 33-65170).

(9) Amendment No. 1 to Advisor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated September 16, 2000 (filed
electronically as Exhibit 5b to Post-Effective Amendment No. 36 to the
Registration Statement of American Century Target Maturities Trust on
April 18, 2001, File No. 2-94608).

(10) Amendment No. 2 to the Advisor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated August 1, 2001 (filed electronically
as Exhibit d8 to Post-Effective Amendment No. 44 to the Registration
Statement of American Century Government Income Trust on July 31, 2001,
File No. 2-99222).

(11) Amendment No. 3 to the Advisor Class Management Agreement between
American Century International Bond Funds and American Century
Investment Management, Inc., dated December 3, 2001 (filed
electronically as Exhibit d10 to Post-Effective Amendment No. 16 to the
Registration Statement of the Registrant on November 30, 2001, File No.
33-65170).

(e) (1) Distribution Agreement between American Century International Bond
Funds and American Century Investment Services, Inc. dated March 13,
2000 (filed electronically as Exhibit e7 to Post-Effective Amendment
No. 17 to the Registration Statement of American Century World Mutual
Funds, Inc. on March 30, 2000, File No 33-39242).

(2) Amendment No. 1 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated June 1, 2000 (filed electronically as Exhibit e9
to Post-Effective Amendment No. 19 to the Registration Statement of
American Century World Mutual Funds, Inc. on May 24, 2000, File No.
33-39242).

(3) Amendment No. 2 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated November 20, 2000 (filed electronically as
Exhibit e10 to Post-Effective Amendment No. 29 to the Registration
Statement of American Century Variable Portfolios, Inc. on December 1,
2000, File No. 33-14567).

(4) Amendment No. 3 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated March 1, 2001 (filed electronically as Exhibit e4
to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Target Maturities Trust on April 17, 2001, File No.
2-94608).

(5) Amendment No. 4 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Management Services, Inc., dated April 30, 2001 (filed electronically
as Exhibit e5 to Post-Effective Amendment No. 35 to the Registration
Statement of American Century Target Maturities Trust on April 17,
2001, File No. 2-94608).

(6) Amendment No. 5 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated May 24, 2001 (filed electronically as Exhibit e6
to Post-Effective Amendment No. 21 to the Registration Statement of
American Century Capital Portfolios, Inc. on July 30, 2001, File No.
33-64872).

(7) Amendment No. 6 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated August 1, 2001 (filed electronically as Exhibit
e7 to Post-Effective Amendment No. 21 to the Registration Statement of
American Century Capital Portfolios, Inc. on July 30, 2001, File No.
33-64872).

(8) Amendment No. 7 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated December 3, 2001 (filed electronically as Exhibit
e8 to Post-Effective Amendment No. 16 to the Registration Statement of
American Century Investment Trust on November 30, 2001, File No.
33-65170).

(9) Amendment No. 8 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated March 1, 2002 (filed electronically as Exhibit e9
to Post-Effective Amendment No. 96 to the Registration Statement of
American Century Mutual Funds, Inc., on February 28, 2002, File No.
2-14213).

(10) Amendment No. 9 to the Distribution Agreement between American
Century International Bond Funds and American Century Investment
Services, Inc., dated March 6, 2002 (filed electronically as Exhibit
e10 to Post-Effective Amendment No. 96 to the Registration Statement of
American Century Mutual Funds, Inc., on February 28, 2002, File No.
2-14213).

(f) Not applicable.

(g) (1) Omnibus Custodian Agreement between American Century International
Bond Funds and State Street Bank and Trust Company dated August 10,
1993 (filed electronically as Exhibit g1 to Post-Effective Amendment
No. 7 of the Registrant on April 22, 1996, File No. 33-43321).

(2) Amendment No. 1 dated December 1, 1994 to the Omnibus Custodian
Agreement between American Century International Bond Funds and State
Street Bank and Trust Company dated August 10, 1993 (filed
electronically as Exhibit g2 to Post-Effective Amendment No. 7 filed on
April 22, 1996, File No. 33-43321).

(3) Amendment dated March 4, 1996 to the Omnibus Custodian Agreement
between American Century International Bond Funds and State Street Bank
and Trust Company dated August 10, 1993 (filed electronically as
Exhibit g3 to Post-Effective Amendment No. 7 filed on April 22, 1996,
File No. 33-43321).

(4) Amendment dated December 9, 2000 to Omnibus Custodian Agreement
between American Century International Bond Funds and State Street Bank
and Trust Company dated August 10, 1993 (filed electronically as
Exhibit g4 to Post-Effective Amendment No. 16 to the Registration
Statement of the Registrant on April 30, 2001, File No. 33-43321).

(5) Master Agreement by and between Commerce Bank, N.A. and Twentieth
Century Services, Inc. dated January 22, 1997 (filed electronically as
Exhibit g5 of Post-Effective Amendment No. 76 to the Registration
Statement of American Century Mutual Funds, Inc. on February 28, 1997,
File No. 2-14213.

(h) (1) Transfer Agency Agreement between American Century International
Bond Funds and American Century Services Corporation dated as of August
1, 1997 (filed electronically as Exhibit 9 to Post-Effective Amendment
No. 33 to the Registration Statement of the American Century Government
Income Trust on July 31, 1997, File No. 2-99222).

(2) Amendment to Transfer Agency Agreement between American Century
International Bond Funds and American Century Services Corporation,
dated March 9, 1998 (filed electronically as Exhibit 9b to
Post-Effective Amendment No. 23 to the Registration Statement of
American Century Municipal Trust on March 26, 1998, File No. 2-91229).

(3) Amendment No. 1 to the Transfer Agency Agreement between American
Century International Bond Funds and American Century Services
Corporation, dated June 29, 1998 (filed electronically as Exhibit 9b to
Post-Effective Amendment No. 23 to the Registration Statement of
American Century Quantitative Equity Funds on June 29, 1998, File No.
33-19589).

(4) Amendment No. 2 to the Transfer Agency Agreement between American
Century International Bond Funds and American Century Services
Corporation, dated November 20, 2000 (filed electronically as Exhibit
h4 to Post-Effective Amendment No. 30 to the Registration Statement of
American Century California Tax-Free and Municipal Funds on December
29, 2000, File No. 2-82734).

(5) Amendment No. 3 to the Transfer Agency Agreement between American
Century International Bond Funds and American Century Services
Corporation, dated August 1, 2001 (filed electronically as Exhibit h5
to Post-Effective Amendment No. 44 to the Registration Statement of
American Century Government Income Trust on July 31, 2001, File No.
2-99222).

(6) Amendment No. 4 to the Transfer Agency Agreement between American
Century International Bond Funds and American Century Services
Corporation, dated December 3, 2001 (filed electronically as Exhibit h6
to Post-Effective Amendment No. 16 to the Registration Statement of
American Century Investment Trust on November 30, 2001, File No.
33-65170).

(7) Credit Agreement between American Century Funds and The Chase
Manhattan Bank as Administrative Agent, dated December 18, 2001 (filed
electronically as Exhibit h7 to Post-Effective Amendment No. 33 to the
Registration Statement of American Century California Tax-Free and
Municipal Funds on December 28, 2001, File No. 2-82734).

(i) Opinion and consent of counsel dated April 30, 1999 (filed
electronically as Exhibit j1 to Post-Effective Amendment No. 14 to the
Registration Statement of the Registrant on April 30, 1999, File No.
33-43321).

(j) (1) Consent of PricewaterhouseCoopers, LLP, independent accountant, is
included herewith.

(2) Power of Attorney dated September 16, 2000 (filed electronically as
Exhibit j3 to Post-Effective Amendment No. 33 to the Registration
Statement of American Century Target Maturities Trust on January 31,
2001, File No. 2-94608).

(k) Not applicable.

(l) Not applicable.

(m) (1) Advisor Class Master Distribution and Shareholder Services Plan of
American Century Government Income Trust, American Century
International Bond Funds, American Century Target Maturities Trust and
American Century Quantitative Equity Funds dated August 1, 1997, (filed
electronically as Exhibit m1 to Post-Effective Amendment No. 32 to the
Registration Statement of American Century Target Maturities Trust on
January 31, 2000, File No. 2-94608).

(2) Amendment to the Advisor Class Master Distribution and Shareholder
Services Plan of American Century Government Income Trust, American
Century International Bond Funds, American Century Target Maturities
Trust and American Century Quantitative Equity Funds dated June 29,
1998 (filed electronically as Exhibit m2 to Post-Effective Amendment
No. 32 to the Registration Statement of American Century Target
Maturities Trust on January 31, 2000, File No.2-94608).

(3) Amendment No. 1 to the Advisor Class Master Distribution and
Shareholder Services Plan of American Century Government Income Trust,
American Century Investment Trust, American Century International Bond
Funds, American Century Target Maturities Trust and American Century
Quantitative Equity Funds dated August 1, 2001 (filed electronically as
Exhibit m3 to Post-Effective Amendment No. 44 to the Registration
Statement of the Registrant, filed on July 31, 2001, File No. 2-99222).

(4) Amendment No. 2 to the Advisor Class Master Distribution and
Shareholder Services Plan of American Century Government Income Trust,
American Century Investment Trust, American Century International Bond
Funds, American Century Target Maturities Trust and American Century
Quantitative Equity Funds dated December 3, 2001 (filed electronically
as Exhibit m4 to Post-Effective Amendment No. 16 to the Registration
Statement of the Registrant on November 30, 2001, File No. 33-65170).

(n) (1) Amended and Restated Multiple Class Plan of 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 Target Maturities Trust and American Century Quantitative
Equity Funds, dated November 20, 2000 (filed electronically as Exhibit
n to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Target Maturities Trust on April 17, 2001, File No.
2-94608).

(2) Amendment No. 1 to the Amended and Restated Multiple Class Plan of
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 Target Maturities Trust and American Century
Quantitative Equity Funds dated August 1, 2001 (filed electronically as
Exhibit n2 to Post-Effective Amendment No. 44 to the Registration
Statement of American Century Government Income Trust on July 31, 2001,
File No. 2-99222).

(3) Amendment No. 2 to the Amended and Restated Multiple Class Plan of
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 Target Maturities Trust and American Century
Quantitative Equity Funds dated December 3, 2001, (filed electronically
as Exhibit n3 to Post-Effective Amendment No. 16 to the Registration
Statement of American Century Investment Trust on November 30, 2001,
File No. 33-65170).

(4) Amendment No. 3 to the Amended and Restated Multiple Class Plan of
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 Target Maturities Trust and American Century
Quantitative Equity Funds dated March 1, 2002 (filed electronically as
a part of Post-Effective Amendment No. 46 of the Registration Statement
of American Century Government Income Trust on March 4, 2002, File No.
2-99222).

(o) Not applicable.

(p) (1) American Century Investments Code of Ethics (filed electronically
as Exhibit p to Post-Effective Amendment No. 30 to the Registration
Statement of American Century California Tax-Free and Municipal Funds
on December 29, 2000, File No. 2-82734).

(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).

Item 24. Persons Controlled by or Under Common Control with Registrant - None.

Item 25. Indemnification.

As stated in Article VII, Section 3 of the Amended and Restated Declaration
of Trust, incorporated herein by reference to Exhibit (a)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 or
she 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
adopted by the Board of Trustees."

Registrant hereby incorporates by reference, as though set forth fully
herein, Article VI of the Registrant's Bylaws, amended on March 9, 1998 (filed
electronically as Exhibit (b) of Post-Effective Amendment No. 23 to the
Registration Statement of American Century Municipal Trust on March 26, 1998,
File No. 2-91229).

Item 26. Business and other Connections of Investment Advisor.

American Century Investment Management, Inc., the investment advisor, is
engaged in the business of managing investments for registered investment
companies, deferred compensation plans and other institutional investors.

Item 27. Principal Underwriters.

I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:

American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Quantitative Equity Funds
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 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. Chairman and Director none

James E. Stowers III Co-Chairman Chairman and Trustee
and Director

W. Gordon Snyder President and Chief none
Executive Officer

William M. Lyons Executive Vice President President
and Director

Robert T. Jackson Executive Vice President, none
Chief Financial Officer and
Chief Accounting Officer

Kevin Cuccias Senior Vice President none

Joseph Greene Senior Vice President none

Brian Jeter Senior Vice President none

Mark Killen Senior Vice President none

Tom Kmak Senior Vice President none

David Larrabee Senior Vice President none

Barry Mayhew Senior Vice President none

David C. Tucker Senior Vice President Senior Vice
and General Counsel President
and General
Counsel

--------------------
* All addresses are 4500 Main Street, Kansas City, Missouri 64111

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 the Registrant, American Century Services Corporation and American
Century Investment Management, Inc., all located at American Century Tower, 4500
Main Street, Kansas City, Missouri 64111.

Item 29. Management Services.

Not Applicable.

Item 30. Undertakings.

Not Applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this Post-Effective Amendment No. 17 to its Registration
Statement pursuant to Rule 485(b) promulgated under the Securities Act of 1933,
as amended, and has duly caused this Post-Effective Amendment No. 17 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Kansas City, and State of Missouri, on the 30th day of April, 2002.

AMERICAN CENTURY INTERNATIONAL BOND FUNDS

By: /*/ William M. Lyons
William M. Lyons
President and Principal Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 17 has been signed below by the following persons in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

*William M. Lyons President, Principal April 30, 2002
--------------------------------- Executive Officer and
Trustee
William M. Lyons

*Maryanne Roepke Senior Vice President, April 30, 2002
--------------------------------- Treasurer and Chief
Maryanne Roepke Accounting Officer

*James E. Stowers III Trustee and Chairman April 30, 2002
--------------------------------- of the Board
James E. Stowers III

*Albert A. Eisenstat Trustee April 30, 2002
---------------------------------
Albert A. Eisenstat

*Ronald J. Gilson Trustee April 30, 2002
---------------------------------
Ronald J. Gilson

*Myron S. Scholes Trustee April 30, 2002
---------------------------------
Myron S. Scholes

*Kenneth E. Scott Trustee April 30, 2002
---------------------------------
Kenneth E. Scott

*Jeanne D. Wohlers Trustee April 30, 2002
---------------------------------
Jeanne D. Wohlers

*By /s/ Janet A. Nash
Janet A. Nash
Attorney-in-Fact (pursuant to a Power of Attorney
Dated September 16, 2000)