UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10155
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AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
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(Exact name of registrant as specified in charter)
4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
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(Address of principal executive offices) (Zip code)
CHARLES A. ETHERINGTON, 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 816-531-5575
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Date of fiscal year end: 12-31
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Date of reporting period: 06-30-2008
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
SEMIANNUAL REPORT
June 30, 2008
[american century investments logo and text logo ®]
AMERICAN CENTURY VARIABLE PORTFOLIOS II
VP INFLATION PROTECTION FUND
[blank page]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Fixed-Income Total Returns. . . . . . . . . . . . . . . . . 2
VP INFLATION PROTECTION
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 5
Asset Allocation . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio at a Glance. . . . . . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . 14
Statement of Operations . . . . . . . . . . . . . . . . . . . . . 15
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . 16
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 17
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . 22
OTHER INFORMATION
Approval of Management Agreement for VP Inflation Protection. . . 24
Additional Information. . . . . . . . . . . . . . . . . . . . . . 29
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . 30
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report, and
do not necessarily represent the opinions of American Century Investments or any
other person in the American Century Investments organization. Any such opinions
are subject to change at any time based upon market or other conditions and
American Century Investments disclaims any responsibility to update such
opinions. These opinions may not be relied upon as investment advice and,
because investment decisions made by American Century Investments funds are
based on numerous factors, may not be relied upon as an indication of trading
intent on behalf of any American Century Investments fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century Investments by third party
vendors. To the best of American Century Investments' knowledge, such
information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By David MacEwen, Chief Investment Officer, Fixed Income
FROM RALLY TO RETREAT
The first six months of 2008 produced a tale of two bond markets, as
high-quality bonds rallied in the first quarter and retreated in the second
quarter. Early in the year, focusing on credit quality and avoiding subprime and
other problem credit areas were critical to performance. This was reflected in
the outperformance of the Treasury sector and underperformance of
credit-sensitive sectors.
In the second quarter, rising inflation expectations, reduced credit and
liquidity concerns, and a significant shift in market expectations for Federal
Reserve (Fed) interest rate policy reduced the risk aversion and recession fears
that had powered the Treasury market rally between June 2007 and March 2008. The
reversal was triggered in part by the Fed's extraordinary actions in the first
quarter to support the financial markets, provide liquidity and stave off
recession. Soaring food and energy prices also played a big role, convincing
many market participants that inflation had become a bigger potential problem
than recession.
At its June monetary policy meeting, the Fed left rates unchanged, signaling
inflation likely has re-emerged as a primary concern for the central bank, even
as growth slows.
INFLATION PRESSURES KEPT TIPS ON TOP
Inflation worries and the lingering threat of stagflation (stalled economic
growth and rising inflation) helped Treasury inflation-protected securities
(TIPS) finish the six months as the top major U.S. bond sector on a total return
basis. The yield difference between 10-year TIPS and nominal Treasuries widened
to 2.5 percentage points in the second quarter. This spread represents
investors' expectations for inflation for the next decade.
Overall (headline) inflation, as measured by the trailing 12-month change in the
consumer price index (CPI), reached 5.0% in June. Several index components drove
overall CPI higher, including food prices, which jumped 5.2%, transportation
costs, which increased 12%, and energy prices, which soared 24.7%. The core CPI,
which excludes volatile food and energy prices, increased 2.4% for the 12 months
ended June 30.
U.S. Fixed-Income Total Returns
For the six months ended June 30, 2008*
CITIGROUP BOND MARKET INDICES
Citigroup US Broad Investment-Grade Bond Index 1.40%
Citigroup US Inflation-Linked Securities Index 4.86%
TREASURY BELLWETHERS
3-Month Treasury Bill 1.30%
10-Year Treasury Note 2.03%
*Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
VP Inflation Protection
Total Returns as of June 30, 2008
Average Annual Returns
Since Inception
6 months(1) 1 year 5 years Inception Date
CLASS II 3.59% 12.08% 4.50% 5.00% 12/31/02
CITIGROUP US
INFLATION-LINKED
SECURITIES INDEX(2) 4.86% 15.12% 5.97% 6.56% --
Class I 3.81% 12.46% -- 5.89% 5/7/04
(1) Total returns for periods less than one year are not annualized.
(2) The Citigroup US Inflation-Linked Securities Index is not subject to the tax
code diversification and other regulatory requirements limiting the type and
amount of securities that the fund may own.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity or
variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company separate
account prospectus for a discussion of the charges related to insurance
contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-6488. As interest rates
rise, bond values will decline.
Unless otherwise indicated, performance reflects Class II shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the prospectus.
Data assumes reinvestment of dividends and capital gains, and none of the charts
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
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3
VP Inflation Protection
One-Year Returns Over Life of Class
Periods ended June 30
2003* 2004 2005 2006 2007 2008
Class II 4.89%** 1.51% 6.86% -1.00% 3.58% 12.08%
Citigroup US
Inflation-Linked Securities
Index 6.15% 3.91% 9.30% -1.68% 3.93% 15.12%
*From 12/31/02, Class II's inception date. Not annualized.
**Returns would have been lower, along with ending value, if distribution fees
had not been waived from 12/31/02 to 3/31/03.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-6488. As interest rates
rise, bond values will decline.
Unless otherwise indicated, performance reflects Class II shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the prospectus.
Data assumes reinvestment of dividends and capital gains, and none of the charts
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
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4
PORTFOLIO COMMENTARY
VP Inflation Protection
Lead Portfolio Managers: Brian Howell, Jim Platz, Seth Plunkett,
and Bob Gahagan
Macro Strategy Team Representatives: Brian Howell and Bob Gahagan
PERFORMANCE SUMMARY
VP Inflation Protection returned 3.81%* for the six months ended June 30, 2008.
The portfolio's benchmark, the Citigroup US Inflation-Linked Securities Index,
returned 4.86%. Portfolio returns reflect operating expenses, while benchmark
returns do not.
The portfolio's absolute return reflected the relatively strong performance of
inflation-indexed securities during a period of rising commodity prices,
declining yields and quality-conscious investing. Treasury inflation-protected
securities (TIPS) were the best-performing domestic fixed-income securities for
the six-month period, due to their hedge against inflation along with their
longer duration and high quality.
Relative to the benchmark, the portfolio's exposure to non-Treasury securities
accounted for the underperformance.
MARKET BACKDROP
Economic indicators continued to weaken and consumer and investor confidence
waned during most of the six-month period, due to the ongoing housing market
downturn, tighter credit standards, higher energy prices and equity market
volatility. Despite the growing weakness, inflation remained a serious threat.
Across the board, food and commodity prices hit record highs, and the U.S.
dollar remained under pressure. In particular, oil prices continued to capture
the headlines, jumping from $96 per barrel to $140 per barrel, for a 46%
increase during the six-month period. At the same time, the U.S. dollar declined
more than 7% against the euro.
The Federal Reserve (the Fed) continued its efforts to spark economic growth,
cutting the federal funds target rate by 2.25 percentage points in the first
four months of 2008 to 2.0%. But, after its monetary policy meeting in June, the
Fed left the overnight interest rate target unchanged -- the first pause since
launching the easing campaign last year.
Asset Allocation
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
U.S. Treasury Securities & Equivalents 54.4% 54.9%
U.S. Government Agency Securities 11.2% 15.8%
U.S. Government Agency
Mortgage-Backed Securities 10.3% 1.7%
Collateralized Mortgage Obligations 9.2% 12.7%
Corporate Bonds 7.2% 10.1%
Adjustable-Rate U.S. Government Agency
Mortgage-Backed Securities 1.0% --
Sovereign Governments & Agencies 0.7% 0.9%
Zero-Coupon U.S. Treasury
Securities & Equivalents 0.5% 1.8%
Zero-Coupon U.S. Government
Agency Securities 0.2% 1.4%
Asset-Backed Securities --(1) --(1)
Cash and Equivalents(2) 5.3% 0.7%
(1) Category is less than 0.05% of total net assets.
(2) Includes Commercial Paper and other assets and liabilities.
*All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
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5
VP Inflation Protection
The Fed's preference for anti-recession insurance over inflation vigilance
resulted in an overall 3.25-percentage-point slice in the federal funds rate
target. At the same time, though, the Fed's efforts to fend off a recession
contributed to rising inflationary expectations. By holding rates steady in
June, the Fed signaled inflation likely has re-emerged as a primary concern for
the central bank, even as it struggles with jump-starting the stagnant economy.
PORTFOLIO POSITIONING
With inflation pressures mounting, we maintained the portfolio's maximum
exposure to TIPS (55% of the portfolio, as mandated by IRS portfolio
diversification regulations for insurance products). We invested the remaining
45% of the portfolio in non-Treasury securities, including high-quality agency,
mortgage and corporate securities. The portfolio's exposure to these spread
securities, which underperformed Treasuries during the six-month period,
accounted for the Fund's underperformance versus the benchmark.
We maintained a yield-curve-steepening bias throughout the period, which
contributed positively to performance, as the slope of the nominal Treasury
yield steepened. For example, the yield difference between two- and 10-year
Treasury notes was +0.97 percentage point at the end of December 2007 and +1.35
percentage points at the end of June 2008.
OUTLOOK
With the annual rate of core inflation (as measured by the 12-month change in
core CPI through June 30) at 2.4%, inflation remains above the Fed's stated
comfort range of between 1% and 2%. Broader inflation measures are even higher
(5.0% for overall CPI for the same time period), stoked by soaring energy,
commodity and food prices and a moribund U.S. dollar.
Such a scenario typically would prompt a tightening response from the Fed. But,
the current environment is anything but "typical." We believe expectations for
Fed rate hikes -- triggered by energy price inflation and the Fed's monetary
policy pause in June -- are off base. The Fed likely is on hold, boxed in by
recession concerns on one side and inflationary pressures and the sagging U.S.
dollar on the other. Although the inflation threat remains, we believe the
troubled U.S. economy will once again emerge as the greater concern for the Fed,
with additional rate cuts an option for restoring growth. Such a scenario should
bode well for U.S. Treasuries in general, including TIPS.
Portfolio at a Glance
As of As of
6/30/08 12/31/07
30-Day SEC Yield
Class I 6.50%* 3.91%
Class II 6.26%* 3.66%
Weighted Average Maturity 9.2 years 9.5 years
Average Duration (effective) 6.3 years 6.4 years
*The above-average 30-day SEC yields as of June 30, 2008, primarily resulted
from elevated inflation readings. The market conditions fostering this
occurrence may not be repeated or consistently achieved in the future.
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6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $1,038.10 $2.48 0.49%
Class II $1,000 $1,035.90 $3.75 0.74%
HYPOTHETICAL
Class I $1,000 $1,022.43 $2.46 0.49%
Class II $1,000 $1,021.18 $3.72 0.74%
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
182, the number of days in the most recent fiscal half-year, divided by 366, to
reflect the one-half year period.
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7
SCHEDULE OF INVESTMENTS
VP Inflation Protection
JUNE 30, 2008 (UNAUDITED)
Principal Amount Value
U.S. Treasury Securities & Equivalents -- 54.4%
$ 1,500,000 AID (Egypt), 4.45%, 9/15/15 $1,515,110
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36,689,968 U.S. Treasury Inflation Indexed Bonds, 2.375%,
1/15/25(1) 38,458,485
42,419,888 U.S. Treasury Inflation Indexed Bonds, 2.00%,
1/15/26(1) 42,025,553
21,726,816 U.S. Treasury Inflation Indexed Bonds, 2.375%,
1/15/27 22,753,756
14,148,036 U.S. Treasury Inflation Indexed Bonds, 1.75%,
1/15/28 13,447,270
24,035,533 U.S. Treasury Inflation Indexed Bonds, 3.625%,
4/15/28(1) 29,954,307
14,783,048 U.S. Treasury Inflation Indexed Bonds, 3.875%,
4/15/29(1) 19,182,172
19,039,822 U.S. Treasury Inflation Indexed Bonds, 3.375%,
4/15/32(1) 23,911,351
5,936,144 U.S. Treasury Inflation Indexed Notes, 4.25%,
1/15/10 6,368,835
3,826,339 U.S. Treasury Inflation Indexed Notes, 0.875%,
4/15/10 3,894,497
246,810 U.S. Treasury Inflation Indexed Notes, 3.50%,
1/15/11 268,811
2,975,748 U.S. Treasury Inflation Indexed Notes, 2.375%,
4/15/11 3,154,527
3,719,489 U.S. Treasury Inflation Indexed Notes, 3.375%,
1/15/12 4,108,875
1,005,518 U.S. Treasury Inflation Indexed Notes, 2.00%,
4/15/12 1,061,293
8,361,850 U.S. Treasury Inflation Indexed Notes, 3.00%,
7/15/12 9,186,930
4,677,640 U.S. Treasury Inflation Indexed Notes, 1.875%,
7/15/13 4,947,339
10,031,426 U.S. Treasury Inflation Indexed Notes, 2.00%,
1/15/14 10,657,607
16,066,104 U.S. Treasury Inflation Indexed Notes, 2.00%,
7/15/14 17,074,011
16,984,782 U.S. Treasury Inflation Indexed Notes, 1.625%,
1/15/15 17,554,044
20,979,990 U.S. Treasury Inflation Indexed Notes, 1.875%,
7/15/15 21,984,743
18,423,434 U.S. Treasury Inflation Indexed Notes, 2.00%,
1/15/16 19,419,460
24,992,720 U.S. Treasury Inflation Indexed Notes, 2.50%,
7/15/16 27,327,990
Principal Amount Value
$39,299,976 U.S. Treasury Inflation Indexed Notes, 2.375%,
1/15/17(1) $ 42,569,891
14,021,139 U.S. Treasury Inflation Indexed Notes, 2.625%,
7/15/17 15,491,171
33,575,955 U.S. Treasury Inflation Indexed Notes, 1.625%,
1/15/18(1) 34,142,583
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TOTAL U.S. TREASURY SECURITIES & EQUIVALENTS
(Cost $411,111,148) 430,460,611
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U.S. Government Agency Securities -- 11.2%
4,000,000 FAMCA, 4.875%, 1/14/11 (Acquired 8/30/07,
Cost $4,018,400)(2) 4,129,857
3,750,000 FAMCA, 5.50%, 7/15/11 (Acquired 9/6/06,
Cost $3,804,075)(2) 3,979,178
1,000,000 FAMCA, 5.40%, 10/14/11 1,049,044
3,974,000 FAMCA, 6.71%, 7/28/14 4,488,390
2,000,000 FFCB, 4.875%, 12/16/15 2,038,994
5,000,000 FFCB, 4.875%, 1/17/17 5,089,760
1,030,000 FHLB, 4.875%, 5/17/17 1,046,817
2,000,000 FHLMC, 5.625%, 3/15/11 2,109,904
5,750,000 FHLMC, 4.375%, 7/17/15 5,725,844
18,244,000 FNMA, 6.625%, 11/15/30 21,751,683
10,070,000 FNMA, VRN, 5.12%, 7/17/08, resets monthly off the
Consumer Price Index Year over Year
plus 1.14% with a cap of 24.00%, Final
Maturity 2/17/09 10,192,451
2,845,000 PEFCO, 4.97%, 8/15/13 2,937,457
4,000,000 PEFCO, 4.55%, 5/15/15 4,027,220
13,800,000 TVA Inflation Indexed Notes, 6.79%, 5/23/12 15,225,457
1,750,000 TVA Inflation Indexed Notes, 4.875%, 12/15/16 1,768,799
3,550,000 TVA Inflation Indexed Notes, 4.50%, 4/1/18 3,478,734
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TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $89,412,164) 89,039,589
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8
VP Inflation Protection
Principal Amount Value
U.S. Government Agency Mortgage-Backed Securities(3) -- 10.3%
$ 670,890 FHLMC, 4.50%, 5/1/19 $ 654,411
3,615,579 FHLMC, 5.00%, 4/1/21 3,589,630
23,727,466 FHLMC, 5.00%, 5/1/23 23,468,195
339,846 FHLMC, 5.50%, 12/1/33 336,767
4,772,886 FHLMC, 5.50%, 12/1/36 4,710,242
892,900 FNMA, 5.00%, 9/1/20 887,450
35,326,118 FNMA, 5.50%, 9/1/35 34,933,539
9,469,529 FNMA, 5.50%, 7/1/36 9,352,457
119,962 GNMA, 6.00%, 6/20/17 123,044
104,886 GNMA, 6.00%, 7/20/17 107,581
703,595 GNMA, 6.00%, 5/15/24 719,180
2,662,989 GNMA, 5.50%, 9/20/34 2,651,456
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TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $82,292,965) 81,533,952
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Collateralized Mortgage Obligations(3) -- 9.2%
3,246,866 Banc of America Alternative Loan Trust, Series
2007-2, Class 2A4, 5.75%, 6/25/37 3,008,461
2,430,000 Banc of America Commercial Mortgage Inc., Series
2004-2, Class A3 SEQ, 4.05%, 11/10/38 2,379,258
6,200,000 Banc of America Commercial Mortgage Inc., Series
2007-4, Class A3 SEQ, 5.81%, 8/10/14 5,933,208
872,431 Banc of America Large Loan, Series 2005 MIB1,
Class A1, VRN, 2.62%, 7/15/08, resets monthly off
the 1-month LIBOR plus 0.15% with no caps, Final
Maturity 3/15/22 (Acquired 11/18/05, Cost
$872,431)(2) 831,584
845,578 Bear Stearns Commercial Mortgage Securities Trust,
Series 2003 T12, Class A2 SEQ, 3.88%, 8/1/39 843,177
7,000,000 Credit Suisse Mortgage Capital Certificates,
Series 2007 TF2A, Class A1, VRN, 2.65%, 7/15/08,
resets monthly off the 1-month LIBOR plus 0.18%
with no caps, Final Maturity 4/15/22 (Acquired
7/24/07, Cost $7,000,000)(2) 6,708,850
Principal Amount Value
$ 1,326,027 FHLMC, Series 2508, Class UL SEQ, 5.00%, 12/15/16 $1,345,137
3,000,000 FNMA, Series 2003-92, Class PD, 4.50%, 3/25/17 2,986,155
4,142,773 GMAC Commercial Mortgage Securities, Inc., Series
2005 C1, Class A2 SEQ, 4.47%, 5/10/43 4,113,770
81,641 GNMA, Series 2003-112, Class MN, 4.00%, 5/16/25 81,605
915,370 GNMA, Series 2003-46, Class PA, 5.00%, 5/20/29 926,766
2,000,000 GNMA, Series 2005-24, Class UB SEQ, 5.00%, 1/20/31 2,009,450
6,000,000 Greenwich Capital Commercial Funding Corp., Series
2005 GG3, Class A2 SEQ, 4.31%, 8/10/42 5,959,206
2,000,000 LB-UBS Commercial Mortgage Trust, Series 2003 C3,
Class A3 SEQ, 3.85%, 5/15/27 1,922,064
372,295 LB-UBS Commercial Mortgage Trust, Series 2003 C5,
Class A2 SEQ, 3.48%, 7/15/27 371,575
4,993,935 LB-UBS Commercial Mortgage Trust, Series 2004 C4,
Class A2, 4.57%, 6/15/29, Final Maturity 6/15/29 4,994,843
3,767,276 LB-UBS Commercial Mortgage Trust, Series 2005 C2,
Class A2 SEQ, 4.82%, 4/15/30 3,760,725
2,590,000 LB-UBS Commercial Mortgage Trust, Series 2005 C3,
Class A3 SEQ, 4.65%, 7/30/30 2,527,420
6,262,138 Lehman Brothers Floating Rate Commercial Mortgage
Trust, Series 2007 LLFA, Class A1, VRN, 2.77%,
7/15/08, resets monthly off the 1-month LIBOR plus
0.30% with no caps, Final Maturity 6/15/22
(Acquired 8/3/07, Cost $6,262,138)(2) 5,973,271
2,000,000 Merrill Lynch Mortgage Trust STRIPS - COUPON,
Series 2006 C1, Class A2, VRN, 5.61%, 7/1/08,
Final Maturity 5/12/39 2,002,604
4,621,912 Morgan Stanley Capital I, Series 2004 HQ3, Class
A2 SEQ, 4.05%, 1/13/41 4,573,456
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9
VP Inflation Protection
Principal Amount Value
$ 2,055,000 Washington Mutual Mortgage Pass-Through
Certificates, Series 2004 AR4, Class A6, VRN,
3.81%, 7/1/08, Final Maturity 6/25/34 $2,030,369
1,805,000 Washington Mutual Mortgage Pass-Through
Certificates, Series 2004 AR7, Class A6, VRN,
3.94%, 7/1/08, Final Maturity 7/25/34 1,783,605
1,000,000 Washington Mutual Mortgage Pass-Through
Certificates, Series 2005 AR4, Class A3, VRN,
4.59%, 7/1/08, Final Maturity 4/25/35 991,864
5,073,260 Wells Fargo Mortgage Backed Securities Trust,
Series 2007-11, Class A19 SEQ, 6.00%, 8/25/37 5,013,528
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TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $74,085,732) 73,071,951
------------
Corporate Bonds -- 7.2%
2,000,000 ABN AMRO Bank N.V., VRN, 5.94%, 7/28/08, resets
monthly off the Consumer Price Index Year over
Year plus 2.00% with no caps, Final Maturity
9/27/08 2,013,400
2,000,000 Barclays Bank plc, VRN, 5.77%, 7/28/08, resets
monthly off the Consumer Price Index Year over
Year plus 1.83% with no caps, Final Maturity
7/28/08 2,002,500
187,000 Hartford Life Insurance Co., VRN, 6.14%, 7/15/08,
resets monthly off the Consumer Price Index Year
Over Year plus 2.20% with no caps, Final Maturity
10/15/08 188,159
706,000 HSBC Finance Corp., VRN, 5.02%, 7/10/08, resets
monthly off the Consumer Price Index Year over
Year plus 1.08% with no caps, Final Maturity
9/10/09 687,115
3,000,000 HSBC Finance Corp., VRN, 5.05%, 7/10/08, resets
monthly off the Consumer Price Index Year over
Year plus 1.11% with no caps, Final Maturity
2/10/10 2,940,090
Principal Amount Value
$ 1,067,000 HSBC Finance Corp., VRN, 5.13%, 7/10/08, resets
monthly off the Consumer Price Index Year over
Year plus 1.19% with no caps, Final Maturity
2/10/09 $1,073,818
9,500,000 International Bank for Reconstruction &
Development, 7.625%, 1/19/23 12,284,887
40,000 John Hancock Life Insurance Co., VRN, 5.07%,
7/15/08, resets monthly off the Consumer Price
Index Year over Year plus 1.13% with no caps,
Final Maturity 6/15/10 39,677
179,000 John Hancock Life Insurance Co., VRN, 5.56%,
7/15/08, resets monthly off the Consumer Price
Index Year over Year plus 1.62% with no caps,
Final Maturity 11/15/10 179,186
2,139,000 Lehman Brothers Holdings Inc., VRN, 6.05%,
7/10/08, resets monthly off the Consumer Price
Index Year over Year plus 2.07% with no caps,
Final Maturity 11/10/15 1,857,935
4,160,000 Lehman Brothers Holdings Inc., VRN, 5.44%,
7/23/08, resets monthly off the Consumer Price
Index Year over Year plus 1.46% with no caps,
Final Maturity 3/23/12 3,847,251
4,760,000 Merrill Lynch & Co., Inc., VRN, 5.14%, 7/1/08,
resets monthly off the Consumer Price Index plus
1.16% with no caps, Final Maturity 3/2/09 4,705,403
4,359,000 Morgan Stanley, VRN, 7.33%, 7/1/08, resets monthly
off the Consumer Price Index Year over Year plus
2.10% with no caps, Final Maturity 12/1/17 4,069,519
303,000 Prudential Financial, Inc., VRN, 5.98%, 7/1/08,
resets monthly off the Consumer Price Index Year
over Year plus 2.00% with no caps, Final Maturity
11/2/20 247,169
11,246,300 SLM Corporation, 1.32%, 1/25/10 10,385,621
- ------
10
VP Inflation Protection
Principal Amount Value
$ 490,000 SLM Corporation, VRN, 6.13%, 7/1/08, resets
monthly off the Consumer Price Index Year over
Year plus 2.15% with no caps, Final Maturity 2/1/14 $ 404,147
1,500,000 SLM Corporation, VRN, 6.18%, 7/15/08, resets
monthly off the Consumer Price Index Year over
Year plus 2.20% with no caps, Final Maturity
6/15/09 1,462,140
9,072,000 Toyota Motor Credit Corp. Inflation Indexed Bonds,
1.22%, 10/1/09 9,067,464
------------
TOTAL CORPORATE BONDS
(Cost $58,535,017) 57,455,481
------------
Commercial Paper(5) -- 3.6%
28,100,000 Legacy Capital LLC, 3.05%, 7/1/08 (Acquired
6/30/08, Cost $28,097,619)(2)
(Cost $28,100,000) 28,097,640
------------
Adjustable-Rate U.S. Government Agency
Mortgage-Backed Securities -- 1.0%
7,501,094 FHLMC, VRN, 5.77%, 1/1/12, thereafter resets
monthly off the 1-month LIBOR plus 1.99% with no
caps, Final Maturity 1/1/38
(Cost $7,674,557) 7,586,126
------------
Sovereign Governments & Agencies -- 0.7%
5,000,000 KfW, 4.75%, 5/15/12
(Cost $4,896,258) 5,191,530
------------
Principal Amount Value
Zero-Coupon U.S. Treasury Securities & Equivalents(4) -- 0.5%
$ 5,000,000 AID (Israel), 4.70%, 5/1/15 $3,815,140
353,000 REFCORP STRIPS - COUPON, 3.61%, 10/15/08 351,016
------------
TOTAL ZERO-COUPON U.S. TREASURY SECURITIES & EQUIVALENTS
(Cost $3,988,491) 4,166,156
------------
Zero-Coupon U.S. Government Agency Securities(4) -- 0.2%
125,000 FICO STRIPS -- COUPON, 4.40%, 11/30/08 123,797
1,000,000 Government Trust Certificates, 3.06%, 11/15/08 991,731
110,000 TVA STRIPS - COUPON, 4.95%, 10/15/08 109,259
------------
TOTAL ZERO-COUPON U.S. GOVERNMENT AGENCY SECURITIES
(Cost $1,220,005) 1,224,787
------------
Asset-Backed Securities(3)(6)
110,630 Atlantic City Electric Transition Funding LLC,
Series 2003-1, Class A1 SEQ, 2.89%, 7/20/11
(Cost $110,633) 110,423
------------
TOTAL INVESTMENT SECURITIES -- 98.3%
(Cost $761,426,970) 777,938,246
------------
OTHER ASSETS AND LIABILITIES -- 1.7% 13,302,195
------------
TOTAL NET ASSETS -- 100.0% $791,240,441
============
- ------
11
VP Inflation Protection
Swap Agreements
Notional Amount Description of Agreement Expiration Unrealized
Date Gain (Loss)
CREDIT DEFAULT
$ 4,750,000 Pay quarterly a fixed rate
equal to 0.20% multiplied by
the notional amount and receive
from Merrill Lynch
International upon each default
event of HSBC Finance Corp.,
par value of the proportional
notional amount of HSBC Finance
Corp., 7.00%, 5/15/12. June 2010 $165,700
TOTAL RETURN
44,000,000 Pay a fixed rate equal to
2.4875% and receive the return
of the U.S. CPI Urban Consumers
NSA Index upon the termination
date with Barclays Bank plc. July 2010 1,193,178
20,000,000 Pay a fixed rate equal to 1.13%
and receive the return of the
U.S. CPI Urban Consumers NSA
Index upon the termination date
with Barclays Bank plc. January 2012 1,070,563
=35,000,000 Pay a fixed rate equal to 1.14%
and receive the return of the
U.S. CPI Urban Consumers NSA
Index upon the termination date
with Barclays Bank plc. March 2012 1,501,231
20,000,000 Pay a fixed rate equal to 1.21%
and receive the return of the
U.S. CPI Urban Consumers NSA
Index upon the termination date
with Barclays Bank plc. June 2014 471,644
20,000,000 Pay a fixed rate equal to 1.31%
and receive the return of the
U.S. CPI Urban Consumers NSA
Index upon the termination date
with Barclays Bank plc. April 2017 577,212
40,000,000 Pay a fixed rate equal to 2.77%
and receive the return of the
U.S. CPI Urban Consumers NSA
Index upon the termination date
with Barclays Bank plc. April 2018 772,062
30,100,000 Pay a fixed rate equal to
2.895% and receive the return
of the U.S. CPI Urban Consumers
NSA Index upon the termination
date with Barclays Bank plc. December 2027 520
-----------
$5,752,110
===========
- ------
12
VP Inflation Protection
Notes to Schedule of Investments
AID = Agency for International Development
CPI = Consumer Price Index
Equivalent = Security whose principal payments are secured by U.S. Treasurys
FAMCA = Federal Agricultural Mortgage Corporation
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FICO = Financing Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
GMAC = General Motors Acceptance Corporation
LIBOR = London Interbank Offered Rate
LB-UBS = Lehman Brothers Inc. -- UBS AG
NSA = Not Seasonally Adjusted
PEFCO = Private Export Funding Corporation
REFCORP = Resolution Funding Corporation
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
SEQ = Sequential Payer
STRIPS = Separate Trading of Registered Interest and Principal of Securities
TVA = Tennessee Valley Authority
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective June 30, 2008.
(1) Security, or a portion thereof, has been segregated for swap agreements.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at June 30, 2008 was $49,720,380, which
represented 6.3% of total net assets.
(3) Final maturity indicated, unless otherwise noted.
(4) The rate indicated is the yield to maturity at purchase. These securities
are issued at a substantial discount from their value at maturity.
(5) The rate indicated is the yield to maturity at purchase.
(6) Category is less than 0.05% of total net assets.
See Notes to Financial Statements.
- ------
13
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $761,426,970) $777,938,246
Cash 1,754,112
Receivable for investments sold 228,199
Unrealized appreciation on swap agreements 5,752,110
Interest receivable 6,005,443
-------------
791,678,110
-------------
LIABILITIES
Accrued management fees 300,560
Distribution fees payable 137,109
-------------
437,669
-------------
NET ASSETS $791,240,441
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $775,438,803
Accumulated net realized loss on investment transactions (6,462,040)
Net unrealized appreciation on investments 22,263,678
-------------
$791,240,441
=============
CLASS I, $0.01 PAR VALUE
Net assets $94,140,590
Shares outstanding 8,842,306
Net asset value per share $10.65
CLASS II, $0.01 PAR VALUE
Net assets $697,099,851
Shares outstanding 65,503,531
Net asset value per share $10.64
See Notes to Financial Statements.
- ------
14
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Interest $22,311,887
-----------
EXPENSES:
Management fees 1,748,687
Distribution fees - Class II 800,786
Directors' fees and expenses 30,720
Other expenses 790
-----------
2,580,983
-----------
NET INVESTMENT INCOME (LOSS) 19,730,904
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 3,123,876
Swaps transactions (4,829)
-----------
3,119,047
-----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (4,626,016)
Swaps 5,001,158
-----------
375,142
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 3,494,189
-----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $23,225,093
===========
See Notes to Financial Statements.
- ------
15
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ 19,730,904 $ 24,884,805
Net realized gain (loss) 3,119,047 (4,594,610)
Change in net unrealized appreciation (depreciation) 375,142 30,596,697
------------ ------------
Net increase (decrease) in net assets
resulting from operations 23,225,093 50,886,892
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (2,372,129) (2,146,223)
Class II (17,354,357) (22,744,318)
------------ ------------
Decrease in net assets from distributions (19,726,486) (24,890,541)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions 181,398,712 57,558,294
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 184,897,319 83,554,645
NET ASSETS
Beginning of period 606,343,122 522,788,477
------------ ------------
End of period $791,240,441 $606,343,122
============ ============
See Notes to Financial Statements.
- ------
16
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios II, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Inflation Protection Fund (the fund)
is one fund in a series issued by the corporation. The fund is diversified under
the 1940 Act. The fund's investment objective is to pursue long-term total
return using a strategy that seeks to protect against U.S. inflation. The fund
pursues its investment objective by investing substantially all of its assets in
investment-grade debt securities. The fund normally invests over 50% of its
assets in inflation-adjusted debt securities that are designed to protect the
future purchasing power of the money invested in them. The following is a
summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I and Class II. The
share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the net assets of the class to which
such shares belong, and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except for class specific expenses and
exclusive rights to vote on matters affecting only individual classes. Income,
non-class specific expenses, and realized and unrealized capital gains and
losses of the fund are allocated to each class of shares based on their relative
net assets.
SECURITY VALUATIONS -- Debt securities maturing in greater than 60 days at the
time of purchase are valued at current market value as provided by a commercial
pricing service or at the mean of the most recent bid and asked prices. Debt
securities maturing within 60 days at the time of purchase may be valued at
cost, plus or minus any amortized discount or premium. If an event occurs 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, that
security would be valued as determined in accordance with procedures adopted by
the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading will
commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security transactions
are accounted for as of the trade date. Net realized gains and losses are
determined on the identified cost basis, which is also used for federal income
tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes paydown gain (loss) and accretion of discounts and amortization of
premiums. Inflation adjustments related to inflation-linked debt securities are
reflected as interest income.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities
transactions on a when-issued or forward commitment basis. In these
transactions, the securities' prices and yields are fixed on the date of the
commitment. In a when-issued transaction, the payment and delivery are scheduled
for a future date and during this period, securities are subject to market
fluctuations. In a forward commitment transaction, the fund may sell a security
and at the same time make a commitment to purchase the same security at a future
date at a specified price. Conversely, the fund may purchase a security and at
the same time make a commitment to sell the same security at a future date at a
specified price. These types of transactions are executed simultaneously in what
are known as "roll" transactions. The fund will segregate cash, cash equivalents
or other appropriate liquid securities on its records in amounts sufficient to
meet the purchase price. The fund accounts for "roll" transactions as purchases
and sales; as such these transactions may increase portfolio turnover.
- ------
17
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
SWAP AGREEMENTS -- The fund may enter into swap agreements in order to attempt
to obtain or preserve a particular return or spread at a lower cost than
obtaining a return or spread through purchases and/or sales of instruments in
other markets; protect against currency fluctuations; attempt to manage duration
to protect against any increase in the price of securities the fund anticipates
purchasing at a later date; or gain exposure to certain markets in the most
economical way possible. A basic swap agreement is a contract in which two
parties agree to exchange the returns earned or realized on predetermined
investments or instruments. Credit default swaps enable an investor to buy/sell
protection against a credit event of a specific issuer. The seller of credit
protection against a security or basket of securities receives an up-front or
periodic payment to compensate against potential default events. The fund may
enhance returns by selling protection or attempt to mitigate credit risk by
buying protection. The fund will segregate cash, cash equivalents or other
appropriate liquid securities on its records in amounts sufficient to meet
requirements. Unrealized gains are reported as an asset and unrealized losses
are reported as a liability on the Statement of Assets and Liabilities. Swap
agreements are valued daily and changes in value, including the periodic amounts
of interest to be paid or received on swaps, are recorded as unrealized
appreciation (depreciation) on swaps. Realized gain or loss is recorded upon
receipt or payment of a periodic settlement or termination of swap agreements.
The risks of entering into swap agreements include the possible lack of
liquidity, failure of the counterparty to meet its obligations, and that there
may be unfavorable changes in the underlying investments and instruments.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next
twelve months. Accordingly, no provision has been made for federal or state
income taxes. Interest and penalties associated with any federal or state income
tax obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income are declared
daily and paid monthly. Distributions from net realized gains, if any, are
generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect the
differing character of paydown losses, interest on swap agreements, certain
income items and net realized gains and losses for financial statement and tax
purposes, and may result in reclassification among certain capital accounts on
the financial statements.
As of December 31, 2007, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $(8,009,558), which may be used to
offset future taxable gains. Capital loss carryovers of $(721,603), $(3,476,419)
and $(3,811,536) expire in 2013, 2014 and 2015, respectively.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
- ------
18
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require management to make certain estimates and assumptions at the date of
the financial statements. Actual results could differ from these estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACIM, under which ACIM provides the fund with investment advisory and management
services in exchange for a single, unified management fee (the fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. The fee consists of (1) an Investment
Category Fee based on the daily net assets of the funds and certain other
accounts managed by the investment advisor that are in the same broad investment
category as the fund and (2) a Complex Fee based on the assets of all the funds
in the American Century Investments family of funds. The rates for the
Investment Category Fee range from 0.1625% to 0.2800%. The rates for the Complex
Fee range from 0.2500% to 0.3100%. The effective annual management fee for each
class of the fund for the six months ended June 30, 2008 was 0.48% for Class I
and Class II.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master Distribution
Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940 Act. The plan
provides that Class II will pay American Century Investment Services, Inc.
(ACIS) an annual distribution fee equal to 0.25%. The fee is computed and
accrued daily based on the Class II daily net assets and paid monthly in
arrears. The distribution fee provides compensation for expenses incurred in
connection with distributing shares of Class II including, but not limited to,
payments to brokers, dealers, and financial institutions that have entered into
sales agreements with respect to shares of the fund. Fees incurred under the
plan during the six months ended June 30, 2008, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services, LLC.
Effective May 15, 2008, the fund is eligible to invest in a money market fund
for temporary purposes, which is managed by J.P. Morgan Investment Management,
Inc. (JPMIM). JPMIM is a wholly owned subsidiary of JPMorgan Chase & Co. (JPM).
JPM is an equity investor in ACC. JPMorgan Chase Bank is a custodian of the fund
and a wholly owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for the
six months ended June 30, 2008, totaled $329,848,404, of which $327,479,912
represented U.S. Treasury and Agency obligations.
Sales of investment securities, excluding short-term investments, for the six
months ended June 30, 2008, totaled $186,745,363, of which $181,822,466
represented U.S. Treasury and Agency obligations.
As of June 30, 2008, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes were as follows:
Federal tax cost of investments $763,003,327
==============
Gross tax appreciation of investments $21,106,977
Gross tax depreciation of investments (6,172,058)
--------------
Net tax appreciation (depreciation) of investments $14,934,919
==============
The difference between book-basis and tax-basis cost and unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales.
- ------
19
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended June 30, 2008 Year ended December 31, 2007
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 250,000,000 250,000,000
============ ============
Sold 4,296,473 $46,369,766 2,080,742 $21,237,789
Issued in
reinvestment of
distributions 221,030 2,372,129 211,089 2,146,223
Redeemed (914,654) (9,750,016) (928,167) (9,494,128)
------------ ------------ ------------ -------------
3,602,849 38,991,879 1,363,664 13,889,884
------------ ------------ ------------ -------------
CLASS II/SHARES
AUTHORIZED 250,000,000 250,000,000
============ ============
Sold 18,922,968 203,278,296 12,261,922 124,922,667
Issued in
reinvestment of
distributions 1,615,435 17,354,357 2,241,654 22,744,318
Redeemed (7,289,495) (78,225,820) (10,219,134) (103,998,575)
------------ ------------ ------------ -------------
13,248,908 142,406,833 4,284,442 43,668,410
------------ ------------ ------------ -------------
Net increase
(decrease) 16,851,757 $181,398,712 5,648,106 $57,558,294
============ ============= ============ =============
5. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by the
fund. In conformity with accounting principles generally accepted in the United
States of America, the inputs used to determine a valuation are classified into
three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect observable
market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is significant
to the fair valuation measurement. The valuation inputs are not an indication of
the risks associated with investing in these securities or other financial
instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Value of Unrealized Gain
Investment (Loss) on Other
Valuation Inputs Securities Financial Instruments*
Level 1 -- Quoted Prices -- --
Level 2 -- Other Significant
Observable Inputs $777,938,246 $5,752,110
Level 3 -- Significant Unobservable
Inputs -- --
------------- -------------
$777,938,246 $5,752,110
============= =============
*Includes swap agreements.
- ------
20
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America, N.A.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund did
not borrow from the line during the six months ended June 30, 2008.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in September
2006, which is effective for fiscal years beginning after November 15, 2007. FAS
157 defines fair value, establishes a framework for measuring fair value and
expands the required financial statement disclosures about fair value
measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal
years beginning after November 15, 2008. FAS 161 amends and expands disclosures
about derivative instruments and hedging activities. FAS 161 requires
qualitative disclosures about the objectives and strategies of derivative
instruments, quantitative disclosures about the fair value amounts of and gains
and losses on derivative instruments, and disclosures of credit-risk-related
contingent features in hedging activities. Management is currently evaluating
the impact that adopting FAS 161 will have on the financial statement
disclosures.
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21
FINANCIAL HIGHLIGHTS
VP Inflation Protection
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $10.55 $10.09 $10.26 $10.55 $10.07
-------- ------- ------- ------- --------
Income From
Investment Operations
Net Investment
Income (Loss) 0.30 0.49 0.34(3) 0.47 0.24
Net Realized and
Unrealized Gain (Loss) 0.10 0.46 (0.15) (0.28) 0.48
-------- ------- ------- ------- --------
Total From
Investment Operations 0.40 0.95 0.19 0.19 0.72
-------- ------- ------- ------- --------
Distributions
From Net
Investment Income (0.30) (0.49) (0.36) (0.47) (0.24)
From Net
Realized Gains -- -- -- (0.01) --
-------- ------- ------- ------- --------
Total Distributions (0.30) (0.49) (0.36) (0.48) (0.24)
-------- ------- ------- ------- --------
Net Asset Value,
End of Period $10.65 $10.55 $10.09 $10.26 $10.55
======== ======= ======= ======= ========
TOTAL RETURN(4) 3.81% 9.66% 1.90% 1.81% 7.37%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets 0.49%(5) 0.50% 0.50% 0.50% 0.49%(5)
Ratio of Net Investment Income
(Loss) to
Average Net Assets 5.67%(5) 4.75% 3.37% 4.85% 3.52%(5)
Portfolio Turnover Rate 29% 109% 96% 82% 108%(6)
Net Assets, End of Period (in
thousands) $94,141 $55,277 $39,096 $29,040 $11,319
(1) Six months ended June 30, 2008 (unaudited).
(2) May 7, 2004 (commencement of sale) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated was
calculated for the year ended December 31, 2004.
See Notes to Financial Statements.
- ------
22
VP Inflation Protection
Class II
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.55 $10.08 $10.26 $10.55 $10.31 $10.00
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss) 0.29 0.46 0.32(2) 0.45 0.35 0.24
Net Realized
and
Unrealized
Gain (Loss) 0.09 0.47 (0.16) (0.28) 0.25 0.31
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.38 0.93 0.16 0.17 0.60 0.55
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.29) (0.46) (0.34) (0.45) (0.35) (0.24)
From Net
Realized
Gains -- -- -- (0.01) (0.01) --(3)
-------- -------- -------- -------- -------- --------
Total
Distributions (0.29) (0.46) (0.34) (0.46) (0.36) (0.24)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $10.64 $10.55 $10.08 $10.26 $10.55 $10.31
======== ======== ======== ======== ======== ========
TOTAL RETURN(4) 3.59% 9.49% 1.59% 1.56% 5.81% 5.61%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 0.74%(5) 0.75% 0.75% 0.75% 0.74% 0.74%(6)
Ratio of Net
Investment
Income (Loss) to
Average Net
Assets 5.42%(5) 4.50% 3.12% 4.60% 3.40% 2.00%(6)
Portfolio
Turnover Rate 29% 109% 96% 82% 108% 198%
Net Assets, End
of
Period (in
thousands) $697,100 $551,066 $483,692 $418,424 $199,885 $33,829
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized. The total return of the classes may not precisely reflect the class
expense differences because of the impact of calculating the net asset values to
two decimal places. If net asset values were calculated to three decimal places,
the total return differences would more closely reflect the class expense
differences. The calculation of net asset values to two decimal places is made
in accordance with SEC guidelines and does not result in any gain or loss of
value between one class and another.
(5) Annualized.
(6) ACIM waived its distribution fee from December 31, 2002 through March 31,
2003. Had fees not been waived, the annualized ratio of operating expenses to
average net assets and the annualized ratio of net investment income (loss) to
average net assets would have been 0.75% and 1.99%, respectively.
See Notes to Financial Statements.
- ------
23
APPROVAL OF MANAGEMENT AGREEMENT
VP Inflation Protection
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the "15(c)
Process." The board of directors oversees on a continuous basis and evaluates at
its quarterly meetings, directly and through the committees of the board, the
nature and quality of significant services provided by the advisor, the
investment performance of the fund, shareholder services, audit and compliance
functions and a variety of other matters relating to fund operations. Each year,
it also holds a special meeting in connection with determining whether to renew
the contracts for advisory services, to review fund performance, shareholder
services, adviser profitability, audit and compliance matters, and other fund
operational matters.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process, the Directors reviewed extensive data and
information compiled by the advisor and certain independent providers of
evaluative data (the "15(c) Providers") concerning VP Inflation Protection (the
"fund") and the services provided to the fund under the management agreement.
The information considered and the discussions held at the meetings included,
but were not limited to:
* the nature, extent and quality of investment management, shareholder services
and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to the
fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a peer
group of other mutual funds with similar investment objectives and strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors at a special meeting
and at a regularly scheduled quarterly meeting reviewed and discussed the
information provided by the advisor throughout the year and to negotiate with
the advisor the renewal of the management agreement, including the setting of
the applicable advisory fee. The board had the benefit of the advice of its
independent counsel throughout the period.
- ------
24
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, an
independent data provider, and the board's independent counsel, and evaluated
such information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES - GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal-services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry, changing distribution channels and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board and
committee meetings.
- ------
25
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objectives and approved strategies.
In providing these services, the advisor utilizes teams of investment
professionals (portfolio managers, analysts, research assistants, and securities
traders) who require extensive information technology, research, training,
compliance and other systems to conduct their business. At each quarterly
meeting and at the special meeting to consider renewal of the advisory contract,
the Directors, directly and through its Portfolio Committee, reviews investment
performance information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
If performance concerns are identified, the Directors discuss with the advisor
the reasons for such results (e.g., market conditions, security and sector
selection) and any efforts being undertaken to improve performance. The fund's
performance fell below its benchmark for both the one- and three-year periods
during the past year. The board discussed the fund's performance with the
advisor and was satisfied with the efforts being undertaken by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors, directly and through the various Committees of the Board, review
reports and evaluations of such services at their regular quarterly meetings and
at its special meeting to consider renewal of the Advisory Contract, including
the annual meeting concerning contract review, and reports to the board. These
reports include, but are not limited to, information regarding the operational
efficiency and accuracy of the shareholder and transfer agency services
provided, staffing levels, shareholder satisfaction (as measured by external as
well as internal sources), technology support, new products and services offered
to fund shareholders, securities trading activities, portfolio valuation
services, auditing services, and legal and operational compliance activities.
Certain aspects of shareholder and transfer agency service level efficiency and
the quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not managed
by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its financial
condition. The Directors have reviewed with the advisor the methodology used to
prepare this financial information. This financial information regarding the
advisor is considered in order to evaluate the advisor's financial condition,
its ability to continue to provide services under the management agreement, and
the reasonableness of the current management fee.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically. They
noted that the advisor's practices generally meet or exceed industry best
practices.
- ------
26
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional services
and content provided by the advisor and its reinvestment in its ability to
provide and expand those services. Accordingly, the Directors also seek to
evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of its
management of the fund specifically, and the expenses incurred by the advisor in
providing various functions to the fund. The Directors believe the advisor is
appropriately sharing economies of scale through its competitive fee structure,
fee breakpoints as the fund complex and the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services. In particular, separate breakpoint schedules based on the size of the
entire fund complex and on the size of the fund reflect the complexity of
assessing economies of scale.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other funds are charged a variety of fees,
including an investment advisory fee, a transfer agency fee, an administrative
fee, distribution charges and other expenses. Other than their investment
advisory fees and Rule 12b-1 distribution fees, all other components of the
total fees charged by these other funds may be increased without shareholder
approval. The board believes the unified fee structure is a benefit to fund
shareholders because it clearly discloses to shareholders the cost of owning
fund shares, and, since the unified fee cannot be increased without a vote of
fund shareholders, it shifts to the advisor the risk of increased costs of
operating the fund and provides a direct incentive to minimize administrative
inefficiencies. Part of the Directors' analysis of fee levels involves reviewing
certain evaluative data compiled by an independent provider and comparing the
fund's unified fee to the total expense ratio of other funds in the fund's peer
group. The unified fee charged to shareholders of the fund was in the lowest
quartile of the total expense ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
- ------
27
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker dealers that execute
fund portfolio transactions and concluded that this research is likely to
benefit fund shareholders. The Directors also determined that the advisor is
able to provide investment management services to certain clients other than the
fund, at least in part, due to its existing infrastructure built to serve the
fund complex. The Directors concluded, however, that the assets of those other
clients are not material to the analysis and, in any event, are included with
the assets of the fund to determine breakpoints in the fund's fee schedule,
provided they are managed using the same investment team and strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the Directors, in the absence of particular
circumstances and assisted by the advice of legal counsel that is independent of
the advisor, taking into account all of the factors discussed above and the
information provided by the advisor and others concluded that the investment
management agreement between the fund and the advisor is fair and reasonable in
light of the services provided and should be renewed.
- ------
28
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century Investments' website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its website at ipro.americancentury.com (for Investment Professionals) and, upon
request, by calling 1-800-378-9878.
- ------
29
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. They are not investment
products available for purchase.
The CITIGROUP US BROAD INVESTMENT-GRADE (BIG) BOND INDEX is a market-
capitalization-weighted index that includes fixed-rate Treasury,
government-sponsored, mortgage, asset-backed, and investment-grade issues with a
maturity of one year or longer.
The CITIGROUP US INFLATION-LINKED SECURITIES INDEX (ILSI)SM measures the return
of bonds with fixed-rate coupon payments that adjust for inflation as measured
by the Consumer Price Index (CPI).
- ------
30
NOTES
- ------
31
NOTES
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32
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[american century investments logo and text logo ®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE. . . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES . . . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF. . . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61148
ITEM 2. CODE OF ETHICS.
Not applicable for semiannual report filings.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semiannual report filings.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semiannual report filings.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) The schedule of investments is included as part of the report to
stockholders filed under Item 1 of this Form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by
which shareholders may recommend nominees to the registrant's board.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable for semiannual report filings.
(a)(2) Separate certifications by the registrant's principal executive
officer and principal financial officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are filed and attached hereto as Exhibit
99.302CERT.
(a)(3) Not applicable.
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
By: /s/ Jonathan S. Thomas
---------------------------------------------
Name: Jonathan S. Thomas
Title: President
Date: August 15, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Jonathan S. Thomas
---------------------------------------------
Name: Jonathan S. Thomas
Title: President
(principal executive officer)
Date: August 15, 2008
By: /s/ Robert J. Leach
---------------------------------------------
Name: Robert J. Leach
Title: Vice President, Treasurer, and
Chief Financial Officer
(principal financial officer)
Date: August 15, 2008