International Bond Fund

Transcription

1 SECOND QUARTER 2015 International Bond Fund Quarterly Commentary International Bond declined for the quarter ended June 30, 2015, slightly trailing the return of its benchmark, the Barclays Global Aggregate Bond Index ex-usd. Yields Rose as Global Economic Conditions Improved Bond yields generally rose around the globe in the second quarter. Signs of improving economic growth, particularly in the U.S. and Europe, pushed bond yields higher. In the U.S., the economy contracted slightly in the first quarter, but economic data in the second quarter was notably better. Economic growth in Europe, while still muted overall, continued to move in a positive direction. While yields rose sharply in the U.S. and Europe, yield movements were more subdued in Asia as uncertainty about economic growth in the region kept yields in check. Volatility in the global fixedincome markets increased late in the quarter amid escalating government debt issues in Greece. Objective Total return, primarily through unhedged nondollar bonds. Portfolio Management Team Name, Industry Start Date John Lovito, 1986 Edward Boyle, 1998 Simon Chester, 1989 G. David MacEwen, 1983 Bond markets in the Asia/Pacific region held up the best as yield increases were modest. In Europe, major markets such as the U.K. and Germany fared best, while peripheral markets such as Italy and Spain underperformed. In general, government bonds outperformed nongovernment securities. For U.S. investors, a weaker U.S. dollar aided returns in non-u.s. bond markets. The U.S. dollar depreciated against most major currencies, including 6% against the British pound, 3% versus the euro, and 1% against the Australian and Canadian dollars. The main exception was a 2% increase for the U.S. dollar versus the Japanese yen. Currency and Sector Positioning Detracted The fund s currency positioning detracted from performance as the fund maintained an overweight position (relative to the benchmark) in the U.S. dollar, which weakened against most foreign currencies. An underweight position in the euro, which strengthened, also weighed on results. Sector allocation was a drag on performance, particularly an overweight position in nongovernment bonds, which comprised more than 20% of the portfolio. Within this component, an emphasis on lower-rated bonds issued by European financial companies detracted from performance as the turmoil in Greece put downward pressure on riskier segments of the fixed-income market. Duration Positioning and Country Weightings Added Value The fund s duration positioning aided performance relative to the benchmark. The fund s duration (a measure of interest rate sensitivity) was shorter than that of its benchmark throughout the quarter, and this positioning added value as global bond yields rose. Toward the end of the quarter, the team shifted back to a neutral duration versus the benchmark. The fund s country weightings also contributed positively to relative results. An overweight position in Norway and a corresponding underweight position in the U.K. were favorable for performance, though the team took profits near the end of the quarter, shifting back to a relatively neutral position in both countries. The team also took advantage of volatility in Spain, adjusting the fund s holdings of Spanish bonds when yields fluctuated significantly. At the end of the quarter, the fund held an overweight position in Spain. Positioning for the Future The team expects global economic conditions to improve during the second half of the year. The U.S. is likely to remain one of the stronger economies in the world, but growth also appears to be firming in Europe and selected countries in the Asia/Pacific region thanks to accommodative central bank policies. This environment will most likely result in a short-term interest rate increase by the Federal Reserve (Fed) before year-end. The team has been reducing the fund s overall risk profile and sharpening its focus on areas such as U.S. high-yield bonds, European financial securities, and peripheral European markets such as Italy and Spain. In addition, the fund remains overweight the U.S. dollar given the likelihood of an impending Fed rate hike. The team expects to see greater volatility in the fixed-income and currency markets in the coming months, and will seek to take advantage of opportunities resulting from these market fluctuations.

2 International Bond Fund TICKER SYMBOLS Investor Class: BEGBX Institutional Class: AIDIX A Class: AIBDX C Class: AIQCX R Class: AIBRX R6 Class: AIDDX Data presented reflects past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please visit americancentury.com. Investment return and fund share value will fluctuate, and redemption value may be more or less than original cost. Data assumes reinvestment of dividends and capital gains. For information about other share classes available, please consult the prospectus. There is no guarantee that the investment objectives will be met. Dividends and yields represent past performance and there is no guarantee that they will continue to be paid. Average Annual Total Returns for Period Ended 06/30/2015 Qtr 1 Year 3 Year 5 Year 10 Year Since Date Expense Ratio Investor Class -1.04% % -3.61% 0.50% 1.91% 4.74% 01/07/ % Institutional Class -0.96% % -3.39% 0.70% 2.12% 2.74% 08/02/ % A Class -1.13% % -3.84% 0.25% 1.64% 2.97% 10/27/ % A Class (4.50% initial sales charge) -5.60% % -5.31% -0.67% 1.17% 2.68% 10/27/ Barclays Global Aggregate ex-u.s. Bond (Unhedged) -0.83% % -2.83% 1.08% 2.82% Expense ratio is as of the fund's current prospectus. You should consider the fund s investment objectives, risks, and charges and expenses carefully before you invest. The fund s prospectus or summary prospectus, which can be obtained at americancentury.com, contains this and other information about the fund, and should be read carefully before investing. The opinions expressed are those of the portfolio investment team and are no guarantee of the future performance of any American Century Investments portfolio. Statements regarding specific holdings represent personal views and compensation has not been received in connection with such views. This information is for an educational purpose only is not intended to serve as investment advice. For a share class introduced after the fund's inception date, performance is based on the fund's oldest share class, restated with the new share class's expense ratio. Since inception performance for all share classes reflects actual results. Interest rate changes are among the most significant factors affecting bond return. In a declining interest rate environment, bond prices rise and the fund may generate less income. In a rising interest rate environment, bond prices fall. International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations. Source: Barclays. The Barclays Global Aggregate Bond ex-usd (Unhedged) is a broad-based measure of the global investment-grade fixed income markets, excluding U.S. dollar-denominated securities. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities. IN-FLY American Century Investment Services, Inc., Distributor 2015 American Century Proprietary Holdings, Inc. All rights reserved. Non-FDIC Insured May Lose Value No Bank Guarantee

3 Commentary Glossary Adjustable-rate mortgages (ARMs): Mortgages in which the interest rate is adjusted periodically according to a specific index. Agency securities: Debt securities issued by U.S. government agencies. Some agency securities are backed by the full faith and credit of the U.S. government, while others are guaranteed only by the issuing agency. Alternative Minimum Tax (AMT): A parallel tax system that was created to keep high income individuals from avoiding taxes through various deductions and exemptions. Asset-backed securities (ABS): A form of securitized debt backed by such items as auto loans, home equity loans, student loans, small business loans and credit card debt. Build America Bonds: A form of taxable municipal debt issued under the Build America Bond program. This program was designed to allow municipalities to sell taxable bonds for capital projects while receiving a rebate from the federal government for a portion of their borrowing costs. Collateralized mortgage obligations (CMOs): A mortgage-backed security that pays varying levels of income to different classes of bondholders with varying maturities, called tranches. CMOs are typically backed by pools of residential mortgages and their payments. Commercial mortgage-backed securities (CMBS): CMBS represent ownership in pools of commercial real estate loans used to finance the construction and improvement of income-producing properties. Commercial paper: Short-term debt issued by corporations to raise cash and to cover current expenses in anticipation of future revenues. Commodity: Refers to basic raw materials such as precious metals and natural resources. Consumer Price Index: Published by the U.S. government, CPI is the most commonly used statistic to measure inflation in the U.S. economy. Changes in CPI measure price changes in a market basket of consumer goods and services. Corporate securities: Debt instruments issued by private corporations. Coupon interest rate: The interest rate that is assigned to an interestpaying fixed income security when it is issued. Credit analysis: An analysis of the financial strength of the issuer of a security, and the ability of that issuer to provide timely payment of interest and principal. Credit risk and credit quality: Refers to the risk that the inability or perceived inability of the issuers of debt securities to make interest and principal payments will cause the value of those securities to decrease. Debt ceiling: Refers to a limit established by Congress on the total debt the U.S. federal government can legally borrow. Debt service: The amount of money required within a given period to keep current on required/scheduled repayments of outstanding debt, including interest and principal. Deflation: A decline in prices for goods, assets and services. Derivatives: Securities whose performance and/or structure is derived from the performance and/or structure of other assets, interest rates or indexes. Duration: A measure of the price sensitivity of a fixed income investment to changes in interest rates. The longer the duration, the more a fixed income investment's price will change when interest rates change. Excess return: Equals the return of a portfolio minus the return of what is considered to be a relatively risk-free asset, such as a U.S. Treasury bill. Exchange-traded fund: Represents a group of securities but is traded on an exchange like an individual stock. Fannie Mae (FNMA Federal National Mortgage Association): A Government-Sponsored Enterprise (GSE) established by Congress. Fannie Mae and a similar GSE, Freddie Mac, increase liquidity in the U.S. mortgage market by purchasing mortgages from lenders, then typically repackaging the debt and reselling it to investors, helping to create a "secondary" market for mortgages. Federal funds rate: An overnight interest rate banks charge each other for loans. Federal Open Market Committee (FOMC): The committee that sets interest rate and credit policies for the Federal Reserve System, the U.S. central bank. Freddie Mac (FHLMC Federal Home Loan Mortgage Corporation): A Government-Sponsored Enterprise (GSE) established by Congress. Freddie Mac and a similar GSE, Fannie Mae, increase liquidity in the U.S. mortgage market by purchasing mortgages from lenders, then typically repackaging the debt and reselling it to investors, helping to create a "secondary" market for mortgages. Federal Reserve (Fed): The Fed is the U.S. central bank, responsible for monetary policies affecting the U.S. financial system and the economy. Fundamentals/fundamental analysis: The economic and financial factors used in determining the value of a security. Futures contract: An agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date. General obligation bonds: Municipal bonds that are secured by the full faith and credit of the issuer. Gross domestic product (GDP): A measure of the total economic output in goods and services for an economy. Ginnie Mae (GNMA Government National Mortgage Association): A U.S. government-owned corporation, created in 1968, which guarantees the timely payment of principal and interest payments on residential mortgagebacked securities insured by government agencies, such as the Federal Housing Administration and the Department of Veterans Affairs. Government-Sponsored Enterprises (GSEs): Privately owned corporations created by Congress to provide funding and help to reduce the cost of capital for certain borrowing sectors of the economy such as homeowners, students and farmers. Headline risk: Refers to the risk that a negative news media headline about one security issuer, incident or sector could affect the demand for and pricing of a much wider swath of securities. Hybrid adjustable-rate mortgages (ARMs): Combine the characteristics of fixed-rate and adjustable-rate mortgages, with rates remaining fixed for a set period of time and then adjusting periodically according to a specific index. Inflation: An economic condition of rising prices for goods, services and assets, or equivalently, a declining value of money. Inflation-linked (or inflation-indexed) securities: Debt securities that offer returns adjusted for inflation, a feature designed to eliminate inflation risk.

4 Investment-grade: Typically used in reference to fixed income securities that possess relatively high credit quality. Mortgage-backed securities: A form of securitized debt that represents ownership in pools of mortgage loans and their payments. Municipal securities (munis): Debt securities typically issued by or on behalf of U.S. state and local governments, their agencies or authorities to raise money for a variety of public purposes. Quantitative easing: A form of monetary policy used by central banks to stimulate economic growth by purchasing domestic government securities to increase the domestic money supply, lower interest rates and encourage investors to make investments in riskier assets such as stocks and highyield securities. Real estate investment trusts (REITs): Securities that trade like stocks and invest in real estate through properties or mortgages. Revenue bonds: Municipal bonds that are secured by the net revenues from the project or facility being financed. Securitized debt: Debt resulting from the process of aggregating debt instruments into a pool of similar debts, then issuing new securities backed by the pool. Asset-backed and mortgage-backed securities and collateralized mortgage obligations are common forms of securitized debt. Sovereign debt: A country's own government-issued debt, priced in its native currency, that can be sold to investors in other countries to raise needed funds. Spreads: Measured differences or gaps between two interest rates or yields that are being compared with each other. Spread sectors: Typically non-treasury securities that usually trade in the fixed income markets at higher yields than same-maturity U.S. Treasury securities. The yield difference between Treasuries and non-treasuries is called the "spread." STRIPS (Separate Trading of Registered Interest and Principal of Securities): The acronym STRIPS describes both a government bond issuance program and the securities issued by the program. STRIPS are direct obligations of the U.S. government and have the same credit risks as other U.S. Treasury securities. Swaps: Two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. Technicals/technical analysis: Factors used in determining value that rely on market price behavior, trends, volume factors and momentum rather than fundamental factors. Treasury Inflation-Protected Securities (TIPS): Debt securities issued by the U.S. Treasury that offer returns adjusted for inflation, a feature designed to eliminate inflation risk. Variable-rate demand notes (VRDNs): Short-term debt securities that track market interest rates using periodic (daily, weekly, monthly, or quarterly) interest rate adjustments. Weighted Average Maturity (WAM): A measure of the sensitivity of a fixed-income portfolio to interest rate changes. WAM indicates the average time until the securities in the portfolio mature, weighted by dollar amount. Typically, the longer the WAM, the more sensitivity the portfolio has to interest rate changes. Yield and yield curve: For bonds and other fixed income securities, yield is a rate of return on those securities. There are several types of yields and yield calculations. A yield curve is a line graph showing the yields of fixed income securities from a single sector from a range of different maturities at a single point in time. Yield to maturity, and real yield to maturity: Yield to maturity is a common performance calculation for fixed income securities, which takes into account total annual interest payments, the purchase price, the redemption value, and the amount of time remaining until maturity. Real yield to maturity is yield to maturity minus any "inflation premium" that had been added/priced in. Zero-coupon securities: Zero-coupon securities are debt securities that are sold at a deep discount then redeemed for their full face value at maturity. Sources: American Century Investments, Barclays Indices American Century Investment Services, Inc., Distributor 2015 American Century Proprietary Holdings, Inc. All rights reserved.

5 QUARTERLY FACT SHEET International Bond TICKERS Investor class: BEGBX Institutional class: AIDIX A class: AIBDX C class: AIQCX R class: AIBRX R6 class: AIDDX Goal and Strategy Total return, primarily through unhedged nondollar bonds. Distinguishing Characteristics Designed to be a complementary bond holding that provides investors with a pure play on foreign currencies and bonds. Employs limited currency hedging. Portfolio Management Team Start Date Name Industry Company John Lovito Edward Boyle Simon Chester G. David MacEwen Fund Information Total Fund Assets $858.7M 30 Day SEC Yield (Inv Class) 0.57% Dividend Frequency Quarterly Morningstar Category World Bond Lipper Category International Income Index Barclays Global Aggregate ex-u.s. Bond (Unhedged) Risk Measures (3-year) Alpha (Annualized) Beta 0.98 R-squared 0.97 Std. Deviation (Annualized) 5.39 Sharpe Ratio Expenses and Sales Charges Class Expense Ratio (%) Investor 0.80 Institutional 0.60 A (4.50% Initial Sales Charge) 1.05 C 1.80 R 1.30 R Expense ratio is as of the fund's current prospectus. The Institutional Class minimum investment amount is $5 million ($3 million for endowments and foundations) per fund. A contingent deferred sales charge (CDSC) of 1% for A Shares is only charged at redemption within the first year on purchases over $1MM. There is no initial sales charge in these situations. C Class shares are subject to a contingent deferred sales charge (CDSC) of 1% and the charges will be imposed on certain redemptions within 12 months. Growth of a Hypothetical $10,000 Investment $15,000 $13,000 $11,000 $9,000 $7,000 $5,000 $3, Performance (%) American Century International Bond $12,176 Investor Class as of Class Qtr 1 Year 3 Year 5 Year 10 Year Since Date Investor /7/92 Institutional /2/04 A /27/98 A (With Sales Charge) /27/98 Index Calendar Year Returns (%) Investor Class Year YTD Fund Index Data presented reflects past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please visit americancentury.com. Investment return and fund share value will fluctuate, and redemption value may be more or less than original cost. Data assumes reinvestment of dividends and capital gains. You should consider the fund s investment objectives, risks, and charges and expenses carefully before you invest. The fund s prospectus or summary prospectus, which can be obtained at americancentury.com, contains this and other information about the fund, and should be read carefully before investing. Performance less than one year, when quoted, is not annualized. A Note About Risk International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations. Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline. There is no guarantee that the investment objectives will be met. Dividends and yields represent past performance and there is no guarantee that they will continue to be paid.

6 International Bond QUARTERLY FACT SHEET Fund Facts 2 Effective Duration Weighted Average Life Fund 7.07 Years 9.03 Years Fixed Income Holdings 152 Investment Blend 2,3 (%) Non-$-Denominated Credit Cash And Cash Alternatives 3.65 Securitized 0.94 Derivatives Instruments issued by the U.S. Government or one of its agencies are treated as AAA rated. Cash and cash equivalents include payable amounts related to securities purchased but not settled at period end. Credit quality ratings on underlying securities of a fund are obtained from three Nationally Recognized Statistical Rating Organizations ( NRSROs ), Standard & Poor s, Moody s and Fitch. Ratings are converted to the equivalent Standard & Poor s rating category for purposes of presentation. The median rating is used for securities rated by all three NRSROs. The common rating is used when two of the three NRSROs agree. The lower rating is used when only two NRSROs rate a security. A non-rated designation is assigned when a public rating is not available for a security. This designation does not necessarily indicate low credit quality. The letter ratings are provided to indicate the credit worthiness of the underlying bonds in the portfolio and generally range from AAA (highest) to D (lowest). 2 As of 8/31/ Negative weights, when quoted, may be due to open security or capital stock trades at period end and/or unrealized loss on derivative positions as a percent of net assets at period end. Fund holdings subject to change without notice. Quality Breakout 1,2,3 (%) AAA AA A BBB BB B Non Rated Cash Equivalents Top Countries 2 (%) Duration Breakout 2,3 (%) 0-2 Years 2-4 Years 4-6 Years 6-8 Years 8-10 Years Years 15+ Years Japan Germany 6.23 United Kingdom Supranational 5.58 France 8.62 Canada 4.95 Italy 8.21 United States 5.05 Spain 7.96 Australia 2.28 Morningstar Rating Investor Class Morningstar Category World Bond Overall 3 Year 5 Year 10 Year Rating # of Funds For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund s monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) Past performance is no guarantee of future results. Lipper Rankings Investor Class Lipper Category International Income 1 Year 3 Year 5 Year 10 Year Fund 68/126 85/104 63/78 34/39 Percentile 54% 81% 80% 85% Lipper rankings are based on average annual total returns. All of the mutual fund performance information contained in this table was supplied by Lipper, a Reuters Company, subject to the following: Copyright 2015 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. DUE TO MARKET VOLATILITY, CURRENT PERFORMANCE MAY BE DIFFERENT THAN THE FIGURES SHOWN Morningstar, Inc. All Rights Reserved. Certain information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Source: Barclays. The Barclays Global Aggregate Bond ex-usd (Unhedged) is a broad-based measure of the global investment-grade fixed income markets, excluding U.S. dollar-denominated securities. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities. Key Terms: Alpha/3yr (annualized) - Shows how a fund did relative to what would have been expected given the fund's Beta and the performance of the benchmark index. For example, an alpha of 1.4 means that the fund outperformed its estimated return (based on market activity alone) by 1.4%. Beta measures the volatility of the fund, as compared to that of the overall market. The market s beta is set at 1.00; a beta higher than 1.00 is considered to be more volatile than the market, while a beta lower than 1.00 is considered to be less volatile. Effective Duration is a weighted average of all bond durations in a fund's portfolio. Duration measures the price sensitivity of a bond or bond fund to changes in interest rates. Specifically, duration represents the approximate percentage change in the price of a bond or bond fund if interest rates move up or down 100 basis points. R2 - (R-squared) is a statistic that indicates how much of a fund s fluctuations were attributable to movements in the fund s benchmark index. Sharpe Ratio measures the potential reward offered by a mutual fund relative to its risk level. Developed by William Sharpe, the ratio uses a fund's standard deviation and its excess return to determine reward per unit of risk. The higher the sharpe ratio, the better the fund's historical risk-adjusted performance. Std. Deviation/3yr (annualized) - Defines how widely returns varied from an average over a given period of time. A higher standard deviation means a more volatile fund. For example, a fund with a standard deviation of 6 and an average annual return of 10% saw annualized monthly returns fall within 6 percentage points of that average (or between 4% and 16%) two-thirds of the time. Weighted Average Life is the average period before the principal of a debt security (bond, debenture, note) is scheduled to be repaid. Fund Facts are provided by FactSet Research Systems, Inc. American Century Investment Services, Inc., Distributor 2015 American Century Proprietary Holdings, Inc. All rights reserved. IN-FFS Non-FDIC Insured May Lose Value No Bank Guarantee