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 811-5188
---------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, 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)
DAVID C. TUCKER, ESQ., 4500 MAIN STREET, 9TH FLOOR, KANSAS CITY, MISSOURI 64111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 816-531-5575
----------------------------
Date of fiscal year end: DECEMBER 31, 2003
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Date of reporting period: JUNE 30, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
JUNE 30, 2004
American Century Variable Portfolios
Semiannual Report
[photos]
VP Balanced Fund
[american century logo and text logo (reg.tm)]
[inside front cover - blank]
[inside front cover]
Table of Contents
VP BALANCED
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Stock Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Top Five Stock Industries . . . . . . . . . . . . . . . . . . . . . . . . . 4
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . . . 5
Key Fixed-Income Portfolio Statistics . . . . . . . . . . . . . . . . . . . 5
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 13
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .15
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 16
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
OTHER INFORMATION
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
VP Balanced - Performance
TOTAL RETURNS AS OF JUNE 30, 2004
--------------------------------
AVERAGE ANNUAL RETURNS
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SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
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CLASS I 11.98% 1.98% 8.01% 7.76% 5/1/91
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BLENDED INDEX 11.36% 1.76% 10.38% 9.89%(1) --
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S&P 500 INDEX 19.11% -2.20% 11.83% 11.06%(1) --
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LEHMAN BROTHERS U.S.
AGGREGATE INDEX 0.32% 6.95% 7.39% 7.46%(1) --
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(1) Since 4/30/91, the date nearest the fund's inception for which data are
available.
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 the 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.
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 indices 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 indices do not.
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2
VP Balanced - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made June 30, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended June 30
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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Class I 16.23% 13.17% 16.18% 21.61% 5.39% 7.00% -5.41% -7.95% 5.71% 11.98%
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Blended Index 20.55% 17.23% 23.63% 22.21% 15.21% 6.43% -4.78% -7.77% 4.85% 11.36%
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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.
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 indices 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 indices do not.
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3
VP Balanced - Portfolio Commentary
BY JEFF TYLER (EQUITY TEAM LEADER) AND JEFF HOUSTON (FIXED-INCOME TEAM LEADER)
PERFORMANCE SUMMARY
VP Balanced returned 2.84% for the six months ended June 30, 2004, better than
the 2.13% return of its blended index (defined on page 20). U.S. stock gains
were mostly responsible for the portfolio's and the blended index's performance;
U.S. bond returns were relatively flat. The portfolio beat the blended index
primarily because VP Balanced's stock holdings outperformed the blended index's
equity component, the S&P 500 Index.
ECONOMIC & STOCK MARKET REVIEW
The S&P 500 returned 3.44% for the six months after falling into negative
territory in March and May. Stocks enjoyed a favorable start--the index was up
over 4% by February 11, its peak for 2004. But terrorism concerns resurfaced
during the first quarter of 2004, and the government released a string of
disappointing monthly payroll employment reports, making investors question the
sustainability of high corporate earnings growth and stock valuation levels.
Investor anxiety mounted for a different reason in the second quarter of 2004,
when the economic news triggered fears that higher interest rates would stifle
growth. Government reports of faster job creation and higher inflation raised
expectations that the Federal Reserve would raise interest rates as early as
June 2004 (which it did, on June 30). The S&P 500 bottomed for the period on May
17 as the impact of interest rate concerns overrode stellar first-quarter
corporate earnings. But the market bounced back, returning the broad index
returns to positive territory in June, as weaker economic data eased fears of
aggressive interest rate hikes and investors anticipated strong second-quarter
corporate earnings.
Though higher oil prices hindered the broad market by raising concerns about
slower economic growth, the energy sector (up nearly 13%) led the S&P 500.
Energy was also one of the biggest contributors to index performance, along with
industrials and consumer staples (up 7% and 6%, respectively). The
VP BALANCED'S TOP TEN STOCK HOLDINGS
AS OF JUNE 30, 2004
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% OF EQUITY % OF
PORTFOLIO S&P 500
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Microsoft Corporation 3.1% 2.9%
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Johnson & Johnson 3.0% 1.6%
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International Business
Machines Corp. 2.9% 1.4%
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Bank of America Corp. 2.5% 1.6%
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Pfizer, Inc. 2.5% 2.5%
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ChevronTexaco Corp. 2.4% 1.0%
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TXU Corp. 2.1% 0.1%
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Disney (Walt) Co. 2.1% 0.5%
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Time Warner Inc. 2.1% 0.8%
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J.P. Morgan Chase & Co. 2.0% 0.8%
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VP BALANCED'S TOP FIVE STOCK INDUSTRIES
AS OF JUNE 30, 2004
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% OF EQUITY % OF
PORTFOLIO S&P 500
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Commercial Banks 6.1% 6.3%
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Pharmaceuticals 6.0% 7.9%
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Oil & Gas 5.8% 5.7%
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Media 5.8% 3.6%
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Electric Utilities 4.7% 1.9%
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(continued)
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4
VP Balanced - Portfolio Commentary
lowest sector return in the index was information technology (up 0.3%).
STOCK PORTFOLIO REVIEW
VP Balanced's equity holdings returned approximately 5.5% for the six months.
Consumer staples, utilities, and energy (up 20%, 32%, and 14%, respectively)
were the sectors that contributed most to performance, while information
technology and telecommunication services (-5% and -2%, respectively) detracted
most.
Our equity investment goal is to outperform the S&P 500 without taking on
significant additional risk, utilizing a two-step process that uses computer
models as key tools in decision-making. Our biggest positive contribution to VP
Balanced's relative equity performance was stock selection in the consumer
staples, utilities, materials, and financials sectors, where the portfolio
significantly outperformed the index. That more than offset less favorable
selections and relative underperformance in the health care, telecommunication
services, industrials, and information technology sectors.
BOND PORTFOLIO REVIEW
The blended index's bond component (the Lehman Brothers U.S. Aggregate Index, or
LBA) returned 0.15% for the six months. Its 2.66% gain in the first quarter of
2004 was almost completely erased by a 2.44% decline in the second quarter.
The LBA and VP Balanced's bond portfolio consisted primarily of the taxable
investment-grade U.S. bond market's three largest sectors: fixed-rate
mortgage-backed securities (MBS), Treasury securities, and corporate bonds. In
the LBA, MBS (0.77% return) led for the six months, followed by Treasurys
(-0.20%) and corporates (-0.26%).
We reduced our corporate holdings and added Treasurys. Treasury yields spiked
during the period, resulting in relatively attractive prices. We also shortened
the portfolio's duration (reduced its price sensitivity to interest rate
changes) in anticipation of additional increases in interest rates later this
year.
CONCLUSION
As always, we will continue to pursue VP Balanced's investment objective --
seeking long-term capital growth and current income.
TYPES OF INVESTMENTS IN PORTFOLIO
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AS OF AS OF
6/30/04 12/31/03
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Common Stocks 57.7% 57.6%
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U.S. Government Agency
Mortgage-Backed
Securities 10.7% 10.5%
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U.S. Treasury Securities 10.0% 9.5%
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Corporate Bonds 9.1% 10.5%
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U.S. Government
Agency Securities 4.7% 2.7%
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Asset-Backed Securities
and Collateralized
Mortgage Obligations 2.3% 3.0%
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Other* 5.5% 6.2%
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*Includes temporary cash investments
KEY FIXED-INCOME PORTFOLIO STATISTICS
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AS OF AS OF
6/30/04 12/31/03
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Weighted Average
Maturity 4.7 yrs 5.1 yrs
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Average Duration
(modified) 3.9 yrs 4.3 yrs
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5
VP Balanced - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 57.7%
AEROSPACE & DEFENSE -- 0.2%
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7,328 Boeing Co. $ 374,388
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AIR FREIGHT & LOGISTICS -- 0.5%
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1,494 FedEx Corporation 122,045
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11,836 United Parcel Service, Inc. Cl B 889,712
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1,011,757
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AIRLINES -- 0.1%
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11,804 Southwest Airlines Co. 197,953
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AUTOMOBILES -- 1.2%
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164,916 Ford Motor Company 2,580,935
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BEVERAGES -- 1.9%
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28,191 Adolph Coors Company Cl B 2,039,337
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73,148 Coca-Cola Enterprises 2,120,560
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4,159,897
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BIOTECHNOLOGY -- 0.5%
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18,725 Amgen Inc.(1) 1,021,823
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CAPITAL MARKETS -- 1.6%
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13,359 Edwards (A.G.), Inc. 454,607
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1,887 Goldman Sachs Group, Inc.
(The) 177,680
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67,109 J.P. Morgan Chase & Co. 2,601,816
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457 Lehman Brothers Holdings Inc. 34,389
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360 Merrill Lynch & Co., Inc. 19,433
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5,822 Morgan Stanley 307,227
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3,595,152
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CHEMICALS -- 0.7%
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38,623 Monsanto Co. 1,486,986
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COMMERCIAL BANKS -- 3.4%
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38,903 Bank of America Corp. 3,291,971
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57,400 National City Corp. 2,009,574
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44,536 Wachovia Corp. 1,981,852
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10,975 Wells Fargo & Co. 628,099
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7,911,496
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COMMERCIAL SERVICES & SUPPLIES -- 1.2%
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3,595 Block (H & R), Inc. 171,410
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49,924 Cendant Corporation 1,222,140
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54,630 Equifax Inc. 1,352,092
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2,745,642
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COMMUNICATIONS EQUIPMENT -- 1.8%
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8,727 Aspect Communications
Corporation(1) 123,923
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67,224 Cisco Systems Inc.(1) 1,593,209
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133,115 Motorola, Inc. 2,429,349
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4,146,481
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Shares Value
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.0%
- --------------------------------------------------------------------------------
4,961 Dell Inc.(1)(2) $ 177,703
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22,299 Hewlett-Packard Co. 470,509
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42,164 International Business
Machines Corp. 3,716,757
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2,184 Storage Technology Corp.(1) 63,336
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4,428,305
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CONSUMER FINANCE -- 0.9%
- --------------------------------------------------------------------------------
10,689 American Express Co. 549,201
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11,389 Capital One Financial Corp. 778,780
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13,635 CompuCredit Corp.(1) 235,886
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14,775 MBNA Corporation 381,047
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3,312 WFS Financial Inc.(1) 163,977
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2,108,891
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DIVERSIFIED -- 0.4%
- --------------------------------------------------------------------------------
6,928 Standard and Poor's 500
Depositary Receipt 793,464
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DIVERSIFIED FINANCIAL SERVICES -- 0.5%
- --------------------------------------------------------------------------------
22,286 Citigroup Inc. 1,036,299
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DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%
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3,411 ALLTEL Corp. 172,665
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6,577 AT&T Corp. 96,222
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45,638 BellSouth Corp. 1,196,628
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1,567 CenturyTel Inc. 47,073
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7,879 SBC Communications Inc. 191,066
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16,191 Sprint Corp. 284,962
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33,989 Verizon Communications 1,230,061
- --------------------------------------------------------------------------------
3,218,677
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 2.6%
- --------------------------------------------------------------------------------
100,924 CenterPoint Energy, Inc. 1,160,626
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76,882 Edison International 1,965,873
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5,459 PG&E Corp.(1) 152,524
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68,658 TXU Corp. 2,781,336
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6,060,359
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.6%
- --------------------------------------------------------------------------------
39,831 Arrow Electronics, Inc.(1) 1,068,268
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16,933 Avnet Inc.(1) 384,379
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1,452,647
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ENERGY EQUIPMENT & SERVICES -- 0.5%
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369 Baker Hughes Inc. 13,893
- --------------------------------------------------------------------------------
17,697 Schlumberger Ltd. 1,123,936
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1,137,829
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FOOD & STAPLES RETAILING -- 0.9%
- --------------------------------------------------------------------------------
4,358 7-Eleven Inc.(1) 77,790
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62,513 Supervalu Inc. 1,913,523
- --------------------------------------------------------------------------------
1,991,313
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See Notes to Financial Statements. (continued)
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6
VP Balanced - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.6%
- --------------------------------------------------------------------------------
25,949 Corn Products International Inc. $ 1,207,926
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111,954 Tyson Foods, Inc. Cl A 2,345,436
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3,553,362
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HEALTH CARE EQUIPMENT & SUPPLIES -- 0.8%
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34,080 Becton Dickinson & Co. 1,765,344
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HEALTH CARE PROVIDERS & SERVICES -- 1.1%
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33,972 AmerisourceBergen Corp. 2,030,846
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3,708 Andrx Corp.(1) 103,564
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148 Anthem, Inc.(1) 13,255
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1,272 Cardinal Health, Inc. 89,104
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8,762 Humana Inc.(1) 148,078
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2,384,847
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HOTELS, RESTAURANTS & LEISURE -- 1.0%
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86,299 McDonald's Corporation 2,243,774
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HOUSEHOLD DURABLES -- 1.9%
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26,863 Black & Decker Corporation 1,668,998
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7,643 KB Home 524,539
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3,530 NVR, Inc.(1) 1,709,226
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7,639 Stanley Works (The) 348,186
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4,250,949
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HOUSEHOLD PRODUCTS -- 0.8%
- --------------------------------------------------------------------------------
10,173 Energizer Holdings, Inc.(1) 457,785
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237 Kimberly-Clark Corp. 15,614
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22,912 Procter & Gamble Co. (The) 1,247,329
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1,720,728
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INDUSTRIAL CONGLOMERATES -- 0.7%
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559 3M Co. 50,316
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48,617 Tyco International Ltd. 1,611,167
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1,661,483
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INSURANCE -- 2.1%
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33,885 Ace, Ltd. 1,432,658
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11,480 American International Group,
Inc. 818,294
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35,341 Berkley (W.R.) Corp. 1,517,897
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7,787 Hartford Financial Services
Group Inc. (The) 535,278
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1,258 Nationwide Financial Services
Inc 47,313
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1,481 Odyssey Re Holdings Corp. 35,544
- --------------------------------------------------------------------------------
6,497 St. Paul Companies, Inc. 263,388
- --------------------------------------------------------------------------------
4,650,372
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 0.6%
- --------------------------------------------------------------------------------
70,325 Earthlink Inc.(1) 727,864
- --------------------------------------------------------------------------------
13,642 United Online, Inc.(1) 240,236
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16,648 VeriSign, Inc.(1) 331,295
- --------------------------------------------------------------------------------
1,299,395
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
IT SERVICES -- 0.8%
- --------------------------------------------------------------------------------
13,284 Acxiom Corp. $ 329,842
- --------------------------------------------------------------------------------
973 Checkfree Corp.(1) 29,190
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31,694 Computer Sciences Corp.(1) 1,471,552
- --------------------------------------------------------------------------------
1,830,584
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 1.2%
- --------------------------------------------------------------------------------
79,363 Eastman Kodak Co. 2,141,214
- --------------------------------------------------------------------------------
34,717 Hasbro, Inc. 659,623
- --------------------------------------------------------------------------------
2,800,837
- --------------------------------------------------------------------------------
MEDIA -- 3.2%
- --------------------------------------------------------------------------------
106,191 Disney (Walt) Co. 2,706,808
- --------------------------------------------------------------------------------
8,741 McGraw-Hill Companies, Inc.
(The) 669,298
- --------------------------------------------------------------------------------
42,645 PanAmSat Corp.(1) 990,217
- --------------------------------------------------------------------------------
19,272 Regal Entertainment Group 348,823
- --------------------------------------------------------------------------------
152,112 Time Warner Inc.(1) 2,674,129
- --------------------------------------------------------------------------------
2,054 Viacom, Inc. Cl B 73,369
- --------------------------------------------------------------------------------
7,462,644
- --------------------------------------------------------------------------------
METALS & MINING -- 0.2%
- --------------------------------------------------------------------------------
4,941 Phelps Dodge Corp.(1) 382,977
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.5%
- --------------------------------------------------------------------------------
50,778 Federated Department Stores,
Inc. 2,493,200
- --------------------------------------------------------------------------------
28,743 May Department Stores Co.
(The) 790,145
- --------------------------------------------------------------------------------
3,283,345
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS(3)
- --------------------------------------------------------------------------------
5,277 Xerox Corp.(1) 76,517
- --------------------------------------------------------------------------------
OIL & GAS -- 3.3%
- --------------------------------------------------------------------------------
33,650 ChevronTexaco Corp. 3,166,801
- --------------------------------------------------------------------------------
7,823 ConocoPhillips 596,817
- --------------------------------------------------------------------------------
46,338 Exxon Mobil Corp. 2,057,870
- --------------------------------------------------------------------------------
20,446 Sunoco, Inc. 1,300,774
- --------------------------------------------------------------------------------
5,389 Valero Energy Corp. 397,493
- --------------------------------------------------------------------------------
7,519,755
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.2%
- --------------------------------------------------------------------------------
22,329 Georgia-Pacific Corp. 825,726
- --------------------------------------------------------------------------------
41,047 Louisiana-Pacific Corp. 970,762
- --------------------------------------------------------------------------------
20,296 Potlatch Corp. 845,125
- --------------------------------------------------------------------------------
2,641,613
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 1.1%
- --------------------------------------------------------------------------------
55,793 Gillette Company 2,365,623
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 3.4%
- --------------------------------------------------------------------------------
70,772 Johnson & Johnson 3,942,000
- --------------------------------------------------------------------------------
3,454 Merck & Co., Inc. 164,065
- --------------------------------------------------------------------------------
21,351 Perrigo Co. 405,028
- --------------------------------------------------------------------------------
95,046 Pfizer, Inc. 3,258,177
- --------------------------------------------------------------------------------
7,769,270
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
7
VP Balanced - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
REAL ESTATE -- 0.1%
- --------------------------------------------------------------------------------
5,603 Plum Creek Timber Co. Inc. $ 182,546
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.1%
- --------------------------------------------------------------------------------
400 Burlington Northern Santa Fe
Corp. 14,028
- --------------------------------------------------------------------------------
2,945 Union Pacific Corp. 175,080
- --------------------------------------------------------------------------------
189,108
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 1.0%
- --------------------------------------------------------------------------------
11,560 Atmel Corporation(1) 68,435
- --------------------------------------------------------------------------------
73,550 Intel Corp. 2,029,981
- --------------------------------------------------------------------------------
4,269 Texas Instruments Inc. 103,224
- --------------------------------------------------------------------------------
2,201,640
- --------------------------------------------------------------------------------
SOFTWARE -- 1.8%
- --------------------------------------------------------------------------------
139,820 Microsoft Corporation 3,993,259
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.1%
- --------------------------------------------------------------------------------
23,460 Barnes & Noble Inc.(1) 797,171
- --------------------------------------------------------------------------------
7,707 Blockbuster Inc. 116,992
- --------------------------------------------------------------------------------
18,332 Claire's Stores Inc. 397,804
- --------------------------------------------------------------------------------
34,097 Gap, Inc. (The) 826,852
- --------------------------------------------------------------------------------
852 Home Depot, Inc. 29,990
- --------------------------------------------------------------------------------
17,720 RadioShack Corp. 507,324
- --------------------------------------------------------------------------------
31,260 Rent-A-Center Inc.(1) 935,612
- --------------------------------------------------------------------------------
24,680 Sherwin-Williams Co. 1,025,455
- --------------------------------------------------------------------------------
4,637,200
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.7%
- --------------------------------------------------------------------------------
33,442 Countrywide Financial
Corporation 2,349,301
- --------------------------------------------------------------------------------
3,040 Doral Financial Corp. 104,880
- --------------------------------------------------------------------------------
10,700 Fannie Mae 763,552
- --------------------------------------------------------------------------------
11,009 New Century Financial Corp. 515,441
- --------------------------------------------------------------------------------
3,733,174
- --------------------------------------------------------------------------------
TOBACCO -- 1.0%
- --------------------------------------------------------------------------------
34,692 R.J. Reynolds Tobacco
Holdings, Inc. 2,344,832
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.5%
- --------------------------------------------------------------------------------
43,682 Nextel Communications, Inc.(1) 1,164,562
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $107,590,057) 129,570,034
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(4) -- 10.7%
$ 168,544 FHLMC, 7.00%, 11/1/13 178,845
- --------------------------------------------------------------------------------
244,878 FHLMC, 6.50%, 6/1/16 258,768
- --------------------------------------------------------------------------------
310,309 FHLMC, 6.50%, 6/1/16 327,910
- --------------------------------------------------------------------------------
2,155,376 FHLMC, 5.00%, 11/1/17 2,162,855
- --------------------------------------------------------------------------------
1,379,999 FHLMC, 4.50%, 1/1/19 1,351,559
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 76,231 FHLMC, 6.50%, 1/1/28 $ 79,766
- --------------------------------------------------------------------------------
54,980 FHLMC, 6.50%, 6/1/29 57,427
- --------------------------------------------------------------------------------
78,994 FHLMC, 8.00%, 7/1/30 85,780
- --------------------------------------------------------------------------------
1,615,770 FHLMC, 5.00%, 8/1/33 1,564,714
- --------------------------------------------------------------------------------
1,280,497 FHLMC, 5.50%, 12/1/33 1,278,835
- --------------------------------------------------------------------------------
250,000 FHLMC, settlement date
7/15/04, 6.00%, 7/15/34(5) 255,313
- --------------------------------------------------------------------------------
1,750,000 FHLMC, settlement date
7/20/04, 5.00%, 3/15/19(5) 1,751,094
- --------------------------------------------------------------------------------
387,299 FNMA, 5.50%, 12/1/08 399,882
- --------------------------------------------------------------------------------
22,772 FNMA, 6.50%, 11/1/11 24,109
- --------------------------------------------------------------------------------
62,851 FNMA, 6.00%, 4/1/13 65,685
- --------------------------------------------------------------------------------
21,155 FNMA, 6.00%, 4/1/13 22,109
- --------------------------------------------------------------------------------
33,604 FNMA, 6.00%, 5/1/13 35,120
- --------------------------------------------------------------------------------
120,450 FNMA, 6.50%, 6/1/13 127,505
- --------------------------------------------------------------------------------
19,323 FNMA, 6.50%, 6/1/13 20,455
- --------------------------------------------------------------------------------
33,624 FNMA, 6.00%, 7/1/13 35,140
- --------------------------------------------------------------------------------
281,409 FNMA, 6.00%, 1/1/14 294,098
- --------------------------------------------------------------------------------
42,944 FNMA, 6.50%, 1/1/28 44,891
- --------------------------------------------------------------------------------
97,133 FNMA, 7.00%, 1/1/28 102,950
- --------------------------------------------------------------------------------
140,368 FNMA, 6.50%, 1/1/29 146,544
- --------------------------------------------------------------------------------
130,860 FNMA, 7.50%, 7/1/29 140,365
- --------------------------------------------------------------------------------
82,728 FNMA, 7.50%, 9/1/30 88,686
- --------------------------------------------------------------------------------
196,916 FNMA, 6.50%, 1/1/32 205,355
- --------------------------------------------------------------------------------
867,924 FNMA, 5.50%, 6/1/33 866,278
- --------------------------------------------------------------------------------
906,018 FNMA, 5.50%, 8/1/33 904,300
- --------------------------------------------------------------------------------
2,701,811 FNMA, 5.50%, 1/1/34 2,696,688
- --------------------------------------------------------------------------------
1,834,700 FNMA, settlement date
7/15/04, 6.00%, 7/15/34(5) 1,873,115
- --------------------------------------------------------------------------------
375,000 FNMA, settlement date
7/15/04, 6.50%, 7/15/34(5) 390,469
- --------------------------------------------------------------------------------
640,000 FNMA, settlement date
7/20/04, 5.50%, 6/25/18(5) 654,600
- --------------------------------------------------------------------------------
2,850,000 FNMA, settlement date
7/20/04, 5.00%, 3/25/19(5) 2,853,563
- --------------------------------------------------------------------------------
180,732 GNMA, 7.00%, 4/20/26 192,502
- --------------------------------------------------------------------------------
105,694 GNMA, 7.50%, 8/15/26 114,180
- --------------------------------------------------------------------------------
82,536 GNMA, 7.00%, 2/15/28 87,841
- --------------------------------------------------------------------------------
97,450 GNMA, 7.50%, 2/15/28 105,185
- --------------------------------------------------------------------------------
63,219 GNMA, 6.50%, 3/15/28 66,228
- --------------------------------------------------------------------------------
102,080 GNMA, 6.50%, 3/15/28 106,939
- --------------------------------------------------------------------------------
16,643 GNMA, 6.50%, 5/15/28 17,435
- --------------------------------------------------------------------------------
9,373 GNMA, 6.50%, 5/15/28 9,820
- --------------------------------------------------------------------------------
136,365 GNMA, 7.00%, 12/15/28 145,130
- --------------------------------------------------------------------------------
80,852 GNMA, 8.00%, 12/15/29 88,691
- --------------------------------------------------------------------------------
425,441 GNMA, 7.00%, 5/15/31 452,226
- --------------------------------------------------------------------------------
1,289,440 GNMA, 5.50%, 11/15/32 1,291,009
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $23,941,672) 24,021,959
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
VP Balanced - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 10.0%
$1,500,000 U.S. Treasury Bonds, 8.00%,
11/15/21 $ 1,966,524
- --------------------------------------------------------------------------------
1,300,000 U.S. Treasury Bonds, 6.25%,
8/15/23 1,439,954
- --------------------------------------------------------------------------------
350,000 U.S. Treasury Bonds, 5.375%,
2/15/31(2) 353,104
- --------------------------------------------------------------------------------
7,000,000 U.S. Treasury Notes, 2.00%,
8/31/05(2) 6,986,869
- --------------------------------------------------------------------------------
5,245,000 U.S. Treasury Notes, 2.375%,
8/15/06(2) 5,201,771
- --------------------------------------------------------------------------------
5,600,000 U.S. Treasury Notes, 3.125%,
5/15/07(2) 5,601,753
- --------------------------------------------------------------------------------
900,000 U.S. Treasury Notes, 4.00%,
6/15/09(2) 907,981
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $22,618,983) 22,457,956
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 9.1%
AUTO COMPONENTS -- 0.1%
- --------------------------------------------------------------------------------
100,000 Dana Corp., 6.50%, 3/1/09 104,500
- --------------------------------------------------------------------------------
100,000 Lear Corp., 8.11%, 5/15/09 114,021
- --------------------------------------------------------------------------------
218,521
- --------------------------------------------------------------------------------
AUTOMOBILES -- 0.2%
- --------------------------------------------------------------------------------
525,000 General Motors Corporation,
7.20%, 1/15/11 550,806
- --------------------------------------------------------------------------------
BEVERAGES -- 0.1%
- --------------------------------------------------------------------------------
250,000 Miller Brewing Co., 4.25%,
8/15/08 (Acquired 1/6/04,
Cost $254,055)(6) 249,013
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 0.4%
- --------------------------------------------------------------------------------
250,000 Goldman Sachs Group Inc.,
5.70%, 9/1/12 254,007
- --------------------------------------------------------------------------------
250,000 Goldman Sachs Group Inc.,
5.25%, 10/15/13 243,185
- --------------------------------------------------------------------------------
300,000 JP Morgan Chase & Co.,
4.875%, 3/15/14 283,176
- --------------------------------------------------------------------------------
100,000 Morgan Stanley, 4.25%,
5/15/10 98,255
- --------------------------------------------------------------------------------
878,623
- --------------------------------------------------------------------------------
CHEMICALS -- 0.2%
- --------------------------------------------------------------------------------
400,000 Crompton Corp., 8.50%,
3/15/05 414,120
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.4%
- --------------------------------------------------------------------------------
600,000 Bank of America Corp.,
4.375%, 12/1/10 585,600
- --------------------------------------------------------------------------------
250,000 Wells Fargo & Co., 4.95%,
10/16/13 242,338
- --------------------------------------------------------------------------------
827,938
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 0.4%
- --------------------------------------------------------------------------------
$ 250,000 Allied Waste North America,
Inc., Series 1998 B, 7.625%,
1/1/06 $ 263,438
- --------------------------------------------------------------------------------
150,000 Hutchison Whampoa
International Ltd., 5.45%,
11/24/10 (Acquired 11/19/03,
Cost $149,612)(6) 147,464
- --------------------------------------------------------------------------------
300,000 Quebecor World Capital Corp.,
6.125%, 11/15/13 286,276
- --------------------------------------------------------------------------------
100,000 RR Donnelley & Sons Co.,
3.75%, 4/1/09 (Acquired
3/3/04, Cost $99,852)(6) 96,722
- --------------------------------------------------------------------------------
793,900
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.2%
- --------------------------------------------------------------------------------
350,000 Ball Corp., 7.75%, 8/1/06 374,500
- --------------------------------------------------------------------------------
DIVERSIFIED -- 1.9%
- --------------------------------------------------------------------------------
29,300 iShares GS $ InvesTop
Corporate Bond Fund(7) 3,163,814
- --------------------------------------------------------------------------------
924,000 Morgan Stanley TRACERS(SM),
7.72%, 3/1/32 (Acquired
3/15/02-8/28/02, Cost
$969,573)(6) 1,033,942
- --------------------------------------------------------------------------------
4,197,756
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.9%
- --------------------------------------------------------------------------------
450,000 American General Finance
Corp., Series 2002 H, 4.50%,
11/15/07(2) 457,439
- --------------------------------------------------------------------------------
700,000 Citigroup Inc., 4.125%,
6/30/05 710,948
- --------------------------------------------------------------------------------
275,000 Ford Motor Credit Co., 5.80%,
1/12/09 277,858
- --------------------------------------------------------------------------------
300,000 Ford Motor Credit Co., 7.375%,
10/28/09 320,520
- --------------------------------------------------------------------------------
200,000 Ford Motor Credit Co., 7.00%,
10/1/13 202,234
- --------------------------------------------------------------------------------
1,968,999
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.7%
- --------------------------------------------------------------------------------
250,000 Ameritech Capital Funding,
6.25%, 5/18/09 266,018
- --------------------------------------------------------------------------------
5,000 AT&T Corp., 6.00%, 3/15/09 4,767
- --------------------------------------------------------------------------------
240,000 British Telecommunications plc,
7.00%, 5/23/07 259,328
- --------------------------------------------------------------------------------
48,000 Comcast Cable
Communications Holdings Inc.,
8.375%, 3/15/13 56,439
- --------------------------------------------------------------------------------
100,000 Deutsche Telekom International
Finance BV, 5.25%, 7/22/13 97,526
- --------------------------------------------------------------------------------
100,000 France Telecom, VRN, 8.75%,
3/1/11 116,033
- --------------------------------------------------------------------------------
450,000 Sprint Capital Corp., 8.375%,
3/15/12 517,948
- --------------------------------------------------------------------------------
300,000 Verizon New England Inc.,
4.75%, 10/1/13 280,916
- --------------------------------------------------------------------------------
1,598,975
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
9
VP Balanced - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.6%
- --------------------------------------------------------------------------------
$ 100,000 Pacific Gas & Electric Co.,
6.05%, 3/1/34 $ 94,368
- --------------------------------------------------------------------------------
350,000 Progress Energy Inc., 7.10%,
3/1/11 384,039
- --------------------------------------------------------------------------------
100,000 Tampa Electric Co., 6.375%,
8/15/12 103,722
- --------------------------------------------------------------------------------
550,000 Virginia Electric and Power
Co., 5.75%, 3/31/06 574,164
- --------------------------------------------------------------------------------
250,000 Virginia Electric and Power
Co., 5.25%, 12/15/15 242,016
- --------------------------------------------------------------------------------
1,398,309
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 0.3%
- --------------------------------------------------------------------------------
300,000 Delhaize America Inc.,
7.375%, 4/15/06 317,633
- --------------------------------------------------------------------------------
300,000 Safeway Inc., 6.50%, 3/1/11 318,297
- --------------------------------------------------------------------------------
635,930
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 0.3%
- --------------------------------------------------------------------------------
200,000 Mandalay Resort Group,
6.45%, 2/1/06 206,500
- --------------------------------------------------------------------------------
350,000 MGM Mirage, 6.00%, 10/1/09 344,750
- --------------------------------------------------------------------------------
200,000 Royal Caribbean Cruises Ltd.,
6.875%, 12/1/13 198,750
- --------------------------------------------------------------------------------
750,000
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.2%
- --------------------------------------------------------------------------------
500,000 Dial Corp., 7.00%, 8/15/06 536,196
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.2%
- --------------------------------------------------------------------------------
200,000 General Electric Capital Corp.,
4.25%, 12/1/10 194,709
- --------------------------------------------------------------------------------
350,000 General Electric Co., 5.00%,
2/1/13 345,053
- --------------------------------------------------------------------------------
539,762
- --------------------------------------------------------------------------------
INSURANCE -- 0.4%
- --------------------------------------------------------------------------------
250,000 Allstate Financial Global
Funding, 4.25%, 9/10/08
(Acquired 9/3/03, Cost
$249,510)(6) 250,443
- --------------------------------------------------------------------------------
250,000 American International Group
Inc., 4.25%, 5/15/13 231,954
- --------------------------------------------------------------------------------
250,000 Genworth Financial Inc.,
5.75%, 6/15/14 252,938
- --------------------------------------------------------------------------------
250,000 Monumental Global Funding II,
3.85%, 3/3/08 (Acquired
2/5/03, Cost $249,995)(6) 249,637
- --------------------------------------------------------------------------------
984,972
- --------------------------------------------------------------------------------
MEDIA -- 0.8%
- --------------------------------------------------------------------------------
450,000 Comcast Cable
Communications, 8.375%,
5/1/07 503,247
- --------------------------------------------------------------------------------
500,000 Comcast Corp., 5.50%,
3/15/11 505,474
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 400,000 Liberty Media Corp., VRN,
3.02%, 9/15/04, resets
quarterly off the 3-month
LIBOR plus 1.50% with
no caps $ 407,512
- --------------------------------------------------------------------------------
250,000 News America Holdings,
7.75%, 1/20/24 283,473
- --------------------------------------------------------------------------------
1,699,706
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER -- 0.1%
- --------------------------------------------------------------------------------
250,000 Dominion Resources Inc.,
4.125%, 2/15/08 249,833
- --------------------------------------------------------------------------------
OIL & GAS -- 0.4%
- --------------------------------------------------------------------------------
300,000 Devon Energy Corp., 2.75%,
8/1/06 295,760
- --------------------------------------------------------------------------------
400,000 Kinder Morgan Energy Partners
L.P., 5.00%, 12/15/13 376,831
- --------------------------------------------------------------------------------
150,000 XTO Energy Inc., 6.25%,
4/15/13 156,302
- --------------------------------------------------------------------------------
828,893
- --------------------------------------------------------------------------------
PHARMACEUTICALS(3)
- --------------------------------------------------------------------------------
100,000 Schering-Plough Corp., 5.30%,
12/1/13 98,383
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.1%
- --------------------------------------------------------------------------------
200,000 Norfolk Southern Corp., 7.80%,
5/15/27 232,459
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 0.1%
- --------------------------------------------------------------------------------
150,000 Toys "R" Us, Inc., 7.375%,
10/15/18 139,313
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
- --------------------------------------------------------------------------------
250,000 AT&T Wireless Services Inc.,
7.875%, 3/1/11 284,740
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $20,533,977) 20,451,647
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 4.7%
2,000,000 FHLB, 1.875%, 6/15/06 1,960,472
- --------------------------------------------------------------------------------
600,000 FHLMC, 4.875%, 3/15/07 623,146
- --------------------------------------------------------------------------------
2,500,000 FHLMC, 2.875%, 5/15/07 2,463,830
- --------------------------------------------------------------------------------
2,000,000 FNMA, 2.375%, 12/15/05 1,993,816
- --------------------------------------------------------------------------------
500,000 FNMA, 6.625%, 10/15/07 545,609
- --------------------------------------------------------------------------------
2,000,000 FNMA, 3.25%, 11/15/07 1,973,354
- --------------------------------------------------------------------------------
600,000 FNMA, 5.75%, 2/15/08 639,877
- --------------------------------------------------------------------------------
400,000 FNMA, 3.25%, 8/15/08 389,668
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $10,663,332) 10,589,772
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
10
VP Balanced - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(4) -- 1.5%
$ 39,899 AQ Finance Non-Improvement
Trust, Series 2003 N11A,
7.14%, 11/25/33 $ 39,859
- --------------------------------------------------------------------------------
100,000 AQ Finance Non-Improvement
Trust, Series 2004 RN4,
Class A, 4.60%, 7/25/34 99,750
- --------------------------------------------------------------------------------
100,000 AQ Finance Non-Improvement
Trust, Series 2004 RN5,
Class A, 5.19%, 6/29/34
(Acquired 6/24/04, Cost
$100,000)(6) 100,000
- --------------------------------------------------------------------------------
64,085 Argent Non-Improvement Trust,
Series 2004 WN2, Class A SC,
4.55%, 4/25/34 63,999
- --------------------------------------------------------------------------------
100,000 Argent Non-Improvement Trust,
Series 2004 WN8, Class A,
4.70%, 7/25/34 99,920
- --------------------------------------------------------------------------------
43,805 Asset Backed Funding Corp.
Non-Improvement Trust,
Series 2003-1, Class N1,
6.90%, 7/26/33 43,827
- --------------------------------------------------------------------------------
125,000 Asset Backed Securities Corp.
Home Equity Loan Trust,
Series 2004 HE5, Class A1,
5.00%, 8/27/34 (Acquired
6/22/04, Cost $124,666)(5)(6) 124,663
- --------------------------------------------------------------------------------
171,825 Bayview Financial Acquisition
Trust, Series 1998 B, Class M1,
VRN, 2.74%, 7/25/04, resets
monthly off the 1-month
LIBOR plus 1.40% with a cap
of 13.00% (Acquired 6/13/03,
Cost $172,510)(6) 169,978
- --------------------------------------------------------------------------------
140,113 Bayview Financial Acquisition
Trust, Series 2002 DA,
Class M1, VRN, 1.95%,
7/25/04, resets monthly off
the 1-month LIBOR plus
0.85% with no caps (Acquired
9/19/03, Cost $140,446)(6) 140,944
- --------------------------------------------------------------------------------
500,000 Centex Home Equity, Series
2004 C, Class AF1, VRN,
2.82%, 7/25/04(8) 498,672
- --------------------------------------------------------------------------------
174,291 CIT RV Trust, Series 1998 A,
Class A4 SEQ, 6.09%, 2/15/12 176,937
- --------------------------------------------------------------------------------
113,554 First Franklin Non-Improvement
Trust, Series 2004 FF1,
Class N1, 4.50%, 9/25/05 113,621
- --------------------------------------------------------------------------------
250,000 Ford Credit Auto Owner Trust,
Series 2002 A, Class B, 4.79%,
11/15/06 255,741
- --------------------------------------------------------------------------------
100,000 Fremont Non-Improvement
Trust, Series 2004 B, Class
NOTE, 4.70%, 5/25/34 100,000
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 315,948 Household Mortgage Loan
Trust, Series 2002 HC1,
Class M, VRN, 1.93%, 7/20/04,
resets monthly off the
1-month LIBOR plus 0.65%
with no caps $ 316,556
- --------------------------------------------------------------------------------
238,361 Household Mortgage Loan
Trust, Series 2003 HC2,
Class M, VRN, 1.84%, 7/20/04,
resets monthly off the
1-month LIBOR plus 0.60%
with no caps 236,406
- --------------------------------------------------------------------------------
400,000 Long Beach Mortgage Loan
Trust, Series 2001-2, Class M2,
VRN, 2.23%, 7/25/04, resets
monthly off the 1-month
LIBOR plus 0.95% with
no caps 398,786
- --------------------------------------------------------------------------------
42,069 MASTR Non-Improvement
Trust, Series 2004 CI3,
Class N1, 4.45%, 2/26/34
(Acquired 5/18/04, Cost
$42,067)(6) 42,069
- --------------------------------------------------------------------------------
50,329 Merrill Lynch Mortgage
Investors Inc., Series 2003
OP1N, Class N1, 7.25%,
7/25/34 50,725
- --------------------------------------------------------------------------------
25,879 Morgan Stanley ABS Capital I,
Series 2003 NC9N, Class XP,
7.60%, 7/25/33 (Acquired
10/29/03, Cost $25,879)(6) 26,056
- --------------------------------------------------------------------------------
62,956 Morgan Stanley ABS Capital I,
Series 2004 NC2N, Class XP,
6.25%, 12/25/33 (Acquired
3/16/04, Cost $63,271)(6) 63,083
- --------------------------------------------------------------------------------
100,000 Residential Asset Securities
Corp., Series 2004 KS2,
Class MI1, 4.71%, 3/25/34 96,714
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $3,254,553) 3,258,306
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS(4) -- 0.8%
5,880,830 Banc of America Commercial
Mortgage Inc. STRIPS -
INTEREST, Series 2004-1,
Class XP, VRN, 0.83%, 7/1/04 197,131
- --------------------------------------------------------------------------------
549,707 GMAC Commercial Mortgage
Securities Inc., Series 2002 C2,
Class A1 SEQ, 4.32%,
10/15/38 559,347
- --------------------------------------------------------------------------------
474,865 MASTR Alternative Loans Trust,
Series 2003-8, Class 4A1,
7.00%, 12/25/33 491,582
- --------------------------------------------------------------------------------
462,033 Nationslink Funding Corp.,
Series 1998-2, Class A1 SEQ,
6.00%, 8/20/30 476,366
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
11
VP Balanced - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 125,000 Sharps SP I LLC Net Interest
Margin Trust, Series 2004
OP1N, Class NA, 5.19%,
4/25/34 (Acquired 6/9/04,
Cost $124,997)(6) $ 124,988
- --------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $1,824,305) 1,849,414
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 0.4%
450,000 Illinois GO, (Taxable Pension),
5.10%, 6/1/33 401,796
- --------------------------------------------------------------------------------
500,000 New Jersey Turnpike Auth.
Rev., Series 2003 B, 4.25%,
1/1/16 (AMBAC) 464,390
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL SECURITIES
(Cost $956,389) 866,186
- --------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS &
AGENCIES -- 0.3%
650,000 Province of Ontario, 3.50%,
9/17/07(2)
(Cost $647,520) 647,078
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 4.8%
Repurchase Agreement, Bank of America
Securities, LLC, (U.S. Treasury obligations), in
a joint trading account at 1.10%, dated
6/30/04, due 7/1/04 (Delivery value
$10,700,327)(9)
(Cost $10,700,000) 10,700,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 100.0%
(Cost $202,730,788) $224,412,352
================================================================================
COLLATERAL RECEIVED FOR
SECURITIES LENDING(10)
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, Barclays Bank plc,
(U.S. Agency obligations), 1.50%, dated
6/30/04, due 7/1/04 (Delivery value
$7,005,076) $ 7,004,784
- --------------------------------------------------------------------------------
SHORT-TERM DEBT
- --------------------------------------------------------------------------------
$5,000,000 RACERS(SM), Series 2000-7,
Class A3, VRN, 1.44%,
7/15/04, resets monthly off
the 1-month LIBOR plus
0.20% with no caps(6) 5,000,000
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED FOR
SECURITIES LENDING
(Cost $12,004,784) $12,004,784
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GMAC = General Motors Acceptance Corporation
GNMA = Government National Mortgage Association
GO = General Obligation
LIBOR = London Interbank Offered Rate
MASTR = Mortgage Asset Securitization Transactions, Inc.
RACERS(SM) = Restructured Asset Certificates with Enhanced Returns
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
TRACERS(SM) = Traded Custody Receipts(SM). Rate indicated is the
weighted-average coupon of the underlying securities held.
VRN = Variable Rate Note. Interest reset date is indicated, unless otherwise
noted. Rate shown is effective June 30, 2004.
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2004.
(3) Industry is less than 0.05% of total investment securities.
(4) Final maturity indicated, unless otherwise noted.
(5) When-issued security or forward commitment.
(6) 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, 2004, was $7,819,002,
which represented 3.6% of net assets.
(7) Security is an exchange-traded bond fund. Quantity indicated reflects the
number of shares owned.
(8) Step-coupon security. These securities are issued with a zero-coupon and
become interest bearing at a predetermined rate and date and are issued
at a substantial discount from their value at maturity. Rate shown is
effective June 30, 2004.
(9) Security, or a portion thereof, has been segregated for a when-issued
security and/or forward commitment.
(10) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 4
in Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
12
Statement of Assets and Liabilities
JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $202,730,788) --
including $11,804,975 of securities loaned $224,412,352
- ------------------------------------------------------------
Investments made with cash collateral received for
securities on loan, at value (cost of $12,004,784) 12,004,784
- --------------------------------------------------------------------------------
Total investment securities, at value (cost of $214,735,572) 236,417,136
- ------------------------------------------------------------
Cash collateral received for securities on loan 3,960
- ------------------------------------------------------------
Receivable for investments sold 3,038,237
- ------------------------------------------------------------
Dividends and interest receivable 746,229
- --------------------------------------------------------------------------------
240,205,562
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for collateral received for securities on loan 12,008,744
- ------------------------------------------------------------
Disbursements in excess of demand deposit cash 87,676
- ------------------------------------------------------------
Payable for investments purchased 11,967,464
- ------------------------------------------------------------
Accrued management fees 158,043
- --------------------------------------------------------------------------------
24,221,927
- --------------------------------------------------------------------------------
NET ASSETS $215,983,635
================================================================================
CAPITAL SHARES, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized 100,000,000
================================================================================
Outstanding 31,686,363
================================================================================
NET ASSET VALUE PER SHARE $6.82
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $202,111,955
- ------------------------------------------------------------
Undistributed net investment income 1,775,881
- ------------------------------------------------------------
Accumulated net realized loss on investment transactions (9,585,765)
- ------------------------------------------------------------
Net unrealized appreciation on investments 21,681,564
- --------------------------------------------------------------------------------
$215,983,635
================================================================================
See Notes to Financial Statements.
- ------
13
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Interest $ 1,549,229
- ------------------------------------------------------------
Dividends 1,181,538
- ------------------------------------------------------------
Securities lending 22,622
- --------------------------------------------------------------------------------
2,753,389
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 970,240
- ------------------------------------------------------------
Directors' fees and expenses 1,420
- ------------------------------------------------------------
Other expenses 656
- --------------------------------------------------------------------------------
972,316
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,781,073
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 9,907,677
- ------------------------------------------------------------
Change in net unrealized appreciation on investments (5,905,752)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 4,001,925
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,782,998
================================================================================
See Notes to Financial Statements.
- ------
14
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 1,781,073 $ 3,560,780
- -------------------------------------------
Net realized gain 9,907,677 6,802,727
- -------------------------------------------
Change in net unrealized appreciation (5,905,752) 24,103,826
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 5,782,998 34,467,333
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income (3,562,413) (4,906,041)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Proceeds from shares sold 10,383,380 22,770,347
- -------------------------------------------
Proceeds from reinvestment of distributions 3,562,413 4,906,041
- -------------------------------------------
Payments for shares redeemed (15,023,851) (23,841,870)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions (1,078,058) 3,834,518
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 1,142,527 33,395,810
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 214,841,108 181,445,298
- --------------------------------------------------------------------------------
End of period $215,983,635 $214,841,108
================================================================================
Undistributed net investment income $1,775,881 $3,557,221
================================================================================
TRANSACTIONS IN SHARES OF THE FUND
- --------------------------------------------------------------------------------
Sold 1,527,488 3,688,491
- -------------------------------------------
Issued in reinvestment of distributions 520,060 905,174
- -------------------------------------------
Redeemed (2,218,458) (3,953,954)
- --------------------------------------------------------------------------------
Net increase (decrease) (170,910) 639,711
================================================================================
See Notes to Financial Statements.
- ------
15
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc., (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Balanced 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 long-term capital growth and current
income. The fund seeks to achieve its investment objective by investing
approximately 60% of the fund's assets in equity securities and the remaining
assets in bonds and other fixed income securities. The following is a summary of
the fund's significant accounting policies.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending on
local convention or regulation, securities traded over-the-counter are valued at
the mean of the latest bid and asked prices, the last sales price, or the
official close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade
date. Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes paydown gain (loss) and accretion of discounts and
amortization of premiums.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its lending
agent to certain approved borrowers in order to earn additional income. The fund
continues to recognize any gain or loss in the market price of the securities
loaned and records any interest earned or dividends declared.
TRACERS(SM)/TRAINS(SM) -- The fund may invest in these which represent ownership
of a specified percentage of each security in an underlying pool of securities.
Owners are entitled to receive a pro rata share of distributions from the
underlying securities. In the event an underlying security is downgraded by a
rating agency, that portion of the investment product will be redeemed and the
underlying security will be distributed to the owner pro rata or the owner may
receive cash proceeds. The risk of owning these products are the same as owning
the individual securities, but enable the fund to be more diversified by owning
a single security.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM 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, 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.
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
(continued)
- ------
16
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 funds account
for "roll" transactions as purchases and sales; as such these transactions may
increase portfolio turnover.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes, and may result in reclassification among certain
capital accounts on the financial statements.
As of December 31, 2003, the fund has accumulated net realized capital loss
carryovers for federal income tax purposes of $4,664,352 and $12,918,737,
expiring in 2009 and 2010, respectively, which may be used to offset future
taxable gains.
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 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 daily and paid
monthly in arrears based on the fund's average daily closing net assets during
the previous month.
The annual management fee schedule for the fund is as follows:
- --------------------------------------------------------------------------------
FUND AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
First $250 million 0.90%
- --------------------------------------------------------------------------------
Next $250 million 0.85%
- --------------------------------------------------------------------------------
Over $500 million 0.80%
- --------------------------------------------------------------------------------
The effective annual management fee for the six months ended June 30, 2004 was
0.90%.
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
manager, ACIM, the distributor of the corporation, American Century Investment
Services, Inc., and the corporation's transfer agent, American Century Services
Corporation.
During the six months ended June 30, 2004, the fund invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The fund has a bank line of
credit agreement and securities lending agreement with JPMorgan Chase Bank
(JPMCB). JPMCB is a wholly owned subsidiary of JPM.
(continued)
- ------
17
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for the
six months ended June 30, 2004, totaled $238,709,688, of which $155,467,149
represented U.S. Treasury and Agency obligations. Sales of investment
securities, excluding short-term investments, for the six months ended June 30,
2004, totaled $242,169,776, of which $149,294,412 represented U.S. Treasury and
Agency obligations.
As of June 30, 2004, the components of investments for federal income tax
purposes were as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $216,645,925
================================================================================
Gross tax appreciation of investments $21,877,513
- -----------------------------------------------------
Gross tax depreciation of investments (2,106,302)
- --------------------------------------------------------------------------------
Net tax appreciation (depreciation) of investments $19,771,211
================================================================================
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.
4. SECURITIES LENDING
As of June 30, 2004, securities in the fund valued at $11,804,975, were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB receives
and maintains collateral in the form of cash, and/or acceptable securities as
approved by ACIM. Cash collateral is invested in authorized investments by the
lending agent in a pooled account. The value of cash collateral received at
period end is disclosed in the Statement of Assets and Liabilities and
investments made with the cash by the lending agent are listed in the Schedule
of Investments. Any deficiencies or excess of collateral must be delivered or
transferred by the member firms no later than the close of business on the next
business day. The total value of all collateral received, at this date, was
$12,008,744. The fund's risks in securities lending are that the borrower may
not provide additional collateral when required or return the securities when
due. If the borrower defaults, receipt of the collateral by the fund may be
delayed or limited.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the six months ended June 30, 2004.
- ------
18
VP Balanced - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- ------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------
2004(1) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $6.74 $5.81 $6.59 $7.27 $7.79 $8.34
- ------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- ------------------------------
Net Investment Income 0.05 0.11 0.16 0.17 0.20 0.19
- ------------------------------
Net Realized and
Unrealized Gain (Loss) 0.14 0.98 (0.77) (0.42) (0.40) 0.52
- ------------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.19 1.09 (0.61) (0.25) (0.20) 0.71
- ------------------------------------------------------------------------------------------------------
Distributions
- ------------------------------
From Net
Investment Income (0.11) (0.16) (0.17) (0.20) (0.20) (0.16)
- ------------------------------
From Net Realized Gains -- -- -- (0.23) (0.12) (1.10)
- ------------------------------------------------------------------------------------------------------
Total Distributions (0.11) (0.16) (0.17) (0.43) (0.32) (1.26)
- ------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $6.82 $6.74 $5.81 $6.59 $7.27 $7.79
======================================================================================================
TOTAL RETURN(2) 2.84% 19.46% (9.56)% (3.54)% (2.65)% 10.06%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.90%(3) 0.90% 0.90% 0.90% 0.90% 0.90%
- ------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.70%(3) 1.85% 2.43% 2.41% 2.51% 2.45%
- ------------------------------
Portfolio Turnover Rate 113% 142% 109% 112% 96% 83%
- ------------------------------
Net Assets, End of Period
(in thousands) $215,984 $214,841 $181,445 $227,516 $258,536 $285,072
- ------------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) 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.
(3) Annualized.
See Notes to Financial Statements.
- ------
19
Additional Information
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 BLENDED INDEX is considered the benchmark for VP Balanced. It combines two
widely known indices in proportion to the asset mix of the fund. Accordingly,
60% of the index is represented by the S&P 500 Index, which reflects the
approximately 60% of the fund's assets invested in stocks. The remaining 40% of
the index is represented by the Lehman Brothers U.S. Aggregate Index, which
reflects the roughly 40% of the fund's assets invested in fixed-income
securities.
The LEHMAN BROTHERS U.S. AGGREGATE INDEX represents securities that are taxable,
registered with the Securities and Exchange Commission, and U.S.
dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond
market, with index components for government and corporate securities, mortgage
pass-through securities, and asset-backed securities.
The S&P 500 INDEX is a market-value weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, 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 manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-378-9878. It is also available on American Century's Web site at
americancentury.com and on the Securities and Exchange Commission's Web site at
sec.gov.
- ------
20
[inside back cover - blank]
[back cover]
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, INC.
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century logo, American Century and American Century Investments are
service marks of American Century Services Corporation.
0408 American Century Investment Services, Inc.
SH-SAN-38965 (c)2004 American Century Services Corporation
[front cover]
JUNE 30, 2004
American Century Variable Portfolios
Semiannual Report
[graphic of market line chart]
[graphic of starfish]
[graphic of bridges]
VP Capital Appreciation Fund
[american century logo and text logo]
Table of Contents
VP CAPITAL APPRECIATION
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . 8
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . 10
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 11
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
OTHER INFORMATION
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
- ------
1
VP Capital Appreciation - Performance
TOTAL RETURNS AS OF JUNE 30, 2004
-------------------------------
AVERAGE ANNUAL RETURNS
- -------------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------------------------------------------------------
CLASS I 16.69% 1.70% 4.78% 6.94% 11/20/87
- -------------------------------------------------------------------------------------
RUSSELL MIDCAP GROWTH INDEX 27.33% 0.49% 10.88% 12.79%(1) --
- -------------------------------------------------------------------------------------
(1) Since 11/30/87, the date nearest the fund's inception for which data
are available.
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 the insurance
contracts.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made June 30, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended June 30
- --------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------------------------
Class I 27.05% 11.25% -8.89% 1.09% 12.58% 66.39% -20.36% -24.61% -6.68% 16.69%
- --------------------------------------------------------------------------------------------------
Russell Midcap
Growth Index 26.43% 23.59% 17.59% 24.02% 20.31% 48.59% -31.51% -26.34% 7.35% 27.33%
- --------------------------------------------------------------------------------------------------
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.
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.
- ------
2
VP Capital Appreciation - Portfolio Commentary
[photo of Kurt Stalzer and David Rose]
A PORTFOLIO COMMENTARY FROM KURT STALZER AND DAVID ROSE, PORTFOLIO MANAGERS ON
THE VP CAPITAL APPRECIATION INVESTMENT TEAM.
VP Capital Appreciation gained 3.09% in the six months ended June 30, 2004,
underperforming its benchmark, the Russell Midcap Growth Index, which
rose 5.94%.
The period saw changes on VP Capital Appreciation's management team. Portfolio
manager Linda Peterson left American Century in March. David Rose, who has been
a portfolio manager with American Century since 2001, now co-manages VP Capital
Appreciation with Kurt Stalzer.
The change in the management team brought about changes in the top-ten holdings
in the portfolio. For example, ImClone Systems was added to the portfolio in
late March and ended the period as the top contributor to performance. The
biotechnology company produced better-than-expected earnings due in part to the
strength of sales of the drug Erbitux, which received FDA approval in February
as a treatment for colon cancer. A stock that was eliminated from the portfolio
was former top-ten holding Ross Stores. The portfolio managers became concerned
about this discount retailer when it reported disappointing February sales, and
the stock was sold at a profit before it experienced further deterioration in
the market.
These changes to the portfolio occurred as the market fought a number of
headwinds. The stock market started the period with the wind at its back as the
upswing in economic growth and stock returns in the last three quarters of 2003
carried into the new year. The rally lost momentum, however, amid concerns about
the sustainability of the economic expansion given weak job growth, high oil
prices, and the threat of higher interest rates. Terrorism fears and continued
violence in Iraq also restrained investor sentiment.
Against this backdrop, VP Capital Appreciation's underperformance relative to
the benchmark was largely attributable to stock selection in the
TOP TEN HOLDINGS
AS OF JUNE 30, 2004
- -------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- -------------------------------------------------------------------------------
Sabre Holdings Corp. 2.8% --
- -------------------------------------------------------------------------------
Whole Foods Market, Inc. 2.5% --
- -------------------------------------------------------------------------------
Capital One
Financial Corp. 2.4% --
- -------------------------------------------------------------------------------
Deere & Co. 2.4% --
- -------------------------------------------------------------------------------
Coach Inc. 2.4% 1.2%
- -------------------------------------------------------------------------------
Estee Lauder
Companies, Inc. Cl A 2.3% --
- -------------------------------------------------------------------------------
National Semiconductor
Corp. 2.2% --
- -------------------------------------------------------------------------------
ImClone Systems Inc. 2.2% --
- -------------------------------------------------------------------------------
Thermo Electron Corp. 2.1% --
- -------------------------------------------------------------------------------
Bard (C.R.), Inc. 2.1% 1.4%
- -------------------------------------------------------------------------------
(continued)
- ------
3
VP Capital Appreciation - Portfolio Commentary
industrials and information technology sectors. In the industrials sector, the
portfolio was hurt by investments in for-profit, post-secondary education
schools when questions arose about the accounting, enrollment, and financial aid
practices at some schools.
Information technology stocks also weighed on returns. Detractors included
wireless-product manufacturer Sierra Wireless and anti-virus software developer
McAfee (formerly known as Network Associates). Both firms issued disappointing
earnings outlooks.
Despite the overall negative performance of technology stocks, the VP Capital
Appreciation team found some pockets of success. For example, Zebra Technologies
was a leading contributor. Already a market leader in the barcode-printer
market, Zebra has gained market share with its radio frequency identification
technology. RFID uses a computer chip placed in merchandise for faster tracking
and more efficient inventory management than traditional barcodes. Wal-Mart
Stores has been an enthusiastic adopter of the new technology.
The specter of rising interest rates loomed over financial stocks, and VP
Capital Appreciation's financial stake detracted from performance. New York
Community Bancorp was one setback. The banking company narrowly missed
first-quarter earnings expectations, and analysts cited heavy investments in
mortgage-backed securities (MBS) as the culprit.
Investments in companies that make and sell consumer staple products lifted the
portfolio's performance. Whole Foods Market benefited from the country's growing
appetite for healthier diets and lifestyles. Another standout was cosmetics
maker Estee Lauder, which reported profit growth driven by strong sales in
Europe and the United States. Companies within the consumer discretionary sector
also turned in strong results, led by casino-related stocks.
VP Capital Appreciation's health care stake bolstered returns. The biggest gains
came from health care equipment and supply companies, including C.R. Bard. The
company reported first-quarter profit far ahead of expectations on strong sales
of its health-care products.
Looking ahead, the new VP Capital Appreciation team remains committed to
American Century's disciplined, time-tested growth investment approach that has
been in place for more than thirty years. They will continue to look for
companies with earnings, revenues and other key business fundamentals that are
growing at an accelerating rate. They believe this process can position VP
Capital Appreciation for positive long-term performance.
TOP FIVE INDUSTRIES
AS OF JUNE 30, 2004
- -------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- -------------------------------------------------------------------------------
Health Care Equipment
& Supplies 9.7% 3.5%
- -------------------------------------------------------------------------------
Commercial Services
& Supplies 6.3% 6.1%
- -------------------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment 5.6% 6.7%
- -------------------------------------------------------------------------------
Software 5.4% 4.0%
- -------------------------------------------------------------------------------
Health Care Providers
& Services 5.2% 6.0%
- -------------------------------------------------------------------------------
- ------
4
VP Capital Appreciation - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.2%
AEROSPACE & DEFENSE -- 1.7%
- --------------------------------------------------------------------------------
18,900 General Dynamics Corp. $ 1,876,771
- --------------------------------------------------------------------------------
41,600 L-3 Communications
Holdings, Inc. 2,778,880
- --------------------------------------------------------------------------------
4,655,651
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 2.5%
- --------------------------------------------------------------------------------
19,080 EGL Inc.(1) 507,528
- --------------------------------------------------------------------------------
78,200 Expeditors International
of Washington, Inc. 3,863,862
- --------------------------------------------------------------------------------
62,500 J.B. Hunt Transport Services, Inc. 2,411,250
- --------------------------------------------------------------------------------
6,782,640
- --------------------------------------------------------------------------------
AIRLINES -- 0.4%
- --------------------------------------------------------------------------------
8,149 Alaska Air Group Inc.(1) 194,517
- --------------------------------------------------------------------------------
34,100 AMR Corp.(1) 412,951
- --------------------------------------------------------------------------------
27,440 Continental Airlines Inc.(1) 311,993
- --------------------------------------------------------------------------------
16,121 Frontier Airlines, Inc.(1) 175,396
- --------------------------------------------------------------------------------
1,094,857
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 3.7%
- --------------------------------------------------------------------------------
76,000 Charles River Laboratories(1) 3,714,120
- --------------------------------------------------------------------------------
70,100 ImClone Systems Inc.(1) 6,013,879
- --------------------------------------------------------------------------------
19,087 Ligand Pharmaceuticals Inc.(1) 331,732
- --------------------------------------------------------------------------------
10,059,731
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 1.4%
- --------------------------------------------------------------------------------
91,200 Investors Financial
Services Corporation 3,974,496
- --------------------------------------------------------------------------------
CHEMICALS -- 0.5%
- --------------------------------------------------------------------------------
97,000 Agrium Inc. 1,411,350
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.2%
- --------------------------------------------------------------------------------
17,500 East West BanCorp, Inc. 537,250
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 6.3%
- --------------------------------------------------------------------------------
183,900 Copart Inc.(1) 4,910,130
- --------------------------------------------------------------------------------
213,700 Corinthian Colleges, Inc.(1) 5,286,937
- --------------------------------------------------------------------------------
53,032 Education Management
Corporation(1) 1,742,632
- --------------------------------------------------------------------------------
68,753 Manpower Inc. 3,490,590
- --------------------------------------------------------------------------------
31,400 Resources Connection, Inc.(1) 1,228,054
- --------------------------------------------------------------------------------
27,300 Robert Half International Inc. 812,721
- --------------------------------------------------------------------------------
17,471,064
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.1%
- --------------------------------------------------------------------------------
118,811 Andrew Corporation(1) 2,377,408
- --------------------------------------------------------------------------------
62,000 Comverse Technology, Inc.(1) 1,236,280
- --------------------------------------------------------------------------------
97,600 Ditech Communications Corp.(1) 2,277,984
- --------------------------------------------------------------------------------
5,891,672
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 2.4%
- --------------------------------------------------------------------------------
97,000 Capital One Financial Corp. $ 6,632,860
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.9%
- --------------------------------------------------------------------------------
121,100 Smurfit-Stone
Container Corp.(1) 2,415,945
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 3.6%
- --------------------------------------------------------------------------------
28,000 Agilent Technologies, Inc.(1) 819,840
- --------------------------------------------------------------------------------
54,100 Arrow Electronics, Inc.(1) 1,450,962
- --------------------------------------------------------------------------------
43,000 CDW Corp. 2,741,680
- --------------------------------------------------------------------------------
41,100 Flir Systems Inc.(1) 2,256,390
- --------------------------------------------------------------------------------
77,100 Tektronix, Inc. 2,622,942
- --------------------------------------------------------------------------------
9,891,814
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 3.6%
- --------------------------------------------------------------------------------
99,300 BJ Services Co.(1) 4,551,912
- --------------------------------------------------------------------------------
93,800 Smith International, Inc.(1) 5,230,288
- --------------------------------------------------------------------------------
9,782,200
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 2.5%
- --------------------------------------------------------------------------------
72,100 Whole Foods Market, Inc. 6,881,945
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.2%
- --------------------------------------------------------------------------------
113,902 Smithfield Foods Inc.(1) 3,348,719
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 9.7%
- --------------------------------------------------------------------------------
35,600 Advanced Medical Optics Inc.(1) 1,515,492
- --------------------------------------------------------------------------------
104,931 Apogent Technologies Inc.(1) 3,357,792
- --------------------------------------------------------------------------------
101,100 Bard (C.R.), Inc. 5,727,315
- --------------------------------------------------------------------------------
44,500 Inamed Corp.(1) 2,796,825
- --------------------------------------------------------------------------------
68,700 PerkinElmer, Inc. 1,376,748
- --------------------------------------------------------------------------------
43,000 St. Jude Medical, Inc.(1) 3,252,950
- --------------------------------------------------------------------------------
190,900 Thermo Electron Corp.(1) 5,868,265
- --------------------------------------------------------------------------------
68,300 Varian Inc.(1) 2,878,845
- --------------------------------------------------------------------------------
26,774,232
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 5.2%
- --------------------------------------------------------------------------------
65,100 Covance Inc.(1) 2,511,558
- --------------------------------------------------------------------------------
69,250 Coventry Health Care Inc.(1) 3,386,325
- --------------------------------------------------------------------------------
99,900 DaVita Inc.(1) 3,079,917
- --------------------------------------------------------------------------------
38,200 PacifiCare Health Systems, Inc.(1) 1,476,812
- --------------------------------------------------------------------------------
123,905 Select Medical Corporation 1,662,805
- --------------------------------------------------------------------------------
56,100 Triad Hospitals Inc.(1) 2,088,603
- --------------------------------------------------------------------------------
14,206,020
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 4.8%
- --------------------------------------------------------------------------------
112,600 Caesars Entertainment Inc.(1) 1,689,000
- --------------------------------------------------------------------------------
245,205 Hilton Hotels Corporation 4,575,525
- --------------------------------------------------------------------------------
112,100 Royal Caribbean Cruises Ltd. 4,866,261
- --------------------------------------------------------------------------------
31,800 Station Casinos Inc. 1,539,120
- --------------------------------------------------------------------------------
21,226 WMS Industries Inc.(1) 632,535
- --------------------------------------------------------------------------------
13,302,441
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
5
VP Capital Appreciation - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 2.7%
- --------------------------------------------------------------------------------
36,000 Black & Decker Corporation $ 2,236,680
- --------------------------------------------------------------------------------
30,700 Harman International
Industries Inc. 2,793,700
- --------------------------------------------------------------------------------
65,897 Helen of Troy Ltd.(1) 2,429,622
- --------------------------------------------------------------------------------
7,460,002
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 1.1%
- --------------------------------------------------------------------------------
108,900 Priceline.com Inc.(1) 2,932,677
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.1%
- --------------------------------------------------------------------------------
86,000 Ask Jeeves, Inc.(1) 3,356,580
- --------------------------------------------------------------------------------
38,000 Digital River Inc.(1) 1,239,940
- --------------------------------------------------------------------------------
32,600 Infospace Inc.(1) 1,240,104
- --------------------------------------------------------------------------------
5,836,624
- --------------------------------------------------------------------------------
IT SERVICES -- 3.9%
- --------------------------------------------------------------------------------
49,000 Accenture Ltd. Cl A(1) 1,346,520
- --------------------------------------------------------------------------------
39,421 Global Payments Inc. 1,774,733
- --------------------------------------------------------------------------------
272,741 Sabre Holdings Corp. 7,557,654
- --------------------------------------------------------------------------------
10,678,907
- --------------------------------------------------------------------------------
MACHINERY -- 2.4%
- --------------------------------------------------------------------------------
93,400 Deere & Co. 6,551,076
- --------------------------------------------------------------------------------
MEDIA -- 1.0%
- --------------------------------------------------------------------------------
25,000 Getty Images Inc.(1) 1,500,000
- --------------------------------------------------------------------------------
124,931 Spanish Broadcasting System(1) 1,163,108
- --------------------------------------------------------------------------------
2,663,108
- --------------------------------------------------------------------------------
METALS & MINING -- 1.6%
- --------------------------------------------------------------------------------
32,500 Nucor Corp. 2,494,700
- --------------------------------------------------------------------------------
25,600 Phelps Dodge Corp.(1) 1,984,256
- --------------------------------------------------------------------------------
4,478,956
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 2.2%
- --------------------------------------------------------------------------------
33,500 Dollar General Corp. 655,260
- --------------------------------------------------------------------------------
89,800 Fred's Inc. 1,983,682
- --------------------------------------------------------------------------------
87,000 J.C. Penney Co. Inc.
Holding Company 3,285,120
- --------------------------------------------------------------------------------
5,924,062
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 1.8%
- --------------------------------------------------------------------------------
55,450 Zebra Technologies Corp. Cl A(1) 4,824,150
- --------------------------------------------------------------------------------
OIL & GAS -- 1.5%
- --------------------------------------------------------------------------------
47,606 Western Gas Resources Inc. 1,546,243
- --------------------------------------------------------------------------------
84,757 XTO Energy Inc. 2,524,911
- --------------------------------------------------------------------------------
4,071,154
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 2.3%
- --------------------------------------------------------------------------------
131,000 Estee Lauder
Companies, Inc. Cl A 6,390,180
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.1%
- --------------------------------------------------------------------------------
103,800 Elan Corp. plc ADR(1) $ 2,568,012
- --------------------------------------------------------------------------------
86,800 Medicis Pharmaceutical
Corp. Cl A 3,467,660
- --------------------------------------------------------------------------------
89,654 MGI Pharma Inc.(1) 2,421,555
- --------------------------------------------------------------------------------
83,000 Salix Pharmaceuticals Ltd.(1) 2,734,850
- --------------------------------------------------------------------------------
11,192,077
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.7%
- --------------------------------------------------------------------------------
47,754 Yellow Roadway Corp.(1) 1,903,474
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 5.6%
- --------------------------------------------------------------------------------
71,900 Analog Devices, Inc. 3,385,052
- --------------------------------------------------------------------------------
73,700 ATI Technologies Inc. ADR(1) 1,389,982
- --------------------------------------------------------------------------------
75,000 Cree Inc.(1) 1,746,000
- --------------------------------------------------------------------------------
275,000 National Semiconductor Corp.(1) 6,047,250
- --------------------------------------------------------------------------------
59,000 Silicon Laboratories Inc.(1) 2,734,650
- --------------------------------------------------------------------------------
15,302,934
- --------------------------------------------------------------------------------
SOFTWARE -- 5.4%
- --------------------------------------------------------------------------------
183,900 Check Point Software
Technologies(1) 4,963,461
- --------------------------------------------------------------------------------
66,000 Hyperion Solutions Corp.(1) 2,885,520
- --------------------------------------------------------------------------------
58,500 Kronos Inc.(1) 2,410,200
- --------------------------------------------------------------------------------
38,000 Manhattan Associates Inc.(1) 1,173,440
- --------------------------------------------------------------------------------
74,700 Symantec Corp.(1) 3,270,366
- --------------------------------------------------------------------------------
14,702,987
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.3%
- --------------------------------------------------------------------------------
29,800 Michaels Stores, Inc. 1,639,000
- --------------------------------------------------------------------------------
74,300 Pep Boys-Manny, Moe
& Jack (The) 1,883,505
- --------------------------------------------------------------------------------
3,522,505
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 2.9%
- --------------------------------------------------------------------------------
144,000 Coach Inc.(1) 6,507,360
- --------------------------------------------------------------------------------
62,000 Quiksilver, Inc.(1) 1,476,220
- --------------------------------------------------------------------------------
7,983,580
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.9%
- --------------------------------------------------------------------------------
7,400 Doral Financial Corp. 255,300
- --------------------------------------------------------------------------------
61,400 PMI Group, Inc. (The) 2,672,128
- --------------------------------------------------------------------------------
47,000 Radian Group Inc. 2,251,300
- --------------------------------------------------------------------------------
5,178,728
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 2.0%
- --------------------------------------------------------------------------------
164,100 Nextel Partners, Inc. Cl A(1) 2,612,472
- --------------------------------------------------------------------------------
88,395 NII Holdings Inc. Cl B(1) 2,978,028
- --------------------------------------------------------------------------------
5,590,500
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $241,120,174) 272,302,568
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
6
VP Capital Appreciation - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.8%
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations),
in a joint trading account at 1.16%,
dated 6/30/04, due 7/1/04
(Delivery value $2,200,071)
(Cost $2,200,000) $ 2,200,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $243,320,174) $274,502,568
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
- ------
7
Statement of Assets and Liabilities
JUNE 30, 2004 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(cost of $243,320,174) $274,502,568
- ---------------------------------------------------
Receivable for investments sold 6,844,700
- ---------------------------------------------------
Dividends and interest receivable 51,237
- --------------------------------------------------------------------------------
281,398,505
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash 68,323
- ---------------------------------------------------
Payable for investments purchased 6,211,972
- ---------------------------------------------------
Accrued management fees 221,895
- --------------------------------------------------------------------------------
6,502,190
- --------------------------------------------------------------------------------
NET ASSETS $274,896,315
================================================================================
CAPITAL SHARES, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized 100,000,000
================================================================================
Outstanding 37,439,459
================================================================================
NET ASSET VALUE PER SHARE $7.34
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 361,117,293
- ---------------------------------------------------
Accumulated net investment loss (894,304)
- ---------------------------------------------------
Accumulated net realized loss
on investment transactions (116,509,068)
- ---------------------------------------------------
Net unrealized appreciation on investments 31,182,394
- --------------------------------------------------------------------------------
$ 274,896,315
================================================================================
See Notes to Financial Statements.
- ------
8
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- -----------------------------------------------------
Dividends $ 462,598
- -----------------------------------------------------
Interest 33,610
- --------------------------------------------------------------------------------
496,208
- --------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------
Management fees 1,387,444
- -----------------------------------------------------
Directors' fees and expenses 1,839
- -----------------------------------------------------
Other expenses 1,229
- --------------------------------------------------------------------------------
1,390,512
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (894,304)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 26,736,030
- -----------------------------------------------------
Change in net unrealized appreciation on investments (17,015,696)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 9,720,334
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 8,826,030
================================================================================
See Notes to Financial Statements.
- ------
9
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2003
- ------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2004 2003
- ------------------------------------------------------------------------------------
OPERATIONS
- ------------------------------------------------------------------------------------
Net investment loss $ (894,304) $ (1,527,716)
- -----------------------------------------------
Net realized gain 26,736,030 14,256,208
- -----------------------------------------------
Change in net unrealized appreciation (17,015,696) 36,463,540
- ------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 8,826,030 49,192,032
- ------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- ------------------------------------------------------------------------------------
Proceeds from shares sold 24,031,318 30,044,091
- ------------------------------------------------
Payments for shares redeemed (43,354,832) (54,738,957)
- ------------------------------------------------------------------------------------
Net decrease in net assets from
capital share transactions (19,323,514) (24,694,866)
- ------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (10,497,484) 24,497,166
- ------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------
Beginning of period 285,393,799 260,896,633
- ------------------------------------------------------------------------------------
End of period $274,896,315 $285,393,799
====================================================================================
Accumulated net investment loss $(894,304) --
====================================================================================
TRANSACTIONS IN SHARES OF THE FUND
- ------------------------------------------------------------------------------------
Sold 3,316,183 4,628,342
- ------------------------------------------------
Redeemed (5,985,419) (8,690,299)
- ------------------------------------------------------------------------------------
Net decrease in shares of the fund (2,669,236) (4,061,957)
====================================================================================
See Notes to Financial Statements.
- ------
10
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc., (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Capital Appreciation 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 capital growth. The fund seeks
to achieve its investment objective by investing primarily in common stocks that
management believes will increase in value over time. The following is a summary
of the fund's significant accounting policies.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending on
local convention or regulation, securities traded over-the-counter are valued at
the mean of the latest bid and asked prices, the last sales price, or the
official close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade
date. Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks of
entering into futures contracts is the possibility that the change in value of
the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM 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, 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.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
(continued)
- ------
11
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes, and may result in reclassification among certain
capital accounts on the financial statements.
As of December 31, 2003, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $143,145,097, which may be used to
offset future taxable gains. The capital loss carryovers consist of $99,191,747
expiring in 2009 and $43,953,350 expiring in 2010.
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 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 daily and paid
monthly in arrears based on the fund's average daily closing net assets during
the previous month.
The annual management fee schedule for the fund is as follows:
- --------------------------------------------------------------------------------
FUND AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
First $500 million 1.00%
- --------------------------------------------------------------------------------
Next $500 million 0.95%
- --------------------------------------------------------------------------------
Over $1 billion 0.90%
- --------------------------------------------------------------------------------
The effective annual management fee for the six months ended June 30, 2004
was 1.00%.
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 manager, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services Corporation.
During the six months ended June 30, 2004, the fund invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The fund has a bank line
of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned
subsidiary of JPM.
(continued)
- ------
12
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2004, were $382,808,248 and $397,870,284,
respectively.
As of June 30, 2004, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $243,420,194
================================================================================
Gross tax appreciation of investments $34,202,918
- -------------------------------------------------
Gross tax depreciation of investments (3,120,544)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $31,082,374
================================================================================
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.
4. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the six months ended June 30, 2004.
- ------
13
VP Capital Appreciation - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- ------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------
2004(1) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Beginning of Period $7.12 $5.91 $7.50 $15.78 $14.84 $9.02
- ------------------------------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------
Net Investment Loss (0.02) (0.04) (0.04) (0.03) (0.05) (0.05)
- -----------------------------------
Net Realized and
Unrealized Gain (Loss) 0.24 1.25 (1.55) (3.64) 1.47 5.87
- ------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.22 1.21 (1.59) (3.67) 1.42 5.82
- ------------------------------------------------------------------------------------------------------
Distributions
- -----------------------------------
From Net Realized Gains -- -- -- (4.61) (0.48) --
- ------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $7.34 $7.12 $5.91 $7.50 $15.78 $14.84
======================================================================================================
TOTAL RETURN(2) 3.09% 20.47% (21.20)% (28.07)% 9.03% 64.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.00%(3) 1.00% 1.00% 1.00% 0.98% 1.00%
- -----------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.64)%(3) (0.58)% (0.55)% (0.35)% (0.31)% (0.41)%
- -----------------------------------
Portfolio Turnover Rate 141% 150% 124% 149% 128% 119%
- -----------------------------------
Net Assets, End of Period
(in thousands) $274,896 $285,394 $260,897 $401,812 $716,855 $607,263
- ------------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) 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.
(3) Annualized.
See Notes to Financial Statements.
- ------
14
Additional Information
INDEX DEFINITION
The following index is used to illustrate investment market, sector, or style
performance or to serve as a fund performance comparison. It is not an
investment product available for purchase.
The RUSSELL MIDCAP GROWTH INDEX measures the performance of those Russell Midcap
Index companies (the 800 smallest of the 1,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, 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 manager uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov.
- ------
15
Notes
- ------
16
[back cover]
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, INC.
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century logo, American Century and American Century Investments
are service marks of American Century Services Corporation.
0408 American Century Investment Services, Inc.
SH-SAN-38969 (c)2004 American Century Services Corporation
[front cover]
JUNE 30, 2004
American Century Variable Portfolios
Semiannual Report
[photos]
VP Income & Growth Fund
[american century logo and text logo (reg.tm)]
[inside front cover - blank]
[inside front cover]
Table of Contents
VP INCOME & GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Five Largest Overweights . . . . . . . . . . . . . . . . . . . . . . . . . 5
Five Largest Underweights . . . . . . . . . . . . . . . . . . . . . . . . .5
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 9
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . 11
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .12
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
OTHER INFORMATION
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
VP Income & Growth - Performance
TOTAL RETURNS AS OF JUNE 30, 2004
----------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 21.02% -0.75% 5.68% 10/30/97
- --------------------------------------------------------------------------------
S&P 500 INDEX 19.11% -2.20% 5.09% --
- --------------------------------------------------------------------------------
Class II 20.93% -- 5.38% 5/1/02
- --------------------------------------------------------------------------------
Class III 21.02% -- 11.40% 6/26/02
- --------------------------------------------------------------------------------
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 the 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.
Unless otherwise indicated, performance reflects Class I 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.
- ------
2
VP Income & Growth - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made October 30, 1997
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended June 30
- --------------------------------------------------------------------------------
1998* 1999 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
Class I 26.63% 18.54% 3.68% -10.84% -14.54% 0.71% 21.02%
- --------------------------------------------------------------------------------
S&P 500 Index 26.79% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11%
- --------------------------------------------------------------------------------
*From 10/30/97, the class's inception date, to 6/30/98. Not annualized.
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.
Unless otherwise indicated, performance reflects Class I 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.
- ------
3
VP Income & Growth - Portfolio Commentary
BY JOHN SCHNIEDWIND, KURT BORGWARDT, ZILI ZHANG, AND VIVIENNE HSU
PERFORMANCE SUMMARY
VP Income & Growth posted a total return of 4.81%* for the first half of 2004,
compared with the 3.44% return of its benchmark index, the S&P 500. As the table
on page 2 illustrates, the portfolio has also outperformed the index over longer
periods of time.
STOCK MARKET REVIEW
On the heels of its strong performance in 2003, the U.S. stock market posted
positive results in the first half of 2004. The economic environment remained
favorable for stocks--the economy (as measured by gross domestic product) grew
at a 4.5% annual rate in the first quarter of the year, and job growth rebounded
sharply during the second quarter. The earnings of S&P 500 companies surged by
27% in the first quarter--the third consecutive quarter of earnings growth above
20%--and second-quarter profits are on track to extend that streak to four
straight quarters.
However, these positive influences were tempered by concerns about higher
inflation, rising oil prices, terrorism, and violence in Iraq. In addition, the
Federal Reserve enacted its first interest rate hike in more than four years on
June 30, raising its federal funds rate target from 1% to 1.25%.
As a result, the major U.S. stock indices posted single-digit returns during the
first six months of 2004. Two trends from 2003 continued in the first half of
this year--small-cap stocks led the market's advance, while value stocks
generally outperformed growth. Every sector of the S&P 500 gained during the
six-month period, but the best performers were energy, industrials, and consumer
staples; lagging sectors included information technology, materials, and
consumer discretionary.
PORTFOLIO OVERVIEW
Although the portfolio's value orientation contributed favorably to results,
stock selection was the key to VP Income & Growth's outperformance of the S&P
500. The utilities and consumer staples sectors provided the greatest
contribution to fund results.
In the utilities sector, electric utilities were the best performers. Two of VP
Income & Growth's top five contributors to performance, on both an absolute and
relative basis, were overweights TXU and Edison International. TXU,
TOP TEN HOLDINGS
AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF PORTFOLIO % OF PORTFOLIO
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Bank of America Corp. 4.5% 4.1%
- --------------------------------------------------------------------------------
ChevronTexaco Corp. 4.5% 2.5%
- --------------------------------------------------------------------------------
Citigroup Inc. 4.1% 3.3%
- --------------------------------------------------------------------------------
J.P. Morgan Chase
& Co. 3.2% 2.4%
- --------------------------------------------------------------------------------
Johnson & Johnson 3.1% 1.4%
- --------------------------------------------------------------------------------
Microsoft Corporation 3.1% 2.6%
- --------------------------------------------------------------------------------
International Business
Machines Corp. 2.5% 1.4%
- --------------------------------------------------------------------------------
Intel Corp. 2.5% 3.9%
- --------------------------------------------------------------------------------
Ace, Ltd. 2.4% 0.9%
- --------------------------------------------------------------------------------
Edison International 2.3% 1.5%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Class I shares.
(continued)
- ------
4
VP Income & Growth - Portfolio Commentary
the largest electricity supplier in Texas, rose sharply as a new management team
worked to reduce debt and increase earnings through asset sales and cost-cutting
measures. Edison reported significantly better-than-expected profits in the
first quarter.
Stock picks in the consumer staples sector also fared well. One of the top
contributors to relative performance was Tyson Foods, a stock not represented in
the S&P 500. Tyson, one of the largest meat producers in the country, soared
thanks in part to increased demand sparked by the low-carbohydrate diet craze.
Another top contributor was RJ Reynolds Tobacco, which surged after gaining FTC
approval for its merger with Brown & Williamson.
Other sectors that contributed positively to relative performance included
materials and energy. In the materials sector, the portfolio benefited from an
overweight position in chemicals company Monsanto, which reported increased
sales of its herbicide products. Rising oil prices boosted the energy sector;
two of VP Income & Growth's biggest energy overweights, Sunoco and top-ten
holding ChevronTexaco, were among the top contributors to performance.
Three key sectors detracted from relative performance--information technology,
health care, and industrials. The information technology sector contained the
biggest individual detractor from portfolio performance--Intel, which reported
disappointing first-quarter earnings. Beyond Intel, the culprits were primarily
stocks in the S&P 500 that performed well but were underrepresented in the
portfolio, including Yahoo! and QUALCOMM.
VP Income & Growth's biggest relative detractors in the industrials sector were
also underweights that posted strong results, such as General Electric and
Boeing. In the health care sector, the portfolio's worst performers included
pharmaceuticals giant Bristol-Myers Squibb, which reduced 2004 profit guidance,
and health care services provider Health Net, which fell after a weak
first-quarter earnings report.
As always, we will continue to seek stocks that we believe have an attractive
combination of value and growth potential, while attempting to balance the
portfolio's risk and expected return.
VP INCOME & GROWTH'S FIVE LARGEST
OVERWEIGHTS AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF % OF
PORTFOLIO'S S&P 500
STOCKS INDEX
- --------------------------------------------------------------------------------
ChevronTexaco Corp. 4.54% 0.95%
- --------------------------------------------------------------------------------
Bank of America Corp. 4.55% 1.62%
- --------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 3.18% 0.76%
- --------------------------------------------------------------------------------
Ace, Ltd. 2.44% 0.11%
- --------------------------------------------------------------------------------
Edison International 2.28% 0.08%
- --------------------------------------------------------------------------------
VP INCOME & GROWTH'S FIVE LARGEST
UNDERWEIGHTS AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF % OF
PORTFOLIO'S S&P 500
STOCKS INDEX
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 0.22% 2.73%
- --------------------------------------------------------------------------------
General Electric Co. 0.81% 3.22%
- --------------------------------------------------------------------------------
Wal-Mart Stores Inc. -- 2.13%
- --------------------------------------------------------------------------------
American International
Group, Inc. -- 1.75%
- --------------------------------------------------------------------------------
Coca-Cola Company
(The) -- 1.16%
- --------------------------------------------------------------------------------
- ------
5
VP Income & Growth - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.0%
AEROSPACE & DEFENSE -- 0.3%
- --------------------------------------------------------------------------------
28,541 Boeing Co. $ 1,458,159
- --------------------------------------------------------------------------------
6,106 General Dynamics Corp. 606,326
- --------------------------------------------------------------------------------
2,064,485
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 1.0%
- --------------------------------------------------------------------------------
21,846 FedEx Corporation 1,784,600
- --------------------------------------------------------------------------------
81,324 United Parcel Service, Inc. Cl B 6,113,125
- --------------------------------------------------------------------------------
7,897,725
- --------------------------------------------------------------------------------
AIRLINES -- 0.2%
- --------------------------------------------------------------------------------
20,400 Delta Air Lines Inc.(1) 145,248
- --------------------------------------------------------------------------------
64,039 Southwest Airlines Co. 1,073,934
- --------------------------------------------------------------------------------
1,219,182
- --------------------------------------------------------------------------------
AUTOMOBILES -- 2.2%
- --------------------------------------------------------------------------------
1,116,479 Ford Motor Company 17,472,896
- --------------------------------------------------------------------------------
BEVERAGES -- 1.7%
- --------------------------------------------------------------------------------
143,903 Adolph Coors Company Cl B 10,409,943
- --------------------------------------------------------------------------------
95,741 Coca-Cola Enterprises 2,775,532
- --------------------------------------------------------------------------------
13,185,475
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.8%
- --------------------------------------------------------------------------------
108,047 Amgen Inc.(1) 5,896,125
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 3.3%
- --------------------------------------------------------------------------------
639,126 J.P. Morgan Chase & Co. 24,778,915
- --------------------------------------------------------------------------------
23,519 Morgan Stanley 1,241,098
- --------------------------------------------------------------------------------
26,020,013
- --------------------------------------------------------------------------------
CHEMICALS -- 2.1%
- --------------------------------------------------------------------------------
435,867 Monsanto Co. 16,780,880
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 6.2%
- --------------------------------------------------------------------------------
419,337 Bank of America Corp. 35,484,297
- --------------------------------------------------------------------------------
24,655 National City Corp. 863,172
- --------------------------------------------------------------------------------
177,864 Wachovia Corp. 7,914,948
- --------------------------------------------------------------------------------
70,676 Wells Fargo & Co. 4,044,787
- --------------------------------------------------------------------------------
48,307,204
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 0.5%
- --------------------------------------------------------------------------------
157,824 Cendant Corporation 3,863,532
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.1%
- --------------------------------------------------------------------------------
90,102 Aspect Communications
Corporation(1) 1,279,448
- --------------------------------------------------------------------------------
138,963 Cisco Systems Inc.(1) 3,293,423
- --------------------------------------------------------------------------------
24,804 Harris Corp. 1,258,803
- --------------------------------------------------------------------------------
593,694 Motorola, Inc. 10,834,916
- --------------------------------------------------------------------------------
16,666,590
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 3.9%
- --------------------------------------------------------------------------------
494,957 Hewlett-Packard Co. 10,443,593
- --------------------------------------------------------------------------------
225,226 International Business
Machines Corp. 19,853,672
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
19,200 Storage Technology Corp.(1) $ 556,800
- --------------------------------------------------------------------------------
30,854,065
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 4.1%
- --------------------------------------------------------------------------------
688,680 Citigroup Inc. 32,023,620
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.7%
- --------------------------------------------------------------------------------
112,900 ALLTEL Corp. 5,714,998
- --------------------------------------------------------------------------------
62,290 AT&T Corp. 911,303
- --------------------------------------------------------------------------------
269,353 BellSouth Corp. 7,062,436
- --------------------------------------------------------------------------------
242,089 SBC Communications Inc. 5,870,658
- --------------------------------------------------------------------------------
95,043 Sprint Corp. 1,672,757
- --------------------------------------------------------------------------------
206,607 Verizon Communications 7,477,107
- --------------------------------------------------------------------------------
28,709,259
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 4.5%
- --------------------------------------------------------------------------------
444,414 CenterPoint Energy, Inc. 5,110,761
- --------------------------------------------------------------------------------
695,716 Edison International 17,789,457
- --------------------------------------------------------------------------------
122,934 Great Plains Energy Inc. 3,651,140
- --------------------------------------------------------------------------------
78,742 OGE Energy Corp. 2,005,559
- --------------------------------------------------------------------------------
25,207 PG&E Corp.(1) 704,284
- --------------------------------------------------------------------------------
148,816 TXU Corp. 6,028,536
- --------------------------------------------------------------------------------
35,289,737
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.3%
- --------------------------------------------------------------------------------
224,116 Arrow Electronics, Inc.(1) 6,010,790
- --------------------------------------------------------------------------------
122,875 Avnet Inc.(1) 2,789,263
- --------------------------------------------------------------------------------
88,658 Sanmina-SCI Corp.(1) 806,788
- --------------------------------------------------------------------------------
7,808 Tech Data Corp.(1) 305,527
- --------------------------------------------------------------------------------
9,912,368
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 1.2%
- --------------------------------------------------------------------------------
305,597 Supervalu Inc. 9,354,324
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.7%
- --------------------------------------------------------------------------------
104,092 Corn Products International Inc. 4,845,483
- --------------------------------------------------------------------------------
395,231 Tyson Foods, Inc. Cl A 8,280,089
- --------------------------------------------------------------------------------
13,125,572
- --------------------------------------------------------------------------------
GAS UTILITIES -- 0.1%
- --------------------------------------------------------------------------------
35,421 UGI Corp. 1,137,014
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.9%
- --------------------------------------------------------------------------------
88,631 Applera Corporation-Applied
Biosystems Group 1,927,724
- --------------------------------------------------------------------------------
93,593 Becton Dickinson & Co. 4,848,118
- --------------------------------------------------------------------------------
6,775,842
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 1.6%
- --------------------------------------------------------------------------------
193,739 AmerisourceBergen Corp. 11,581,718
- --------------------------------------------------------------------------------
39,847 Humana Inc.(1) 673,414
- --------------------------------------------------------------------------------
12,255,132
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 0.3%
- --------------------------------------------------------------------------------
95,140 McDonald's Corporation 2,473,640
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
6
VP Income & Growth - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.0%
- --------------------------------------------------------------------------------
70,967 Black & Decker Corporation $ 4,409,179
- --------------------------------------------------------------------------------
43,236 KB Home 2,967,287
- --------------------------------------------------------------------------------
875 NVR, Inc.(1) 423,675
- --------------------------------------------------------------------------------
7,800,141
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.7%
- --------------------------------------------------------------------------------
96,526 Kimberly-Clark Corp. 6,359,133
- --------------------------------------------------------------------------------
271,804 Procter & Gamble Co. (The) 14,797,010
- --------------------------------------------------------------------------------
21,156,143
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 1.4%
- --------------------------------------------------------------------------------
194,910 General Electric Co. 6,315,084
- --------------------------------------------------------------------------------
151,094 Tyco International Ltd. 5,007,255
- --------------------------------------------------------------------------------
11,322,339
- --------------------------------------------------------------------------------
INSURANCE -- 6.0%
- --------------------------------------------------------------------------------
449,052 Ace, Ltd. 18,985,919
- --------------------------------------------------------------------------------
49,627 Allstate Corp. 2,310,137
- --------------------------------------------------------------------------------
42,589 American Financial Group, Inc. 1,301,946
- --------------------------------------------------------------------------------
65,138 AmerUs Group Co. 2,696,713
- --------------------------------------------------------------------------------
112,985 AON Corp. 3,216,683
- --------------------------------------------------------------------------------
211,173 Berkley (W.R.) Corp. 9,069,880
- --------------------------------------------------------------------------------
28,442 Fidelity National Financial, Inc. 1,062,024
- --------------------------------------------------------------------------------
266,562 First American Financial Corp.
(The) 6,901,290
- --------------------------------------------------------------------------------
24,080 Protective Life Corporation 931,174
- --------------------------------------------------------------------------------
6,709 St. Paul Companies, Inc. 271,983
- --------------------------------------------------------------------------------
46,747,749
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.5%
- --------------------------------------------------------------------------------
445,325 Earthlink Inc.(1) 4,609,114
- --------------------------------------------------------------------------------
170,349 United Online, Inc.(1) 2,999,846
- --------------------------------------------------------------------------------
188,677 VeriSign, Inc.(1) 3,754,672
- --------------------------------------------------------------------------------
11,363,632
- --------------------------------------------------------------------------------
IT SERVICES -- 1.2%
- --------------------------------------------------------------------------------
24,926 Acxiom Corp. 618,913
- --------------------------------------------------------------------------------
30,431 Checkfree Corp.(1) 912,930
- --------------------------------------------------------------------------------
171,926 Computer Sciences Corp.(1) 7,982,524
- --------------------------------------------------------------------------------
9,514,367
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 1.9%
- --------------------------------------------------------------------------------
544,206 Eastman Kodak Co. 14,682,678
- --------------------------------------------------------------------------------
MEDIA -- 4.0%
- --------------------------------------------------------------------------------
434,461 Disney (Walt) Co. 11,074,411
- --------------------------------------------------------------------------------
118,923 PanAmSat Corp.(1) 2,761,392
- --------------------------------------------------------------------------------
182,763 Regal Entertainment Group 3,308,010
- --------------------------------------------------------------------------------
805,933 Time Warner Inc.(1) 14,168,302
- --------------------------------------------------------------------------------
31,312,115
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER -- 0.3%
- --------------------------------------------------------------------------------
41,503 Constellation Energy Group Inc. $ 1,572,964
- --------------------------------------------------------------------------------
21,661 National Fuel Gas Co. 541,525
- --------------------------------------------------------------------------------
2,114,489
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 3.3%
- --------------------------------------------------------------------------------
301,400 Federated Department Stores,
Inc. 14,798,740
- --------------------------------------------------------------------------------
405,341 May Department Stores Co.
(The) 11,142,824
- --------------------------------------------------------------------------------
25,941,564
- --------------------------------------------------------------------------------
OIL & GAS -- 7.1%
- --------------------------------------------------------------------------------
376,211 ChevronTexaco Corp. 35,405,218
- --------------------------------------------------------------------------------
97,342 ConocoPhillips 7,426,221
- --------------------------------------------------------------------------------
39,171 Exxon Mobil Corp. 1,739,584
- --------------------------------------------------------------------------------
154,354 Sunoco, Inc. 9,820,001
- --------------------------------------------------------------------------------
32,246 Valero Energy Corp. 2,378,465
- --------------------------------------------------------------------------------
56,769,489
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.3%
- --------------------------------------------------------------------------------
104,835 Georgia-Pacific Corp. 3,876,798
- --------------------------------------------------------------------------------
126,859 Louisiana-Pacific Corp. 3,000,215
- --------------------------------------------------------------------------------
79,706 Potlatch Corp. 3,318,958
- --------------------------------------------------------------------------------
10,195,971
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 8.2%
- --------------------------------------------------------------------------------
454,038 Bristol-Myers Squibb Co. 11,123,931
- --------------------------------------------------------------------------------
439,579 Johnson & Johnson 24,484,549
- --------------------------------------------------------------------------------
273,748 Merck & Co., Inc. 13,003,030
- --------------------------------------------------------------------------------
473,582 Pfizer, Inc. 16,234,391
- --------------------------------------------------------------------------------
64,845,901
- --------------------------------------------------------------------------------
REAL ESTATE -- 2.2%
- --------------------------------------------------------------------------------
146,840 CBL & Associates Properties,
Inc. 8,076,201
- --------------------------------------------------------------------------------
25,393 Colonial Properties Trust 978,392
- --------------------------------------------------------------------------------
197,501 Equity Office Properties Trust 5,372,027
- --------------------------------------------------------------------------------
40,324 Plum Creek Timber Co. Inc. 1,313,756
- --------------------------------------------------------------------------------
39,981 Rayonier, Inc. 1,777,155
- --------------------------------------------------------------------------------
17,517,531
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.4%
- --------------------------------------------------------------------------------
27,756 Burlington Northern Santa Fe
Corp. 973,403
- --------------------------------------------------------------------------------
15,300 CSX Corporation 501,381
- --------------------------------------------------------------------------------
27,750 Norfolk Southern Corp. 735,930
- --------------------------------------------------------------------------------
19,579 Union Pacific Corp. 1,163,971
- --------------------------------------------------------------------------------
3,374,685
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
VP Income & Growth - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.7%
- --------------------------------------------------------------------------------
713,468 Intel Corp. $ 19,691,716
- --------------------------------------------------------------------------------
49,881 Texas Instruments Inc. 1,206,123
- --------------------------------------------------------------------------------
20,897,839
- --------------------------------------------------------------------------------
SOFTWARE -- 3.1%
- --------------------------------------------------------------------------------
844,089 Microsoft Corporation 24,107,182
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.5%
- --------------------------------------------------------------------------------
192,087 Barnes & Noble Inc.(1) 6,527,116
- --------------------------------------------------------------------------------
342,149 Blockbuster Inc. 5,193,822
- --------------------------------------------------------------------------------
5,800 Borders Group Inc. 135,952
- --------------------------------------------------------------------------------
10,900 Gap, Inc. (The) 264,325
- --------------------------------------------------------------------------------
47,835 Rent-A-Center Inc.(1) 1,431,702
- --------------------------------------------------------------------------------
147,582 Sherwin-Williams Co. 6,132,032
- --------------------------------------------------------------------------------
19,684,949
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.3%
- --------------------------------------------------------------------------------
137,305 Countrywide Financial
Corporation 9,645,676
- --------------------------------------------------------------------------------
19,166 Flagstar Bancorp Inc. 381,020
- --------------------------------------------------------------------------------
10,026,696
- --------------------------------------------------------------------------------
TOBACCO -- 2.8%
- --------------------------------------------------------------------------------
143,325 Altria Group Inc. 7,173,416
- --------------------------------------------------------------------------------
218,424 R.J. Reynolds Tobacco
Holdings, Inc. 14,763,278
- --------------------------------------------------------------------------------
21,936,694
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.4%
- --------------------------------------------------------------------------------
104,221 Nextel Communications, Inc.(1) 2,778,532
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $672,450,792) 775,375,366
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 0.5%
AUTOMOBILES -- 0.3%
- --------------------------------------------------------------------------------
26,552 Ford Motor Company Capital
Trust II, 6.50%, 1/15/32 $ 1,453,988
- --------------------------------------------------------------------------------
33,900 General Motors Corp., Series B,
5.25%, 3/6/32 837,669
- --------------------------------------------------------------------------------
2,291,657
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.2%
- --------------------------------------------------------------------------------
11,500 Xerox Corp., 6.25%, 7/1/06 1,522,600
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $3,290,136) 3,814,257
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.5%
Repurchase Agreement, Merrill Lynch & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 1.10%, dated 6/30/04,
due 7/1/04 (Delivery value $1,000,031) 1,000,000
- --------------------------------------------------------------------------------
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations), in a joint trading
account at 1.16%, dated 6/30/04, due
7/1/04 (Delivery value $3,000,097) 3,000,000
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $4,000,000) 4,000,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 100.0%
(Cost $679,740,928) $783,189,623
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
See Notes to Financial Statements.
- ------
8
Statement of Assets and Liabilities
JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $679,740,928) $783,189,623
- ------------------------------------------------------------
Receivable for investments sold 6,991,934
- ------------------------------------------------------------
Dividends and interest receivable 1,594,775
- --------------------------------------------------------------------------------
791,776,332
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash 6,276,268
- ------------------------------------------------------------
Payable for investments purchased 8,214,531
- ------------------------------------------------------------
Accrued management fees 441,015
- ------------------------------------------------------------
Distribution fees payable 4,477
- --------------------------------------------------------------------------------
14,936,291
- --------------------------------------------------------------------------------
NET ASSETS $776,840,041
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $803,815,144
- ------------------------------------------------------------
Undistributed net investment income 6,947,024
- ------------------------------------------------------------
Accumulated net realized loss on investment transactions (137,370,822)
- ------------------------------------------------------------
Net unrealized appreciation on investments 103,448,695
- --------------------------------------------------------------------------------
$776,840,041
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $751,463,152
- ------------------------------------------------------------
Shares outstanding 110,615,748
- ------------------------------------------------------------
Net asset value per share $6.79
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $22,197,697
- ------------------------------------------------------------
Shares outstanding 3,269,567
- ------------------------------------------------------------
Net asset value per share $6.79
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $3,179,192
- ------------------------------------------------------------
Shares outstanding 467,977
- ------------------------------------------------------------
Net asset value per share $6.79
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
9
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Dividends $ 9,851,574
- ------------------------------------------------------------
Interest 9,860
- --------------------------------------------------------------------------------
9,861,434
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 2,868,571
- ------------------------------------------------------------
Distribution fees -- Class II 23,736
- ------------------------------------------------------------
Directors' fees and expenses 5,560
- ------------------------------------------------------------
Other expenses 4,843
- --------------------------------------------------------------------------------
2,902,710
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,958,724
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 48,612,849
- ------------------------------------------------------------
Change in net unrealized appreciation on investments (18,499,882)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 30,112,967
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 37,071,691
================================================================================
See Notes to Financial Statements.
- ------
10
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 6,958,724 $ 12,156,233
- --------------------------------------------
Net realized gain (loss) 48,612,849 (11,367,334)
- --------------------------------------------
Change in net unrealized appreciation (18,499,882) 181,109,271
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 37,071,691 181,898,170
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- --------------------------------------------
Class I (11,852,776) (8,491,082)
- --------------------------------------------
Class II (215,506) (31,221)
- --------------------------------------------
Class III (31,257) (2,354)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (12,099,539) (8,524,657)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions (90,955,321) 53,116,710
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (65,983,169) 226,490,223
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 842,823,210 616,332,987
- --------------------------------------------------------------------------------
End of period $776,840,041 $842,823,210
================================================================================
Undistributed net investment income $6,947,024 $12,087,839
================================================================================
See Notes to Financial Statements.
- ------
11
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Income & Growth 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 capital growth. Income is a
secondary objective. The fund pursues its objective through investing in common
stocks. The following is a summary of the fund's significant accounting
policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II, and Class
III. The share classes differ principally in their respective shareholder
servicing and distribution expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the assets of the class to which such
shares belong, and have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except for class specific expenses and
exclusive rights to vote on matters affecting only individual classes. Income,
non-class specific expenses, and realized and unrealized capital gains and
losses of the fund are allocated to each class of shares based on their relative
net assets.
SECURITY VALUATIONS--Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending on
local convention or regulation, securities traded over-the-counter are valued at
the mean of the latest bid and asked prices, the last sales price, or the
official close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade
date. Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks of
entering into futures contracts is the possibility that the change in value of
the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM 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.
(continued)
- ------
12
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 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.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes, and may result in reclassification among certain
capital accounts on the financial statements.
As of December 31, 2003, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $158,896,405, which may be used to
offset future taxable gains. The capital loss carryovers consist of $642,189,
$4,411,767, $25,558,548, $63,380,953, $48,053,161, and $16,849,787 which expire
in 2006, 2007, 2008, 2009, 2010, and 2011, respectively.
The fund has elected to treat $1,891,109 of net capital losses incurred in the
two-month period ended December 31, 2003, as having been incurred in the
following fiscal year for federal income tax purposes.
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee is
retained by the fund and helps cover transaction costs that long-term investors
may bear when a fund sells securities to meet investor redemptions.
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 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 daily and paid
monthly in arrears based on each class's pro rata share of the fund's average
daily closing net assets during the previous month. The annual management fee
for Class I, Class II, and Class III is 0.70%.
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 daily and
paid monthly in arrears based on the Class II average daily closing net assets
during the previous month. 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, 2004, 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
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
During the six months ended June 30, 2004, the fund invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The fund has a bank line of
credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2004, were $305,180,482 and $396,520,178,
respectively.
For the six months ended June 30, 2004, the fund incurred net realized losses of
$4,773,609 from redemptions in kind. A redemption in kind occurs when a fund
delivers securities from its portfolio in lieu of cash as payment to a redeeming
shareholder.
As of June 30, 2004, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $704,937,175
================================================================================
Gross tax appreciation of investments $106,841,351
- -----------------------------------------
Gross tax depreciation of investments (28,588,903)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $ 78,252,448
================================================================================
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.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 300,000,000
================================================================================
Sold 9,277,798 $ 61,968,151
- ------------------------------------------
Issued in reinvestment of distributions 1,763,806 11,852,776
- ------------------------------------------
Redeemed (26,249,510) (173,409,361)
- --------------------------------------------------------------------------------
Net decrease (15,207,906) $ (99,588,434)
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 300,000,000
================================================================================
Sold 39,038,698 $ 219,665,888
- ------------------------------------------
Issued in reinvestment of distributions 1,833,927 8,491,082
- ------------------------------------------
Redeemed (34,104,661) (187,106,334)
- --------------------------------------------------------------------------------
Net increase 6,767,964 $ 41,050,636
================================================================================
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 1,256,437 $ 8,396,002
- ------------------------------------------
Issued in reinvestment of distributions 32,069 215,506
- ------------------------------------------
Redeemed (209,960) (1,406,093)
- --------------------------------------------------------------------------------
Net increase 1,078,546 $ 7,205,415
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 2,061,790 $12,010,012
- ------------------------------------------
Issued in reinvestment of distributions 6,743 31,221
- ------------------------------------------
Redeemed (174,961) (1,021,817)
- --------------------------------------------------------------------------------
Net increase 1,893,572 $11,019,416
================================================================================
CLASS III
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 242,953 $1,620,328
- ------------------------------------------
Issued in reinvestment of distributions 4,651 31,257
- ------------------------------------------
Redeemed (33,620) (223,887)(1)
- --------------------------------------------------------------------------------
Net increase 213,984 $1,427,698
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 329,364 $1,907,307
- ------------------------------------------
Issued in reinvestment of distributions 508 2,354
- ------------------------------------------
Redeemed (148,808) (863,003)(2)
- --------------------------------------------------------------------------------
Net increase 181,064 $1,046,658
================================================================================
(1) No redemption fees were incurred.
(2) Net of redemption fees of $3,336.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the six months ended June 30, 2004.
- ------
15
VP Income & Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- ----------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------
2004(1) 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $6.57 $5.16 $6.46 $7.11 $8.00 $6.78
- ----------------------------------------------------------------------------------------------------
Income From
Investment Operations
- ----------------------------
Net Investment Income 0.06(2) 0.10(2) 0.08(2) 0.06 0.05 0.08(2)
- ----------------------------
Net Realized and
Unrealized Gain (Loss) 0.26 1.38 (1.32) (0.65) (0.90) 1.14
- ----------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.32 1.48 (1.24) (0.59) (0.85) 1.22
- ----------------------------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income (0.10) (0.07) (0.06) (0.06) (0.04) --(3)
- ----------------------------------------------------------------------------------------------------
Redemption Fees(4) -- --(3) --(3) -- -- --
- ----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $6.79 $6.57 $5.16 $6.46 $7.11 $8.00
====================================================================================================
TOTAL RETURN(5) 4.81% 29.35% (19.37)% (8.35)% (10.62)% 18.02%
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.70%(6) 0.70% 0.70% 0.70% 0.70% 0.70%
- ----------------------------
Ratio of Net
Investment Income
to Average Net Assets 1.71%(6) 1.78% 1.32% 1.05% 0.93% 1.09%
- ----------------------------
Portfolio Turnover Rate 37% 71% 72% 56% 58% 50%
- ----------------------------
Net Assets, End of Period
(in thousands) $751,463 $826,785 $614,424 $701,274 $648,120 $459,110
- ----------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Redemption fees may be charged on redemption of Class III shares. Periods
prior to the commencement of sale of Class III shares did not incur any
redemption fees. Computed using average shares outstanding throughout the
period.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(6) Annualized.
See Notes to Financial Statements.
- ------
16
VP Income & Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2004(1) 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $6.56 $5.15 $6.22
- --------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------
Net Investment Income(3) 0.05 0.09 0.05
- ---------------------------------------
Net Realized and Unrealized
Gain (Loss) 0.26 1.39 (1.12)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.31 1.48 (1.07)
- --------------------------------------------------------------------------------
Distributions
- ---------------------------------------
From Net Investment Income (0.08) (0.07) --
- --------------------------------------------------------------------------------
Redemption Fees(4) -- --(5) --(5)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $6.79 $6.56 $5.15
================================================================================
TOTAL RETURN(6) 4.71% 29.19% (17.20)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.95%(7) 0.95% 0.95%(7)
- ---------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.46%(7) 1.53% 1.42%(7)
- ---------------------------------------
Portfolio Turnover Rate 37% 71% 72%(8)
- ---------------------------------------
Net Assets, End of Period
(in thousands) $22,198 $14,370 $1,533
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) May 1, 2002 (commencement of sale) through December 31, 2002.
(3) Computed using average shares outstanding throughout the period.
(4) Redemption fees may be charged on redemption of Class III shares. Periods
prior to the commencement of sale of Class III shares did not incur any
redemption fees. Computed using average shares outstanding throughout the
period.
(5) Per-share amount was less than $0.005.
(6) 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.
(7) Annualized.
(8) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2002.
See Notes to Financial Statements.
- ------
17
VP Income & Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
CLASS III
- --------------------------------------------------------------------------------
2004(1) 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $6.57 $5.16 $5.63
- --------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------
Net Investment Income(3) 0.06 0.11 0.04
- ---------------------------------------
Net Realized and Unrealized
Gain (Loss) 0.26 1.37 (0.51)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.32 1.48 (0.47)
- --------------------------------------------------------------------------------
Distributions
- ---------------------------------------
From Net Investment Income (0.10) (0.07) --
- --------------------------------------------------------------------------------
Redemption Fees(3) -- --(4) --(4)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $6.79 $6.57 $5.16
================================================================================
TOTAL RETURN(5) 4.81% 29.35% (8.35)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.70%(6) 0.70% 0.70%(6)
- ---------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.71%(6) 1.78% 1.63%(6)
- ---------------------------------------
Portfolio Turnover Rate 37% 71% 72%(7)
- ---------------------------------------
Net Assets, End of Period
(in thousands) $3,179 $1,669 $376
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) June 26, 2002 (commencement of sale) through December 31, 2002.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2002.
See Notes to Financial Statements.
- ------
18
Share Class Information
Three classes of shares are authorized for sale by the fund: Class I, Class II,
and Class III.
CLASS I shares are sold through insurance company separate accounts. Class I
shareholders do not pay any commissions or other fees to American Century for
the purchase of fund shares.
CLASS II shares are sold through insurance company separate accounts. Class II
shares are subject to a 0.25% Rule 12b-1 distribution fee, which is available to
pay for distribution services provided by the financial intermediary through
which the Class II shares are purchased. The total expense ratio of Class II
shares is higher than the total expense ratio of the Class I shares.
CLASS III shares are sold through insurance company separate accounts. Class III
shareholders do not pay any commissions or other fees to American Century for
the purchase of fund shares. However, Class III shares have a 1.00% redemption
fee for shares that are redeemed or exchanged within 60 days of purchase.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences. Because all shares of the fund are sold
through insurance company separate accounts, additional fees may apply.
- ------
19
Additional Information
INDEX DEFINITION
The following index is used to illustrate investment market, sector, or style
performance or to serve as a fund performance comparison. It is not an
investment product available for purchase.
The S&P 500 INDEX is a market-value weighted index of the stocks of 500 publicly
traded U.S. companies chosen for market size, liquidity, and industry group
representation that are considered to be leading firms in dominant industries.
Each stock's weight in the index is proportionate to its market value. Created
by Standard & Poor's, it is considered to be a broad measure of U.S. stock
market performance.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, 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 manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-378-9878. It is also available on American Century's Web site at
americancentury.com and on the Securities and Exchange Commission's Web site at
sec.gov.
- ------
20
[inside back cover - blank]
[back cover]
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, INC.
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century logo, American Century and American Century Investments are
service marks of American Century Services Corporation.
0408 American Century Investment Services, Inc.
SH-SAN-38966 (c)2004 American Century Services Corporation
[front cover]
JUNE 30, 2004
American Century Variable Portfolios
Semiannual Report
[graphic of market line chart]
[graphic of starfish]
[graphic of side-by-side bridges]
VP International
[american century investments logo and text logo]
[blank page - inside front cover]
Table of Contents
VP INTERNATIONAL
Performance ................................................................2
Portfolio Commentary .......................................................3
Types of Investments in Portfolio .......................................3
Top Ten Holdings ........................................................3
Top Five Industries .....................................................4
Investments by Country ..................................................4
Schedule of Investments ....................................................5
FINANCIAL STATEMENTS
Statement of Assets and Liabilities ........................................8
Statement of Operations ....................................................9
Statement of Changes in Net Assets ........................................10
Notes to Financial Statements .............................................11
Financial Highlights ......................................................17
OTHER INFORMATION
Share Class Information ...................................................21
Additional Information ....................................................22
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
VP International - Performance
TOTAL RETURNS AS OF JUNE 30, 2004
--------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 21.31% -1.81% 5.58% 5.26% 5/1/94
- --------------------------------------------------------------------------------
MSCI EAFE INDEX 32.37% 0.06% 4.06% 4.07% --
- --------------------------------------------------------------------------------
Class II 21.13% -- -- -2.46% 8/15/01
- --------------------------------------------------------------------------------
Class III 21.31% -- -- 1.52% 5/2/02
- --------------------------------------------------------------------------------
Class IV -- -- -- 1.08%(1) 5/3/04
- --------------------------------------------------------------------------------
(1) Returns for periods less than one year are not annualized.
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 the insurance
contracts.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made June 30, 1994
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended June 30
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
Class I 1.02% 15.77% 26.67% 25.12% 1.74%
- --------------------------------------------------------------------------------
MSCI EAFE Index 1.65% 13.28% 12.84% 6.10% 7.62%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
Class I 43.62% -29.33% -15.28% -12.51% 21.31%
- --------------------------------------------------------------------------------
MSCI EAFE Index 17.16% -23.60% -9.49% -6.46% 32.37%
- --------------------------------------------------------------------------------
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.
Unless otherwise indicated, performance reflects Class I 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.
- ------
2
VP International - Portfolio Commentary
[photos of Henrik Strabo and Keith Creveling]
A PORTFOLIO COMMENTARY FROM HENRIK STRABO AND KEITH CREVELING, PORTFOLIO
MANAGERS ON THE VP INTERNATIONAL INVESTMENT TEAM.
VP International advanced 2.26%* during the six months ended June 30, 2004,
while its benchmark, the Morgan Stanley Capital International EAFE Index,
returned 4.56%.
Markets in the world's developed nations gained during the period, with the EAFE
Index advancing as countries continued to report good news on the economic front
and investors remained confident of strength among corporations. The gains were
strongest in early 2004, but for part of the period, concern about the
possibility of higher U.S. interest rates, rising oil prices and heightened
violence in Iraq took a toll on markets. The threat of slowing demand from China
also negatively affected international markets, especially those in Asia, and
led to declines among some companies in the portfolio from that region.
Against that backdrop, seven of 10 sectors in which we were invested advanced,
with our complement of consumer staples holdings posting the largest
contribution and outperforming the index. But several sectors -- notably
industrials, consumer discretionary and energy -- underperformed the index,
causing the portfolio to lag the benchmark.
The best absolute performance came from the consumer staples sector, which
contributed most to the portfolio's return and outperformed the index. VP
International's stake in the household products industry led the advance, with
the United Kingdom's Reckitt Benckiser making the largest contribution. Reckitt
Benckiser, one of the world's biggest makers of household cleaners, reported
during the period that profit rose 28% in the first quarter of 2004.
We benefited in absolute terms from companies that make or sell consumer goods,
including sporting goods. Consumer spending remained relatively
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Common Stocks 97.3% 98.2%
- --------------------------------------------------------------------------------
Preferred Stocks 0.7% 0.7%
- --------------------------------------------------------------------------------
TOTAL EQUITY EXPOSURE 98.0% 98.9%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 2.0% 1.1%
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Total SA Cl B 2.5% 2.0%
- --------------------------------------------------------------------------------
Roche Holding AG 2.5% 1.7%
- --------------------------------------------------------------------------------
Smith & Nephew plc 2.2% 0.4%
- --------------------------------------------------------------------------------
Samsung Electronics 2.0% 1.3%
- --------------------------------------------------------------------------------
Reckitt Benckiser plc 2.0% 1.5%
- --------------------------------------------------------------------------------
Sumitomo Mitsui
Financial Group Inc. 2.0% 1.2%
- --------------------------------------------------------------------------------
Novartis AG 1.9% --
- --------------------------------------------------------------------------------
Vivendi Universal SA 1.6% 0.5%
- --------------------------------------------------------------------------------
Tesco plc 1.6% 0.8%
- --------------------------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson B Shares 1.6% 0.5%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Class I shares.
(continued)
- ------
3
VP International - Portfolio Commentary
strong during the period, lifting German sportswear company Puma AG Rudolf
Dassler Sport, United Kingdom retailer Next, Japan's Fast Retailing Co. and a
variety of other companies in our consumer discretionary sector. But the sector
lagged relative to the index, with our selections in the hotels, restaurants &
leisure and household durables industries accounting for much of the
underperformance.
The financial sector, VP International's biggest stake at the period's end, also
contributed to our return, advancing mostly on the strength of commercial banks,
which represented the portfolio's heaviest industry weighting on average.
Japan's Sumitomo Mitsui Financial Group, a top-10 holding at the end of the
period, not only topped the list of banks contributing to VP International, but
made one of the largest contributions to the portfolio. Sumitomo, which is among
Japan's largest banks, benefited from a diminishing number of bad loans as the
nation's economy showed signs of gradual recovery.
Although most sectors made positive contributions, several slowed our
performance against the EAFE Index, including industrials, energy and, as
mentioned above, consumer discretionary. Industrials registered the worst
performance against the index, due in part to Switzerland's Adecco, the world's
largest provider of temporary workers. Adecco came under investigation during
the period for potential accounting irregularities. We eliminated the position,
but it was among the period's top detractors.
VP International's energy sector also lagged the benchmark. In the oil and gas
industry, the portfolio owned several declining businesses that were not in the
index, including India's Reliance Industries. Reliance fell partly due to
political turmoil surrounding the country's presidential election in May.
Nonetheless, Reliance was the period's biggest absolute and relative detractor.
In conclusion, we remain committed to our long-standing process of identifying
companies demonstrating fundamental strength and sustainable improvement in
their business.
TOP FIVE INDUSTRIES
AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Financials 19.3% 26.7%
- --------------------------------------------------------------------------------
Consumer Discretionary 18.8% 14.6%
- --------------------------------------------------------------------------------
Health Care 11.8% 6.8%
- --------------------------------------------------------------------------------
Industrials 11.7% 11.9%
- --------------------------------------------------------------------------------
Consumer Staples 10.2% 4.8%
- --------------------------------------------------------------------------------
INVESTMENTS BY COUNTRY
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Japan 21.8% 18.4%
- --------------------------------------------------------------------------------
United Kingdom 15.9% 20.0%
- --------------------------------------------------------------------------------
France 13.0% 14.4%
- --------------------------------------------------------------------------------
Switzerland 10.2% 9.8%
- --------------------------------------------------------------------------------
Germany 6.0% 10.5%
- --------------------------------------------------------------------------------
Spain 5.7% 1.4%
- --------------------------------------------------------------------------------
South Korea 3.2% 1.3%
- --------------------------------------------------------------------------------
Sweden 3.0% 3.1%
- --------------------------------------------------------------------------------
Australia 2.8% 2.0%
- --------------------------------------------------------------------------------
Other(1) 18.4% 19.1%
- --------------------------------------------------------------------------------
(1) Includes temporary cash investments.
- ------
4
VP International - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.3%
AUSTRALIA -- 2.8%
- --------------------------------------------------------------------------------
739,359 BHP Billiton Limited $ 6,448,324
- --------------------------------------------------------------------------------
207,560 Commonwealth Bank of Australia 4,706,902
- --------------------------------------------------------------------------------
755,550 QBE Insurance Group Limited 6,731,527
- --------------------------------------------------------------------------------
17,886,753
- --------------------------------------------------------------------------------
AUSTRIA -- 1.5%
- --------------------------------------------------------------------------------
63,207 Erste Bank der Oesterreichischen
Sparkassen AG 9,940,541
- --------------------------------------------------------------------------------
BERMUDA -- 1.8%
- --------------------------------------------------------------------------------
119,370 Accenture Ltd. Cl A(1) 3,280,288
- --------------------------------------------------------------------------------
256,050 Tyco International Ltd. 8,485,497
- --------------------------------------------------------------------------------
11,765,785
- --------------------------------------------------------------------------------
BRAZIL -- 0.3%
- --------------------------------------------------------------------------------
147,850 Tele Norte Leste
Participacoes SA ADR 1,882,131
- --------------------------------------------------------------------------------
CANADA -- 0.5%
- --------------------------------------------------------------------------------
134,640 Shoppers Drug Mart
Corporation(1) 3,370,289
- --------------------------------------------------------------------------------
CHANNEL ISLANDS -- 0.5%
- --------------------------------------------------------------------------------
148,530 Amdocs Ltd.(1) 3,480,058
- --------------------------------------------------------------------------------
FRANCE -- 13.0%
- --------------------------------------------------------------------------------
45,306 Accor SA 1,914,602
- --------------------------------------------------------------------------------
406,805 Axa 8,969,814
- --------------------------------------------------------------------------------
58,120 Cie Generale D'Optique
Essilor International SA 3,798,516
- --------------------------------------------------------------------------------
330,931 Credit Agricole SA 8,062,803
- --------------------------------------------------------------------------------
52,070 Lafarge SA 4,649,542
- --------------------------------------------------------------------------------
73,799 LVMH Moet Hennessy
Louis Vuitton SA 5,344,670
- --------------------------------------------------------------------------------
44,920 Pernod-Ricard SA 5,751,234
- --------------------------------------------------------------------------------
94,540 Schneider SA 6,460,960
- --------------------------------------------------------------------------------
81,210 Societe Generale Cl A(2) 6,910,262
- --------------------------------------------------------------------------------
84,650 Total SA Cl B 16,159,003
- --------------------------------------------------------------------------------
51,700 Vinci SA 5,214,822
- --------------------------------------------------------------------------------
381,080 Vivendi Universal SA(1) 10,584,483
- --------------------------------------------------------------------------------
83,820,711
- --------------------------------------------------------------------------------
GERMANY -- 5.3%
- --------------------------------------------------------------------------------
118,170 Continental AG 5,706,364
- --------------------------------------------------------------------------------
25,600 Fresenius Medical Care AG 1,902,029
- --------------------------------------------------------------------------------
102,480 Metro AG 4,863,811
- --------------------------------------------------------------------------------
32,140 Puma AG Rudolf Dassler Sport 8,177,876
- --------------------------------------------------------------------------------
56,330 SAP AG 9,350,326
- --------------------------------------------------------------------------------
56,430 Siemens AG 4,063,400
- --------------------------------------------------------------------------------
34,063,806
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
GREECE -- 1.1%
- --------------------------------------------------------------------------------
165,472 Alpha Bank A.E. $ 4,212,980
- --------------------------------------------------------------------------------
168,270 Greek Organization of
Football Prognostics SA 3,181,391
- --------------------------------------------------------------------------------
7,394,371
- --------------------------------------------------------------------------------
HONG KONG -- 1.0%
- --------------------------------------------------------------------------------
876,000 Espirit Holdings Limited 3,919,639
- --------------------------------------------------------------------------------
1,734,000 Li & Fung Limited 2,534,373
- --------------------------------------------------------------------------------
6,454,012
- --------------------------------------------------------------------------------
IRELAND -- 0.9%
- --------------------------------------------------------------------------------
358,780 Anglo Irish Bank Corporation 5,616,295
- --------------------------------------------------------------------------------
ISRAEL -- 1.2%
- --------------------------------------------------------------------------------
116,958 Teva Pharmaceutical
Industries Ltd. ADR 7,870,104
- --------------------------------------------------------------------------------
ITALY -- 0.6%
- --------------------------------------------------------------------------------
121,098 Saipem SpA 1,103,461
- --------------------------------------------------------------------------------
1,365,918 Terna SpA(1) 2,971,835
- --------------------------------------------------------------------------------
4,075,296
- --------------------------------------------------------------------------------
JAPAN -- 21.8%
- --------------------------------------------------------------------------------
47,200 Aiful Corp. 4,942,386
- --------------------------------------------------------------------------------
630,000 Bank of Yokohama Ltd. (The) 3,949,989
- --------------------------------------------------------------------------------
175,000 Canon, Inc. 9,250,747
- --------------------------------------------------------------------------------
233,000 Casio Computer Co., Ltd. 3,538,644
- --------------------------------------------------------------------------------
321,496 Chugai Pharmaceutical Co. Ltd. 5,059,997
- --------------------------------------------------------------------------------
77,000 Fast Retailing Company Limited 6,250,609
- --------------------------------------------------------------------------------
99,200 Hoya Corp. 10,414,746
- --------------------------------------------------------------------------------
153,000 Ito-Yokado Co., Ltd. 6,568,697
- --------------------------------------------------------------------------------
480,300 Marui Co., Ltd. 6,490,839
- --------------------------------------------------------------------------------
713,000 Matsushita Electric
Industrial Co., Ltd. 10,153,408
- --------------------------------------------------------------------------------
650 Mitsubishi Tokyo
Financial Group, Inc. 6,035,394
- --------------------------------------------------------------------------------
808,000 Mitsui & Co. Ltd. 6,068,821
- --------------------------------------------------------------------------------
220,000 Omron Corp. 5,167,548
- --------------------------------------------------------------------------------
49,200 ORIX Corporation 5,653,873
- --------------------------------------------------------------------------------
538,000 Sharp Corp. 8,620,860
- --------------------------------------------------------------------------------
1,900 Sumitomo Mitsui
Financial Group Inc.(2) 13,065,502
- --------------------------------------------------------------------------------
548,000 Toppan Printing Co. Ltd. 6,221,834
- --------------------------------------------------------------------------------
1,263,000 Toray Industries Inc. 5,968,118
- --------------------------------------------------------------------------------
38,000 Toto Ltd. 401,048
- --------------------------------------------------------------------------------
184,800 Toyota Motor Corp. 7,509,225
- --------------------------------------------------------------------------------
242 Yahoo Japan Corporation(1) 2,358,262
- --------------------------------------------------------------------------------
211,000 Yamaha Motor Co. Ltd. 3,295,693
- --------------------------------------------------------------------------------
230,000 Yamato Transport Co. Ltd. 3,765,847
- --------------------------------------------------------------------------------
140,752,087
- --------------------------------------------------------------------------------
MEXICO -- 0.9%
- --------------------------------------------------------------------------------
158,050 America Movil SA
de CV Series L ADR 5,748,278
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
5
VP International - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
NETHERLANDS -- 1.4%
- --------------------------------------------------------------------------------
223,450 ING Groep N.V. $ 5,280,812
- --------------------------------------------------------------------------------
120,560 Royal Numico N.V.(1) 3,878,736
- --------------------------------------------------------------------------------
9,159,548
- --------------------------------------------------------------------------------
NORWAY -- 1.6%
- --------------------------------------------------------------------------------
97,910 Norsk Hydro ASA 6,355,502
- --------------------------------------------------------------------------------
526,510 Telenor ASA 3,656,636
- --------------------------------------------------------------------------------
10,012,138
- --------------------------------------------------------------------------------
PEOPLE'S REPUBLIC OF CHINA -- 0.6%
- --------------------------------------------------------------------------------
4,546,000 Huaneng Power
International, Inc.(2) 4,050,706
- --------------------------------------------------------------------------------
RUSSIAN FEDERATION -- 1.9%
- --------------------------------------------------------------------------------
67,409 Mobile Telesystems ADR 8,223,897
- --------------------------------------------------------------------------------
40,370 Vimpel-Communications ADR(1) 3,893,687
- --------------------------------------------------------------------------------
12,117,584
- --------------------------------------------------------------------------------
SOUTH AFRICA -- 0.6%
- --------------------------------------------------------------------------------
779,810 MTN Group Limited 3,587,504
- --------------------------------------------------------------------------------
SOUTH KOREA -- 3.2%
- --------------------------------------------------------------------------------
176,580 Hana Bank 3,715,871
- --------------------------------------------------------------------------------
98,530 Hyundai Motor Co. Ltd. 3,777,196
- --------------------------------------------------------------------------------
32,180 Samsung Electronics 13,238,344
- --------------------------------------------------------------------------------
20,731,411
- --------------------------------------------------------------------------------
SPAIN -- 5.7%
- --------------------------------------------------------------------------------
225,680 Abertis Infraestructuras SA 3,936,903
- --------------------------------------------------------------------------------
228,315 ACS, Actividades de
Construccion y Servicios, SA 3,852,147
- --------------------------------------------------------------------------------
320,430 Gamesa 4,727,112
- --------------------------------------------------------------------------------
124,910 Grupo Ferrovial SA 5,207,099
- --------------------------------------------------------------------------------
417,510 Repsol YPF SA 9,154,992
- --------------------------------------------------------------------------------
668,790 Telefonica SA 9,898,847
- --------------------------------------------------------------------------------
36,777,100
- --------------------------------------------------------------------------------
SWEDEN -- 3.0%
- --------------------------------------------------------------------------------
3,532,870 Telefonaktiebolaget
LM Ericsson B Shares(1) 10,422,553
- --------------------------------------------------------------------------------
263,620 Volvo AB Cl B 9,178,530
- --------------------------------------------------------------------------------
19,601,083
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SWITZERLAND -- 10.2%
- --------------------------------------------------------------------------------
844,641 ABB Limited(1) $ 4,626,782
- --------------------------------------------------------------------------------
41,170 Alcon, Inc. 3,238,021
- --------------------------------------------------------------------------------
194,270 Compagnie Financiere
Richemont AG A Shares 5,080,071
- --------------------------------------------------------------------------------
91,600 Credit Suisse Group(1) 3,259,656
- --------------------------------------------------------------------------------
26,360 Nestle SA 7,040,576
- --------------------------------------------------------------------------------
278,490 Novartis AG 12,304,336
- --------------------------------------------------------------------------------
162,286 Roche Holding AG 16,092,334
- --------------------------------------------------------------------------------
42,400 Synthes, Inc. 4,840,144
- --------------------------------------------------------------------------------
130,806 UBS AG 9,231,211
- --------------------------------------------------------------------------------
65,713,131
- --------------------------------------------------------------------------------
UNITED KINGDOM -- 15.9%
- --------------------------------------------------------------------------------
144,610 AstraZeneca plc 6,497,909
- --------------------------------------------------------------------------------
993,850 BP plc 8,790,740
- --------------------------------------------------------------------------------
658,680 Cadbury Schweppes plc 5,691,528
- --------------------------------------------------------------------------------
383,990 Diageo plc 5,185,331
- --------------------------------------------------------------------------------
454,480 Enterprise Inns plc 4,746,333
- --------------------------------------------------------------------------------
299,607 Man Group plc 7,770,622
- --------------------------------------------------------------------------------
1,802,744 mmO2 plc(1) 3,036,852
- --------------------------------------------------------------------------------
222,890 Next plc 5,760,645
- --------------------------------------------------------------------------------
537,720 Pearson plc 6,543,447
- --------------------------------------------------------------------------------
465,352 Reckitt Benckiser plc 13,193,503
- --------------------------------------------------------------------------------
112,759 Royal Bank of Scotland Group plc 3,252,201
- --------------------------------------------------------------------------------
1,343,920 Smith & Nephew plc 14,486,792
- --------------------------------------------------------------------------------
2,165,800 Tesco plc 10,473,301
- --------------------------------------------------------------------------------
413,890 United Business Media plc 3,811,260
- --------------------------------------------------------------------------------
221,560 Wolseley plc 3,440,591
- --------------------------------------------------------------------------------
102,681,055
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $545,389,258) 628,551,777
- --------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.7%
GERMANY -- 0.7%
- --------------------------------------------------------------------------------
6,330 Porsche AG
(Cost $2,904,004) 4,241,549
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- -----
6
VP International - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.0%
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations), in a
joint trading account at 1.16%,
dated 6/30/04, due 7/1/04
(Delivery value $13,100,422)
(Cost $13,100,000) $ 13,100,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $561,393,262) $645,893,326
================================================================================
COLLATERAL RECEIVED FOR
SECURITIES LENDING(3)
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, Barclays Bank plc,
(U.S. Agency obligations), 1.50%,
dated 6/30/04, due 7/1/04
(Delivery value $2,259,339) $2,259,245
- --------------------------------------------------------------------------------
SHORT-TERM DEBT
- --------------------------------------------------------------------------------
$8,000,018 Allstate Financial Global Funding,
VRN, 1.47%, 7/1/04, resets daily
off the Federal Funds rate
plus 0.34% with no caps
(Acquired 6/30/04,
Cost 8,014,304)(4) 8,014,304
- --------------------------------------------------------------------------------
5,000,000 Credit Agricole Indosuez SA,
VRN, 1.12%, 7/12/04,
resets monthly off the
1-month LIBOR minus 0.08%
and no caps 4,996,223
- --------------------------------------------------------------------------------
13,010,527
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED
FOR SECURITIES LENDING
(Cost $15,269,772) $15,269,772
================================================================================
MARKET SECTOR DIVERSIFICATION
Consumer Discretionary 18.8%
- --------------------------------------------------------------------------------
Consumer Staples 10.2%
- --------------------------------------------------------------------------------
Energy 6.4%
- --------------------------------------------------------------------------------
Financials 19.3%
- --------------------------------------------------------------------------------
Health Care 11.8%
- --------------------------------------------------------------------------------
Industrials 11.7%
- --------------------------------------------------------------------------------
Information Technology 9.9%
- --------------------------------------------------------------------------------
Materials 2.6%
- --------------------------------------------------------------------------------
Telecommunication Services 6.2%
- --------------------------------------------------------------------------------
Utilities 1.1%
- --------------------------------------------------------------------------------
Temporary Cash Investments 2.0%
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
LIBOR = London Interbank Offered Rate
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.
VRN = Variable Rate Note. Interest reset date is indicated, unless otherwise
noted. Rate shown is effective June 30, 2004.
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2004.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 5 in
Notes to Financial Statements.)
(4) 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 purchased by the lending agent
with cash collateral received for securities lending at June 30, 2004, was
$8,014,304, which represented 1.2% of net assets.
See Notes to Financial Statements.
- ------
7
Statement of Assets and Liabilities
JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investment securities, at value (cost of $561,393,262) -
including $14,421,295 of securities on loan $ 645,893,326
- -----------------------------------------------------------------
Investments made with cash collateral received for
securities on loan, at value
(cost of $15,269,772) 15,269,772
- --------------------------------------------------------------------------------
Total investment securities, at value (cost of $576,663,034) 661,163,098
- -----------------------------------------------------------------
Cash 87,489
- -----------------------------------------------------------------
Foreign currency holdings, at value (cost of $2,838,479) 2,825,234
- -----------------------------------------------------------------
Receivable for investments sold 15,320,665
- -----------------------------------------------------------------
Dividends and interest receivable 1,534,344
- --------------------------------------------------------------------------------
680,930,830
- --------------------------------------------------------------------------------
LIABILITIES
Payable for collateral received for securities on loan 15,269,772
- -----------------------------------------------------------------
Payable for investments purchased 12,822,821
- -----------------------------------------------------------------
Accrued management fees 681,712
- -----------------------------------------------------------------
Distribution fees payable 12,386
- --------------------------------------------------------------------------------
28,786,691
- --------------------------------------------------------------------------------
NET ASSETS $ 652,144,139
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 799,750,637
- -----------------------------------------------------------------
Undistributed net investment income 3,518,246
- -----------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (235,699,828)
- -----------------------------------------------------------------
Net unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies 84,575,084
- --------------------------------------------------------------------------------
$ 652,144,139
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $504,428,491
- -----------------------------------------------------------------
Shares outstanding 77,091,886
- -----------------------------------------------------------------
Net asset value per share $6.54
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $60,674,707
- -----------------------------------------------------------------
Shares outstanding 9,282,214
- -----------------------------------------------------------------
Net asset value per share $6.54
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $85,365,794
- -----------------------------------------------------------------
Shares outstanding 13,045,829
- -----------------------------------------------------------------
Net asset value per share $6.54
- --------------------------------------------------------------------------------
CLASS IV, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $1,675,147
- -----------------------------------------------------------------
Shares outstanding 256,092
- -----------------------------------------------------------------
Net asset value per share $6.54
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
8
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
- -----------------------------------------------------------------
Dividends (net of foreign taxes withheld of $1,030,189) $ 7,976,055
- -----------------------------------------------------------------
Securities lending income 96,034
- -----------------------------------------------------------------
Interest 44,775
- --------------------------------------------------------------------------------
8,116,864
- --------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------
Management fees 4,192,767
- -----------------------------------------------------------------
Distribution fees:
- -----------------------------------------------------------------
Class II 66,954
- -----------------------------------------------------------------
Class IV 350
- -----------------------------------------------------------------
Directors' fees and expenses 4,626
- -----------------------------------------------------------------
Other expenses 8,706
- --------------------------------------------------------------------------------
4,273,403
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,843,461
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN ON:
- -----------------------------------------------------------------
Investment transactions 30,294,231
- -----------------------------------------------------------------
Foreign currency transactions 21,644,257
- --------------------------------------------------------------------------------
51,938,488
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- -----------------------------------------------------------------
Investments (13,679,134)
- -----------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (27,730,230)
- --------------------------------------------------------------------------------
(41,409,364)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 10,529,124
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 14,372,585
================================================================================
See Notes to Financial Statements.
- ------
9
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 3,843,461 $ 3,662,930
- -----------------------------------------------
Net realized gain 51,938,488 17,225,030
- -----------------------------------------------
Change in net unrealized appreciation (41,409,364) 109,332,753
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 14,372,585 130,220,713
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
- -----------------------------------------------
Class I (2,808,477) (3,389,586)
- -----------------------------------------------
Class II (206,183) (118,284)
- -----------------------------------------------
Class III (507,997) (455,808)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (3,522,657) (3,963,678)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from
capital share transactions 791,214 (3,989,218)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 11,641,142 122,267,817
NET ASSETS
Beginning of period 640,502,997 518,235,180
- --------------------------------------------------------------------------------
End of period $652,144,139 $640,502,997
================================================================================
Undistributed net investment income $3,518,246 $3,197,442
================================================================================
See Notes to Financial Statements.
- ------
10
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP International 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 seek capital growth. The fund
pursues its investment objective by investing primarily in stocks of growing
foreign companies that are considered by management to have a
better-than-average chance to increase in value over time. The fund will invest
primarily in securities of issuers located in developed markets. The following
is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II, Class III
and Class IV shares. The share classes differ principally in their respective
shareholder servicing and distribution expenses and arrangements. All shares of
the fund represent an equal pro rata interest in the assets of the class to
which such shares belong, and have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except for class specific
expenses and exclusive rights to vote on matters affecting only individual
classes. Income, non-class specific expenses, and realized and unrealized
capital gains and losses of the fund are allocated to each class of shares based
on their relative net assets. Sale of Class IV shares commenced on May 3, 2004.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending on
local convention or regulation, securities traded over-the-counter are valued at
the mean of the latest bid and asked prices, the last sales price, or the
official close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade
date. Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
Certain countries impose taxes on realized gains on the sale of securities
registered in their country. The fund records the foreign tax expense, if any,
on an accrual basis. The realized and unrealized tax provision reduces the net
realized gain (loss) on investment transactions and net unrealized appreciation
(depreciation) on investments, respectively.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its lending
agent to certain approved borrowers in order to earn additional income. The fund
continues to recognize any gain or loss in the market price of the securities
loaned and records any interest earned or dividends declared.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. Realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on foreign currency transactions and unrealized appreciation
(depreciation) on translation of assets and liabilities in foreign currencies,
respectively. Certain countries may impose taxes on the contract amount of
purchases and sales of foreign currency contracts in their currency. The fund
records the foreign tax expense, if any, as a reduction to the net realized
gain (loss) on foreign currency transactions.
(continued)
- ------
11
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager 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, 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.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes, and may result in reclassification among certain
capital accounts on the financial statements.
As of December 31, 2003, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $163,853,130, $120,156,270, and
$581,896, expiring in 2009, 2010, and 2011, respectively, which may be used to
offset future taxable gains.
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee is
retained by the fund and helps cover transaction costs that long-term investors
may bear when a fund sells securities to meet investor redemptions.
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.
(continued)
- ------
12
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
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 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 daily and paid
monthly in arrears based on each class's pro rata share of the fund's average
daily closing net assets during the previous month.
The annual management fee schedule for each class is as follows:
CLASS I & III CLASS II & IV
- --------------------------------------------------------------------------------
FUND AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
First $250 million 1.50% 1.40%
- --------------------------------------------------------------------------------
Next $250 million 1.20% 1.10%
- --------------------------------------------------------------------------------
Over $500 million 1.10% 1.00%
- --------------------------------------------------------------------------------
The effective annual management fee for the six months ended June 30, 2004 was
1.29% and 1.19%, for Class I & Class III and Class II & Class IV, respectively.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master Distribution
Plan for Class II and a separate Master Distribution Plan for Class IV
(collectively, the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans
provide that Class II and Class IV will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed daily and paid monthly in arrears based on each class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for expenses incurred in connection with distributing shares of the
classes 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, 2004, 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
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the six months ended June 30, 2004, the fund invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The fund has a bank line of
credit agreement and securities lending agreement with JPMorgan Chase Bank
(JPMCB). JPMCB is a wholly owned subsidiary of JPM.
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2004, were $489,016,148 and $500,450,194,
respectively.
As of June 30, 2004, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
Federal tax cost of investments $580,007,937
================================================================================
Gross tax appreciation of investments $86,796,856
- -----------------------------------------------------------------
Gross tax depreciation of investments (5,641,695)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $81,155,161
================================================================================
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.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
- -----------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 300,000,000
=============================================================================
Sold 8,026,659 $ 53,261,021
- -----------------------------------------------
Issued in reinvestment of distributions 419,176 2,808,477
- -----------------------------------------------
Redeemed (11,127,589) (73,320,294)
- -----------------------------------------------------------------------------
Net decrease (2,681,754) $(17,250,796)
=============================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 300,000,000
=============================================================================
Sold 97,580,666 $ 507,203,571
- -----------------------------------------------
Issued in reinvestment of distributions 743,330 3,389,586
- -----------------------------------------------
Redeemed (104,808,467) (548,534,041)
- -----------------------------------------------------------------------------
Net decrease (6,484,471) $ (37,940,884)
=============================================================================
CLASS II
- -----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 100,000,000
=============================================================================
Sold 4,172,448 $ 27,680,050
- -----------------------------------------------
Issued in reinvestment of distributions 30,820 206,183
- -----------------------------------------------
Redeemed (1,864,407) (12,421,838)
- -----------------------------------------------------------------------------
Net increase 2,338,861 $ 15,464,395
=============================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
=============================================================================
Sold 29,540,009 $ 165,277,927
- -----------------------------------------------
Issued in reinvestment of distributions 25,939 118,284
- -----------------------------------------------
Redeemed (25,838,736) (146,489,574)
- -----------------------------------------------------------------------------
Net increase 3,727,212 $ 18,906,637
=============================================================================
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
SHARES AMOUNT
- -----------------------------------------------------------------------------
CLASS III
- -----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 100,000,000
=============================================================================
Sold 1,767,017 $11,770,630
- -----------------------------------------------
Issued in reinvestment of distributions 75,820 507,997
- -----------------------------------------------
Redeemed (1,728,828) (11,340,841)(1)
- -----------------------------------------------------------------------------
Net increase 114,009 $ 937,786
=============================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
=============================================================================
Sold 5,841,698 $ 30,862,688
- -----------------------------------------------
Issued in reinvestment of distributions 99,958 455,808
- -----------------------------------------------
Redeemed (3,094,841) (16,273,467)(2)
- -----------------------------------------------------------------------------
Net increase 2,846,815 $ 15,045,029
=============================================================================
CLASS IV
- -----------------------------------------------------------------------------
PERIOD ENDED JUNE 30, 2004(3)
SHARES AUTHORIZED 100,000,000
=============================================================================
Sold 258,615 $1,656,327
- -------------------------------------------------
Redeemed (2,523) (16,498)(4)
- -----------------------------------------------------------------------------
Net increase 256,092 $1,639,829
=============================================================================
(1) Net of redemption fees of $63,916.
(2) Net of redemption fees of $22,730.
(3) May 3, 2004 (commencement of sale) through June 30, 2004.
(4) Net of redemption fees of $1.
5. SECURITIES LENDING
As of June 30, 2004, securities in the fund valued at $14,421,295 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB receives
and maintains collateral in the form of cash, and/or acceptable securities as
approved by ACIM. Cash collateral is invested in authorized investments by the
lending agent in a pooled account. The value of cash collateral received at
period end is disclosed in the Statement of Assets and Liabilities and
investments made with the cash by the lending agent are listed in the Schedule
of Investments. Any deficiencies or excess of collateral must be delivered or
transferred by the member firms no later than the close of business on the next
business day. The total value of all collateral received, at this date, was
$15,269,772. The fund's risks in securities lending are that the borrower may
not provide additional collateral when required or return the securities when
due. If the borrower defaults, receipt of the collateral by the fund may be
delayed or limited.
(continued)
- ------
15
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the six months ended June 30, 2004.
7. GEOGRAPHIC RISK FACTORS
There are certain risks involved in investing in foreign securities. These risks
include those resulting from future adverse political and economic developments
and the possible imposition of currency exchange restrictions or other foreign
laws or restrictions.
- ------
16
VP International - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------------------------
2004(1) 2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Beginning of Period $6.43 $5.21 $6.59 $10.23 $12.50 $7.62
- --------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------
Net Investment Income (Loss) 0.04(2) 0.04(2) 0.05(2) 0.02(2) (0.02) (0.01)
- ---------------------------------------
Net Realized and Unrealized Gain (Loss) 0.11 1.22 (1.38) (2.82) (2.02) 4.89
- --------------------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.15 1.26 (1.33) (2.80) (2.04) 4.88
- --------------------------------------------------------------------------------------------------------------------
Distributions
- ---------------------------------------
From Net Investment Income (0.04) (0.04) (0.05) (0.01) (0.01) --
- ---------------------------------------
From Net Realized Gains -- -- -- (0.83) (0.22) --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.04) (0.04) (0.05) (0.84) (0.23) --
- --------------------------------------------------------------------------------------------------------------------
Redemption Fees(3) --(4) --(4) --(4) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $6.54 $6.43 $5.21 $6.59 $10.23 $12.50
====================================================================================================================
TOTAL RETURN(5) 2.26% 24.51% (20.37)% (29.17)% (16.83)% 64.04%
====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.29%(6) 1.34% 1.31% 1.26% 1.23% 1.34%
- ---------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets 1.19%(6) 0.67% 0.77% 0.33% (0.14)% (0.17)%
- ---------------------------------------
Portfolio Turnover Rate 75% 185% 247% 210% 128% 109%
- ---------------------------------------
Net Assets, End of Period (in thousands) $504,428 $512,814 $449,026 $688,639 $924,789 $799,842
- --------------------------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Redemption fees may be charged on redemption of Class III and Class IV
shares. Periods prior to commencement of sale of Class III shares did not
incur any redemption fees. Computed using average shares outstanding
throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net assets
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(6) Annualized.
See Notes to Financial Statements.
- ------
17
VP International - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- -------------------------------------------------------------------------------------------------------------
CLASS II
- -------------------------------------------------------------------------------------------------------------
2004(1) 2003 2002 2001(2)
- -------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Beginning of Period $6.42 $5.20 $6.59 $7.15
- -------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------
Net Investment Income (Loss)(3) 0.03 0.01 0.03 (0.02)
- ---------------------------------------
Net Realized and Unrealized Gain (Loss) 0.12 1.24 (1.38) (0.54)
- -------------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.15 1.25 (1.35) (0.56)
- -------------------------------------------------------------------------------------------------------------
Distributions
- ---------------------------------------
From Net Investment Income (0.03) (0.03) (0.04) --
- -------------------------------------------------------------------------------------------------------------
Redemption Fees(4) --(5) --(5) --(5) --
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $6.54 $6.42 $5.20 $6.59
=============================================================================================================
TOTAL RETURN(6) 2.27% 24.36% (20.57)% (7.83)%
=============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.44%(7) 1.49% 1.47% 1.44%(7)
- ---------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets 1.04%(7) 0.52% 0.61% (0.82)%(7)
- ---------------------------------------
Portfolio Turnover Rate 75% 185% 247% 210%(8)
- ---------------------------------------
Net Assets, End of Period (in thousands) $60,675 $44,556 $16,711 $3,868
- -------------------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) August 15, 2001 (commencement of sale) through December 31, 2001.
(3) Computed using average shares outstanding throughout the period.
(4) Redemption fees may be charged on redemption of Class III and Class IV
shares. Periods prior to commencement of sale of Class III shares did not
incur any redemption fees. Computed using average shares outstanding
throughout the period.
(5) Per-share amount was less than $0.005.
(6) 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.
(7) Annualized.
(8) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2001.
See Notes to Financial Statements.
- ------
18
VP International - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- ---------------------------------------------------------------------------------------------------
CLASS III
- ---------------------------------------------------------------------------------------------------
2004(1) 2003 2002(2)
- ---------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Beginning of Period $6.43 $5.21 $6.42
- ---------------------------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------
Net Investment Income(3) 0.04 0.04 0.01
- ---------------------------------------
Net Realized and Unrealized Gain (Loss) 0.11 1.22 (1.22)
- ---------------------------------------------------------------------------------------------------
Total From Investment Operations 0.15 1.26 (1.21)
- ---------------------------------------------------------------------------------------------------
Distributions
- ---------------------------------------
From Net Investment Income (0.04) (0.04) --
- ---------------------------------------------------------------------------------------------------
Redemption Fees(3) --(4) --(4) --(4)
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $6.54 $6.43 $5.21
===================================================================================================
TOTAL RETURN(5) 2.26% 24.51% (18.85)%
===================================================================================================
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.29%(6) 1.34% 1.33%(6)
- ---------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.19%(6) 0.67% 0.22%(6)
- ---------------------------------------
Portfolio Turnover Rate 75% 185% 247%(7)
- ---------------------------------------
Net Assets, End of Period (in thousands) $85,366 $83,133 $52,498
- ---------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) May 2, 2002 (commencement of sale) through December 31, 2002.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2002.
See Notes to Financial Statements.
- ------
19
VP International - Financial Highlights
For a Share Outstanding Throughout the Period Indicated
- --------------------------------------------------------------------------------
CLASS IV
- --------------------------------------------------------------------------------
2004(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
Net Asset Value, Beginning of Period $6.47
- --------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------
Net Investment Income(2) 0.01
- ---------------------------------------
Net Realized and Unrealized Gain 0.06
- --------------------------------------------------------------------------------
Total From Investment Operations 0.07
- --------------------------------------------------------------------------------
Redemption Fees(2) --(3)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $6.54
================================================================================
TOTAL RETURN(4) 1.08%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.44%(5)
- ---------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.13%(5)
- ---------------------------------------
Portfolio Turnover Rate 75%(6)
- ---------------------------------------
Net Assets, End of Period (in thousands) $1,675
- --------------------------------------------------------------------------------
(1) May 3, 2004 (commencement of sale) through June 30, 2004 (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) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the six months ended June 30, 2004.
See Notes to Financial Statements.
- ------
20
Share Class Information
Four classes of shares are authorized for sale by the portfolio: Class I, Class
II, Class III, and Class IV.
CLASS I shares are sold through insurance company separate accounts. Class I
shareholders do not pay any commissions or other fees to American Century for
the purchase of portfolio shares.
CLASS II shares are sold through insurance company separate accounts. Class II
shares are subject to a 0.25% Rule 12b-1 distribution fee, which is available to
pay for distribution services provided by the financial intermediary through
which the Class II shares are purchased. The total expense ratio of Class II
shares is higher than the total expense ratio of the Class I shares.
CLASS III shares are sold through insurance company separate accounts. Class III
shareholders do not pay any commissions or other fees to American Century for
the purchase of portfolio shares. However, Class III shares have a 1.00%
redemption fee for shares that are redeemed or exchanged within 60 days of
purchase.
CLASS IV shares are sold through insurance company separate accounts. Class IV
shares are subject to a 0.25% Rule 12b-1 distribution fee, which is available to
pay for distribution services provided by the financial intermediary through
which the Class IV shares are purchased. Class IV shares also have a 1.00%
redemption fee for shares that are redeemed or exchanged within 60 days of
purchase. The total expense ratio of Class IV shares is higher than the total
expense ratio of the Class I shares.
All classes of shares represent a pro rata interest in the portfolio and
generally have the same rights and preferences. Because all shares of the
portfolio are sold through insurance company separate accounts, additional fees
may apply.
- ------
21
Additional Information
INDEX DEFINITION
The following index is used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. It is not an investment
product available for purchase.
Morgan Stanley Capital International (MSCI) has developed several indices that
measure the performance of foreign stock markets. The MSCI EAFE(reg.tm) (Europe,
Australasia, Far East) INDEX is designed to measure developed market equity
performance, excluding the U.S. and Canada.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, 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 manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-378-9878. It is also available on American Century's Web site at
americancentury.com and on the Securities and Exchange Commission's Web site at
sec.gov.
GEOGRAPHIC RISK FACTORS
There are certain risks involved in investing in foreign securities. These risks
include those resulting from future adverse political and economic developments
and the possible imposition of currency exchange restrictions or other foreign
laws or restrictions.
- ------
22
Notes
- ------
23
Notes
- ------
24
[blank page -- inside back cover]
[back cover]
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, INC.
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century logo, American Century and American Century Investments
are service marks of American Century Services Corporation.
0408 American Century Investment Services, Inc.
SH-SAN-38968 (c)2004 American Century Services Corporation
[front cover]
JUNE 30, 2004
American Century Variable Portfolios
Semiannual Report
[graphic of market chart]
[graphic of starfish]
{graphic of side by side steel bridges]
VP Ultra Fund
[american century logo and text logo]
Table of Contents
VP ULTRA
Performance ................................................................2
Portfolio Commentary .......................................................4
Top Ten Holdings ........................................................4
Top Five Industries .....................................................5
Types of Investments in Portfolio .......................................5
Schedule of Investments ....................................................6
FINANCIAL STATEMENTS
Statement of Assets and Liabilities ........................................9
Statement of Operations ...................................................10
Statement of Changes in Net Assets ........................................11
Notes to Financial Statements .............................................12
Financial Highlights ......................................................16
OTHER INFORMATION
Share Class Information ...................................................19
Additional Information ....................................................20
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
VP Ultra - Performance
TOTAL RETURNS AS OF JUNE 30, 2004
--------------
AVERAGE ANNUAL
RETURNS
- ------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR INCEPTION DATE
- ------------------------------------------------------------------------------
CLASS I 17.56% -1.08% 5/1/01
- ------------------------------------------------------------------------------
S&P 500 INDEX 19.11% -1.22%(1) --
- ------------------------------------------------------------------------------
Class II 17.46% 2.33% 5/1/02
- ------------------------------------------------------------------------------
Class III 17.58% 2.88% 5/13/02
- ------------------------------------------------------------------------------
(1) Since 4/30/01, the date nearest Class I's inception for which data are
available.
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 the 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.
Unless otherwise indicated, performance reflects Class I 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.
- ------
2
VP Ultra - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made May 1, 2001
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended June 30
- ------------------------------------------------------------------
2001* 2002 2003 2004
- ------------------------------------------------------------------
Class I 1.20% -17.36% -1.74% 17.56%
- ------------------------------------------------------------------
S&P 500 Index -1.78% -17.99% 0.25% 19.11%
- ------------------------------------------------------------------
* From 5/1/01, Class I's inception date. Index data from 4/30/01, the date
nearest Class I's inception for which data are available. Not annualized.
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.
Unless otherwise indicated, performance reflects Class I 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.
- ------
3
VP Ultra - Portfolio Commentary
[photo of Wade Slome, Jerry Sullivan, Bruce Wimberly and Jim Stowers III]
A PORTFOLIO COMMENTARY FROM WADE SLOME, JERRY SULLIVAN, BRUCE WIMBERLY, AND JIM
STOWERS III, PORTFOLIO MANAGERS ON THE VP ULTRA INVESTMENT TEAM.
VP Ultra gained 5.01%* during the six months ended June 30, 2004, outperforming
the Standard & Poor's 500 Index, which gained 3.44%. VP Ultra also outperformed
the average 2.56% gain of its large-cap growth peers tracked by Lipper Inc.
VP Ultra's advance came during a stretch marked by rising corporate profits and
continued economic expansion. Not all of the news was positive though, as stocks
experienced periods of volatility amid concerns about rising oil prices,
inflation and geopolitical events. An analysis of the indices that tracked the
U.S. stock market by style and capitalization during the last six months shows
that investors preferred small- and mid-cap stocks over larger equities and
value-oriented issues over growth stocks.
The portfolio's health care holdings were the top contributors to performance.
The biggest lift was provided by manufacturers of health care equipment and
supplies. A good example is Boston Scientific, which won approval to sell its
Taxus drug-coated stent in the United States. The company reported strong
initial sales of Taxus, which props open arteries and releases medication aimed
at preventing them from closing. Other contributors included Waters Corporation,
a manufacturer of equipment used for research and development in the
pharmaceutical and life sciences industries.
Elsewhere in the health care sector, generic drug manufacturer Teva
Pharmaceutical was a top contributor. The company reported a 39% jump in revenue
due to strong sales of its new generic products and its Copaxone multiple
sclerosis treatment. UnitedHealth, the country's No. 1 health care insurer, was
another top contributor.
VP Ultra's industrial holdings boosted six-month performance. Led by Tyco
International, industrial conglomerates contributed most in this sector. Air
freight and logistics companies FedEx and Expeditors International also
TOP TEN HOLDINGS
AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
InterActiveCorp 2.3% 2.5%
- --------------------------------------------------------------------------------
Microsoft Corporation 2.1% 2.7%
- --------------------------------------------------------------------------------
Citigroup Inc. 2.0% 2.7%
- --------------------------------------------------------------------------------
Dell Inc. 2.0% 1.8%
- --------------------------------------------------------------------------------
Pfizer, Inc. 2.0% 2.7%
- --------------------------------------------------------------------------------
Berkshire Hathaway
Inc. Cl B 2.0% 1.9%
- --------------------------------------------------------------------------------
Standard and Poor's
500 Depositary Receipt 1.9% 2.0%
- --------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1.8% 2.2%
- --------------------------------------------------------------------------------
Teva Pharmaceutical
Industries Ltd. ADR 1.7% 1.4%
- --------------------------------------------------------------------------------
American International
Group, Inc. 1.6% 1.6%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Class I
shares. (continued)
- ------
4
VP Ultra - Portfolio Commentary
gained ground. Another standout was Apollo Group, an education services provider
that offers undergraduate and graduate programs geared to working professionals.
The company reported rising revenue, profits and enrollment during the last six
months.
Investments in Internet companies helped drive a rise in VP Ultra's information
technology stake during the year's first half. The advance was led by Yahoo!,
whose shares rose more than 60% on the strength of higher advertising sales and
the solid performance of recently acquired companies. Other contributors from
this area included VeriSign and Digital River. Elsewhere, the portfolio's
holdings in the IT services and computer manufacturing industries boosted
returns.
Not all of the technology news was positive as semiconductor issues declined and
were the top industry-level detractors from performance. Intel led the decline.
The world's largest chipmaker was the top performer in the Dow Jones Industrial
Average in 2003, but declined during the first half of this year. The slide
began in January when the company predicted that revenue would fall after
hitting an all-time high in the fourth quarter of 2003. Later in the period,
Intel fell short of analysts' earnings projections.
VP Ultra's stake in media companies also hurt performance. Detractors included
Univision, Viacom and Clear Channel Communications, all of which posted
double-digit declines. The portfolio's top individual detractor was
InterActiveCorp, an operator of online travel, shopping and ticketing
businesses.
Looking ahead, we are hopeful that improving economic conditions will support
continued profit growth. Regardless of economic and market conditions, however,
we will remain focused on trying to identify and own companies that appear best
able to sustain their accelerating growth.
TOP FIVE INDUSTRIES
AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Pharmaceuticals 7.3% 8.8%
- --------------------------------------------------------------------------------
Software 6.4% 6.5%
- --------------------------------------------------------------------------------
Health Care Equipment
& Supplies 6.3% 5.6%
- --------------------------------------------------------------------------------
Specialty Retail 5.2% 4.2%
- --------------------------------------------------------------------------------
Internet & Catalog Retail 5.1% 4.6%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Common Stocks 98.2% 96.9%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 1.8% 3.1%
- --------------------------------------------------------------------------------
- ------
5
VP Ultra - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 98.2%
AEROSPACE & DEFENSE -- 1.3%
- --------------------------------------------------------------------------------
13,028 General Dynamics Corp. $ 1,293,681
- --------------------------------------------------------------------------------
2,690 United Technologies Corp. 246,081
- --------------------------------------------------------------------------------
1,539,762
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 1.9%
- --------------------------------------------------------------------------------
3,968 C.H. Robinson Worldwide, Inc. 181,893
- --------------------------------------------------------------------------------
10,433 Expeditors International
of Washington, Inc. 515,495
- --------------------------------------------------------------------------------
10,737 FedEx Corporation 877,105
- --------------------------------------------------------------------------------
9,812 United Parcel Service, Inc. Cl B 737,568
- --------------------------------------------------------------------------------
2,312,061
- --------------------------------------------------------------------------------
AIRLINES -- 0.5%
- --------------------------------------------------------------------------------
19,040 JetBlue Airways Corporation(1) 559,395
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.2%
- --------------------------------------------------------------------------------
10,130 China Yuchai
International Limited(1) 184,569
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.1%
- --------------------------------------------------------------------------------
21,401 Harley-Davidson, Inc. 1,325,578
- --------------------------------------------------------------------------------
BEVERAGES -- 2.6%
- --------------------------------------------------------------------------------
14,031 Anheuser-Busch Companies, Inc. 757,674
- --------------------------------------------------------------------------------
20,832 Coca-Cola Company (The) 1,051,599
- --------------------------------------------------------------------------------
25,115 PepsiCo, Inc. 1,353,197
- --------------------------------------------------------------------------------
3,162,470
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 3.4%
- --------------------------------------------------------------------------------
13,141 Affymetrix Inc.(1) 430,105
- --------------------------------------------------------------------------------
20,587 Amgen Inc.(1) 1,123,432
- --------------------------------------------------------------------------------
4,910 Celgene Corp.(1) 281,147
- --------------------------------------------------------------------------------
9,408 Cephalon, Inc.(1) 508,032
- --------------------------------------------------------------------------------
11,140 Chiron Corp.(1) 497,290
- --------------------------------------------------------------------------------
5,706 Genentech, Inc.(1) 320,677
- --------------------------------------------------------------------------------
4,521 Gilead Sciences, Inc.(1) 302,907
- --------------------------------------------------------------------------------
5,927 Invitrogen Corp.(1) 426,685
- --------------------------------------------------------------------------------
4,220 Neurocrine Biosciences Inc.(1) 218,807
- --------------------------------------------------------------------------------
4,109,082
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 2.3%
- --------------------------------------------------------------------------------
16,100 Bank of New York Co., Inc. (The) 474,628
- --------------------------------------------------------------------------------
6,852 Goldman Sachs Group, Inc. (The) 645,184
- --------------------------------------------------------------------------------
3,593 Legg Mason, Inc. 326,999
- --------------------------------------------------------------------------------
12,664 Merrill Lynch & Co., Inc. 683,603
- --------------------------------------------------------------------------------
13,512 T. Rowe Price Group Inc. 681,005
- --------------------------------------------------------------------------------
2,811,419
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 1.2%
- --------------------------------------------------------------------------------
11,039 Bank of America Corp. 934,120
- --------------------------------------------------------------------------------
10,342 Wells Fargo & Co. 591,873
- --------------------------------------------------------------------------------
1,525,993
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.8%
- --------------------------------------------------------------------------------
15,368 Apollo Group Inc. Cl A(1) $ 1,356,841
- --------------------------------------------------------------------------------
23,568 Corinthian Colleges, Inc.(1) 583,072
- --------------------------------------------------------------------------------
8,490 Monster Worldwide Inc.(1) 218,363
- --------------------------------------------------------------------------------
2,158,276
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.1%
- --------------------------------------------------------------------------------
52,634 Cisco Systems Inc.(1) 1,247,426
- --------------------------------------------------------------------------------
12,663 QUALCOMM Inc. 924,146
- --------------------------------------------------------------------------------
14,529 UTStarcom Inc.(1) 439,502
- --------------------------------------------------------------------------------
2,611,074
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.0%
- --------------------------------------------------------------------------------
68,743 Dell Inc.(1) 2,462,374
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 2.3%
- --------------------------------------------------------------------------------
16,437 American Express Co. 844,533
- --------------------------------------------------------------------------------
23,595 MBNA Corporation 608,515
- --------------------------------------------------------------------------------
34,360 SLM Corporation 1,389,862
- --------------------------------------------------------------------------------
2,842,910
- --------------------------------------------------------------------------------
DIVERSIFIED -- 1.9%
- --------------------------------------------------------------------------------
20,351 Standard and Poor's 500
Depositary Receipt 2,330,800
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 3.0%
- --------------------------------------------------------------------------------
4,210 Chicago Mercantile Exchange 607,798
- --------------------------------------------------------------------------------
53,432 Citigroup Inc. 2,484,588
- --------------------------------------------------------------------------------
9,768 Moody's Corp. 631,599
- --------------------------------------------------------------------------------
3,723,985
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
& INSTRUMENTS -- 0.1%
- --------------------------------------------------------------------------------
5,240 Jabil Circuit, Inc.(1) 131,943
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 1.0%
- --------------------------------------------------------------------------------
9,160 Baker Hughes Inc. 344,874
- --------------------------------------------------------------------------------
10,120 Schlumberger Ltd. 642,721
- --------------------------------------------------------------------------------
7,330 Transocean Inc.(1) 212,130
- --------------------------------------------------------------------------------
1,199,725
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 2.7%
- --------------------------------------------------------------------------------
42,119 Wal-Mart Stores, Inc. 2,222,199
- --------------------------------------------------------------------------------
16,652 Walgreen Co. 602,969
- --------------------------------------------------------------------------------
4,621 Whole Foods Market, Inc. 441,074
- --------------------------------------------------------------------------------
3,266,242
- --------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS -- 0.1%
- --------------------------------------------------------------------------------
2,318 Patterson Dental Co.(1) 177,304
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT
& SUPPLIES -- 6.3%
- --------------------------------------------------------------------------------
4,337 Alcon, Inc. 341,105
- --------------------------------------------------------------------------------
9,380 Baxter International, Inc. 323,704
- --------------------------------------------------------------------------------
10,663 Biomet Inc. 473,864
- --------------------------------------------------------------------------------
32,843 Boston Scientific Corp.(1) 1,405,680
- --------------------------------------------------------------------------------
9,590 Guidant Corp. 535,889
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
6
VP Ultra - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
6,295 Inamed Corp.(1) $ 395,641
- --------------------------------------------------------------------------------
38,805 Medtronic, Inc. 1,890,579
- --------------------------------------------------------------------------------
6,616 St. Jude Medical, Inc.(1) 500,500
- --------------------------------------------------------------------------------
8,316 Varian Medical Systems, Inc.(1) 659,875
- --------------------------------------------------------------------------------
13,904 Waters Corp.(1) 664,333
- --------------------------------------------------------------------------------
6,815 Zimmer Holdings Inc.(1) 601,083
- --------------------------------------------------------------------------------
7,792,253
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS
& SERVICES -- 2.0%
- --------------------------------------------------------------------------------
5,000 Cerner Corporation(1) 222,900
- --------------------------------------------------------------------------------
2,764 Health Management
Associates, Inc. Cl A 61,969
- --------------------------------------------------------------------------------
29,517 UnitedHealth Group Incorporated 1,837,433
- --------------------------------------------------------------------------------
35,007 WebMD Corporation(1) 326,265
- --------------------------------------------------------------------------------
2,448,567
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 4.2%
- --------------------------------------------------------------------------------
18,690 Applebee's International Inc. 430,244
- --------------------------------------------------------------------------------
11,861 Brinker International, Inc.(1) 404,697
- --------------------------------------------------------------------------------
26,989 Carnival Corporation 1,268,482
- --------------------------------------------------------------------------------
14,167 Cheesecake Factory Inc.(1) 563,705
- --------------------------------------------------------------------------------
10,981 International Game Technology 423,867
- --------------------------------------------------------------------------------
16,256 Krispy Kreme Doughnuts, Inc.(1) 310,327
- --------------------------------------------------------------------------------
10,219 PF Chang's China Bistro, Inc.(1) 420,512
- --------------------------------------------------------------------------------
23,142 Starbucks Corporation(1) 1,006,214
- --------------------------------------------------------------------------------
8,146 Wendy's International, Inc. 283,807
- --------------------------------------------------------------------------------
5,111,855
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.2%
- --------------------------------------------------------------------------------
8,090 D.R. Horton, Inc. 229,756
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.0%
- --------------------------------------------------------------------------------
9,665 Colgate-Palmolive Co. 564,919
- --------------------------------------------------------------------------------
35,040 Procter & Gamble Co. (The) 1,907,578
- --------------------------------------------------------------------------------
2,472,497
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 3.5%
- --------------------------------------------------------------------------------
8,200 3M Co. 738,082
- --------------------------------------------------------------------------------
58,583 General Electric Co. 1,898,089
- --------------------------------------------------------------------------------
48,990 Tyco International Ltd. 1,623,529
- --------------------------------------------------------------------------------
4,259,700
- --------------------------------------------------------------------------------
INSURANCE -- 5.0%
- --------------------------------------------------------------------------------
8,899 Aflac Inc. 363,168
- --------------------------------------------------------------------------------
6,156 Ambac Financial Group, Inc. 452,097
- --------------------------------------------------------------------------------
28,015 American International Group, Inc. 1,996,909
- --------------------------------------------------------------------------------
810 Berkshire Hathaway Inc. Cl B(1) 2,393,550
- --------------------------------------------------------------------------------
13,960 Marsh & McLennan
Companies, Inc. 633,505
- --------------------------------------------------------------------------------
3,230 Progressive Corp. 275,519
- --------------------------------------------------------------------------------
6,114,748
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 5.1%
- --------------------------------------------------------------------------------
30,879 Amazon.com, Inc.(1) $ 1,679,818
- --------------------------------------------------------------------------------
17,584 eBay Inc.(1) 1,616,849
- --------------------------------------------------------------------------------
94,350 InterActiveCorp(1) 2,843,709
- --------------------------------------------------------------------------------
3,494 Netflix Inc.(1) 125,609
- --------------------------------------------------------------------------------
6,265,985
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.6%
- --------------------------------------------------------------------------------
12,656 Digital River Inc.(1) 412,965
- --------------------------------------------------------------------------------
13,326 Sina Corp.(1) 439,625
- --------------------------------------------------------------------------------
46,217 VeriSign, Inc.(1) 919,718
- --------------------------------------------------------------------------------
38,240 Yahoo! Inc.(1) 1,389,260
- --------------------------------------------------------------------------------
3,161,568
- --------------------------------------------------------------------------------
IT SERVICES -- 3.7%
- --------------------------------------------------------------------------------
31,451 Accenture Ltd. Cl A(1) 864,273
- --------------------------------------------------------------------------------
32,062 Checkfree Corp.(1) 961,860
- --------------------------------------------------------------------------------
22,052 Cognizant Technology
Solutions Corporation(1) 560,341
- --------------------------------------------------------------------------------
37,640 First Data Corp. 1,675,734
- --------------------------------------------------------------------------------
15,642 Paychex, Inc. 529,951
- --------------------------------------------------------------------------------
4,592,159
- --------------------------------------------------------------------------------
MACHINERY -- 0.3%
- --------------------------------------------------------------------------------
7,310 Danaher Corp. 379,024
- --------------------------------------------------------------------------------
MEDIA -- 2.6%
- --------------------------------------------------------------------------------
5,418 Clear Channel
Communications, Inc. 200,195
- --------------------------------------------------------------------------------
4,630 Comcast Corporation(1) 129,779
- --------------------------------------------------------------------------------
12,275 EchoStar Communications
Corp. Cl A(1) 377,456
- --------------------------------------------------------------------------------
3,340 Getty Images Inc.(1) 200,400
- --------------------------------------------------------------------------------
16,680 Interpublic Group of
Companies, Inc.(1) 229,016
- --------------------------------------------------------------------------------
10,381 McGraw-Hill
Companies, Inc. (The) 794,873
- --------------------------------------------------------------------------------
14,317 Univision Communications
Inc. Cl A(1) 457,142
- --------------------------------------------------------------------------------
11,212 Viacom, Inc. Cl B 400,493
- --------------------------------------------------------------------------------
13,811 XM Satellite Radio
Holdings Inc.(1) 376,902
- --------------------------------------------------------------------------------
3,166,256
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.1%
- --------------------------------------------------------------------------------
12,865 Family Dollar Stores, Inc. 391,353
- --------------------------------------------------------------------------------
5,593 Kohl's Corp.(1) 236,472
- --------------------------------------------------------------------------------
15,694 Target Corporation 666,525
- --------------------------------------------------------------------------------
1,294,350
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.2%
- --------------------------------------------------------------------------------
3,470 Zebra Technologies Corp. Cl A(1) 301,890
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
VP Ultra - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
OIL & GAS -- 2.7%
- --------------------------------------------------------------------------------
3,660 Anadarko Petroleum Corp. $ 214,476
- --------------------------------------------------------------------------------
18,516 Apache Corp. 806,372
- --------------------------------------------------------------------------------
2,100 BP plc ADR 112,497
- --------------------------------------------------------------------------------
9,412 Burlington Resources, Inc. 340,526
- --------------------------------------------------------------------------------
2,020 ChevronTexaco Corp. 190,102
- --------------------------------------------------------------------------------
1,440 EnCana Corp. 62,150
- --------------------------------------------------------------------------------
28,800 Exxon Mobil Corp. 1,279,009
- --------------------------------------------------------------------------------
6,340 Occidental Petroleum Corp. 306,919
- --------------------------------------------------------------------------------
3,312,051
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.7%
- --------------------------------------------------------------------------------
5,129 Alberto-Culver Company Cl B 257,168
- --------------------------------------------------------------------------------
11,918 Avon Products, Inc. 549,897
- --------------------------------------------------------------------------------
807,065
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 7.3%
- --------------------------------------------------------------------------------
2,837 Allergan, Inc. 253,968
- --------------------------------------------------------------------------------
3,820 American Pharmaceutical
Partners Inc.(1) 116,052
- --------------------------------------------------------------------------------
10,888 Barr Pharmaceuticals Inc.(1) 366,926
- --------------------------------------------------------------------------------
23,606 Eli Lilly and Company 1,650,295
- --------------------------------------------------------------------------------
11,277 Forest Laboratories, Inc. Cl A(1) 638,617
- --------------------------------------------------------------------------------
28,396 Johnson & Johnson 1,581,657
- --------------------------------------------------------------------------------
70,544 Pfizer, Inc. 2,418,247
- --------------------------------------------------------------------------------
30,567 Teva Pharmaceutical
Industries Ltd. ADR 2,056,853
- --------------------------------------------------------------------------------
9,082,615
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 3.4%
- --------------------------------------------------------------------------------
11,254 Analog Devices, Inc. 529,838
- --------------------------------------------------------------------------------
20,150 Applied Materials, Inc.(1) 395,343
- --------------------------------------------------------------------------------
50,700 Intel Corp. 1,399,320
- --------------------------------------------------------------------------------
5,484 KLA-Tencor Corp.(1) 270,800
- --------------------------------------------------------------------------------
7,599 Maxim Integrated Products, Inc. 398,340
- --------------------------------------------------------------------------------
25,241 Microchip Technology Inc. 796,101
- --------------------------------------------------------------------------------
1,218 Taiwan Semiconductor
Manufacturing Co. Ltd. ADR 10,122
- --------------------------------------------------------------------------------
9,785 Xilinx, Inc. 325,938
- --------------------------------------------------------------------------------
4,125,802
- --------------------------------------------------------------------------------
SOFTWARE -- 6.4%
- --------------------------------------------------------------------------------
6,932 Adobe Systems Inc. 322,338
- --------------------------------------------------------------------------------
19,500 Computer Associates
International, Inc. 547,170
- --------------------------------------------------------------------------------
24,938 Electronic Arts Inc.(1) 1,360,368
- --------------------------------------------------------------------------------
18,924 Intuit Inc.(1) 730,088
- --------------------------------------------------------------------------------
88,695 Microsoft Corporation 2,533,128
- --------------------------------------------------------------------------------
59,615 Oracle Corp.(1) 711,207
- --------------------------------------------------------------------------------
5,260 Red Hat Inc.(1) 120,822
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
12,387 SAP AG ADR $ 517,900
- --------------------------------------------------------------------------------
11,340 Symantec Corp.(1) 496,465
- --------------------------------------------------------------------------------
19,145 Veritas Software Corp.(1) 530,317
- --------------------------------------------------------------------------------
7,869,803
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 5.2%
- --------------------------------------------------------------------------------
17,848 Bed Bath & Beyond Inc.(1) 686,256
- --------------------------------------------------------------------------------
19,640 Carmax, Inc.(1) 429,527
- --------------------------------------------------------------------------------
14,488 Chico's FAS, Inc.(1) 654,278
- --------------------------------------------------------------------------------
5,140 Dick's Sporting Goods Inc.(1) 171,419
- --------------------------------------------------------------------------------
28,571 Home Depot, Inc. 1,005,698
- --------------------------------------------------------------------------------
22,592 Lowe's Companies, Inc. 1,187,209
- --------------------------------------------------------------------------------
9,706 Michaels Stores, Inc. 533,830
- --------------------------------------------------------------------------------
18,475 Petsmart Inc. 599,514
- --------------------------------------------------------------------------------
2,270 Tiffany & Co. 83,650
- --------------------------------------------------------------------------------
22,731 TJX Companies, Inc. (The) 548,726
- --------------------------------------------------------------------------------
11,175 Weight Watchers
International Inc.(1) 437,390
- --------------------------------------------------------------------------------
6,337,497
- --------------------------------------------------------------------------------
TEXTILES, APPAREL &
LUXURY GOODS -- 0.4%
- --------------------------------------------------------------------------------
9,508 Coach Inc.(1) 429,667
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 0.3%
- --------------------------------------------------------------------------------
4,000 Golden West Financial Corp. 425,400
- --------------------------------------------------------------------------------
TOBACCO -- 0.7%
- --------------------------------------------------------------------------------
17,042 Altria Group Inc. 852,952
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.8%
- --------------------------------------------------------------------------------
26,749 Nextel Communications, Inc.(1) 713,128
- --------------------------------------------------------------------------------
8,836 NII Holdings Inc. Cl B(1) 297,685
- --------------------------------------------------------------------------------
1,010,813
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $100,754,490) 120,279,235
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 1.8%
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations), in a joint trading
account at 1.16%, dated 6/30/04, due 7/1/04
(Delivery value $2,200,071)
(Cost $2,200,000) 2,200,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 100.0%
(Cost $102,954,490) $122,479,235
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
- ------
8
Statement of Assets and Liabilities
JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(cost of $102,954,490) $122,479,235
- -----------------------------------------------------------
Cash 7,119,484
- -----------------------------------------------------------
Receivable for investments sold 899,419
- -----------------------------------------------------------
Dividends and interest receivable 66,558
- --------------------------------------------------------------------------------
130,564,696
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 1,875,390
- -----------------------------------------------------------
Accrued management fees 92,632
- -----------------------------------------------------------
Distribution fees payable 9,966
- --------------------------------------------------------------------------------
1,977,988
- --------------------------------------------------------------------------------
NET ASSETS $128,586,708
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $121,109,985
- -----------------------------------------------------------
Accumulated net investment loss (136,218)
- -----------------------------------------------------------
Accumulated net realized loss on
investment transactions (11,911,804)
- -----------------------------------------------------------
Net unrealized appreciation
on investments 19,524,745
- --------------------------------------------------------------------------------
$128,586,708
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $73,490,809
- -----------------------------------------------------------
Shares outstanding 7,624,256
- -----------------------------------------------------------
Net asset value per share $9.64
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $54,197,475
- -----------------------------------------------------------
Shares outstanding 5,635,413
- -----------------------------------------------------------
Net asset value per share $9.62
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $898,424
- -----------------------------------------------------------
Shares outstanding 93,262
- -----------------------------------------------------------
Net asset value per share $9.63
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
9
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Dividends (net of foreign taxes withheld of $2,501) $413,882
- ------------------------------------------------------------
Interest 8,319
- --------------------------------------------------------------------------------
422,201
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 509,010
- ------------------------------------------------------------
Distribution fees -- Class II 48,011
- ------------------------------------------------------------
Directors' fees and expenses 901
- ------------------------------------------------------------
Other expenses 497
- --------------------------------------------------------------------------------
558,419
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (136,218)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 188,648
- ------------------------------------------------------------
Change in net unrealized appreciation on investments 4,759,797
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 4,948,445
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,812,227
================================================================================
See Notes to Financial Statements.
- ------
10
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment loss $ (136,218) $ (97,954)
- -----------------------------------------------
Net realized gain (loss) 188,648 (1,499,811
- -----------------------------------------------
Change in net unrealized appreciation 4,759,797 14,205,765
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 4,812,227 12,608,000
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions 33,240,469 43,412,278
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 38,052,696 56,020,278
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 90,534,012 34,513,734
- --------------------------------------------------------------------------------
End of period $128,586,708 $90,534,012
================================================================================
Accumulated net investment loss ($136,218) --
================================================================================
See Notes to Financial Statements.
- ------
11
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Ultra 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 seek long-term capital growth. The fund
pursues this objective by investing primarily in equity securities of large
companies that management believes will increase in value over time. The
following is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II and Class
III. The share classes differ principally in their respective shareholder
servicing and distribution expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the assets of the class to which such
shares belong, and have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except for class specific expenses and
exclusive rights to vote on matters affecting only individual classes. Income,
non-class specific expenses, and realized and unrealized capital gains and
losses of the fund are allocated to each class of shares based on their relative
net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending on
local convention or regulation, securities traded over-the-counter are valued at
the mean of the latest bid and asked prices, the last sales price, or the
official close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade
date. Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks of
entering into futures contracts is the possibility that the change in value of
the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM 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, may transfer uninvested cash
balances into a joint trading account. These balances are invested in
(continued)
- ------
12
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
one or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes, and may result in reclassification among certain
capital accounts on the financial statements.
As of December 31, 2003, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $9,524,886 ($536,838, $6,291,207
and $2,696,841 expiring in 2009, 2010, and 2011, respectively), which may be
used to offset future taxable gains.
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee is
retained by the fund and helps cover transaction costs that long-term investors
may bear when a fund sells securities to meet investor redemptions.
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 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 daily and paid
monthly in arrears based on each class's pro rata share of the fund's average
daily closing net assets during the previous month.
The annual management fee schedule for the fund is as follows:
- -------------------------------------------------------------------------
CLASS I CLASS II CLASS III
- -------------------------------------------------------------------------
FUND AVERAGE NET ASSETS
- -------------------------------------------------------------------------
First $20 billion 1.000% 0.900% 1.000%
- -------------------------------------------------------------------------
More than $20 to $30 billion 0.950% 0.850% 0.950%
- -------------------------------------------------------------------------
More than $30 to $40 billion 0.925% 0.825% 0.925%
- -------------------------------------------------------------------------
Over $40 billion 0.900% 0.800% 0.900%
- -------------------------------------------------------------------------
The effective annual management fee for the six months ended June 30, 2004 for
each class of the fund was 1.00%, 0.90%, and 1.00% for Class I, Class II, and
Class III, respectively.
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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 daily and
paid monthly in arrears based on the Class II average daily closing net assets
during the previous month. 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, 2004, 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
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the six months ended June 30, 2004, the fund invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The fund has a bank line of
credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2004, were $47,300,922 and $19,718,768,
respectively.
As of June 30, 2004, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
Federal tax cost of investments $105,530,056
================================================================================
Gross tax appreciation of investments $18,720,180
- -------------------------------------------------------------
Gross tax depreciation of investments (1,771,001)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $16,949,179
================================================================================
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.
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 2,128,939 $20,259,337
- --------------------------------------------
Redeemed (1,407,929) (13,230,810)
- --------------------------------------------------------------------------------
Net increase 721,010
$7,028,527
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 200,000,000
================================================================================
Sold 5,770,133 $47,241,80
- --------------------------------------------
Redeemed (3,171,928) (25,533,066)
- --------------------------------------------------------------------------------
Net increase 2,598,205 $21,708,743
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 2,883,214 $27,305,426
- --------------------------------------------
Redeemed (175,422) (1,624,488)
- --------------------------------------------------------------------------------
Net increase 2,707,792 $25,680,938
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 2,790,207 $23,622,206
- --------------------------------------------
Redeemed (221,397) (1,930,685)
- --------------------------------------------------------------------------------
Net increase 2,568,810 $21,691,521
================================================================================
CLASS III
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 61,973 $584,628
- --------------------------------------------
Redeemed (5,644) (53,624)
- --------------------------------------------------------------------------------
Net increase 56,329 $531,004
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 43,265 $342,306
- --------------------------------------------
Redeemed (41,359) (330,292)(1)
- --------------------------------------------------------------------------------
Net increase 1,906 $ 12,014
================================================================================
(1) Net of redemption fees of $716.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the six months ended June 30, 2004.
- ------
15
VP Ultra - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
2004(1) 2003 2002 2001(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $9.18 $7.35 $9.53 $10.00
- --------------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------
Net Investment
Income (Loss)(3) (0.01) (0.01) 0.02 --(4)
- ----------------------------------
Net Realized and
Unrealized Gain (Loss) 0.47 1.84 (2.18) (0.47)
- --------------------------------------------------------------------------------
Total From Investment
Operations 0.46 1.83 (2.16) (0.47)
- --------------------------------------------------------------------------------
Distributions
- ----------------------------------
From Net Investment Income -- -- (0.02) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.64 $9.18 $7.35 $9.53
================================================================================
TOTAL RETURN(5) 5.01% 24.90% (22.71)% (4.70)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.00%(6) 1.01% 1.00% 1.00%(6)
- ----------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.20)%(6) (0.15%) 0.19% 0.16%(6)
- ----------------------------------
Portfolio Turnover Rate 19% 111% 168% 48%
- ----------------------------------
Net Assets, End of Period
(in thousands) $73,491 $63,364 $31,621 $30,801
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) May 1, 2001 (inception) through December 31, 2001.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(6) Annualized.
- ------
16
See Notes to Financial Statements.
VP Ultra - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2004(1) 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $9.16 $7.34 $9.16
- --------------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------
Net Investment
Income (Loss)(3) (0.02) (0.03) --(4)
- ----------------------------------
Net Realized and
Unrealized Gain (Loss) 0.48 1.85 (1.81)
- --------------------------------------------------------------------------------
Total From Investment
Operations 0.46 1.82 (1.81)
- --------------------------------------------------------------------------------
Distributions
- ----------------------------------
From Net Investment Income -- -- (0.01)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.62 $9.16 $7.34
================================================================================
TOTAL RETURN(5) 5.02% 24.80% (19.80)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.15%(6) 1.16% 1.15%(6)
- ----------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.35)%(6) (0.30)% 0.07%(6)
- ----------------------------------
Portfolio Turnover Rate 19% 111% 168%(7)
- ----------------------------------
Net Assets, End of Period
(in thousands) $54,197 $26,831 $2,635
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) May 1, 2002 (commencement of sale) through December 31, 2002.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2002.
See Notes to Financial Statements.
- ------
17
VP Ultra - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- -----------------------------------------------------------------------------
CLASS III
- -----------------------------------------------------------------------------
2004(1) 2003 2002(2)
- -----------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $9.17 $7.34 $9.08
- -----------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------
Net Investment
Income (Loss)(3) (0.01) (0.02) 0.01
- ----------------------------------
Net Realized and
Unrealized Gain (Loss) 0.47 1.85 (1.74)
- -----------------------------------------------------------------------------
Total From
Investment Operations 0.46 1.83 (1.73)
- -----------------------------------------------------------------------------
Distributions
- ----------------------------------
From Net Investment Income -- -- (0.01)
- -----------------------------------------------------------------------------
Net Asset Value, End of Period $9.63 $9.17 $7.34
=============================================================================
TOTAL RETURN(4) 5.02% 24.93% (19.02)%
- -----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.00%(5) 1.01% 1.00%(5)
- ----------------------------------
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.20)%(5) (0.15)% 0.14%(5)
- ----------------------------------
Portfolio Turnover Rate 19% 111% 168%(6)
- ----------------------------------
Net Assets, End of Period
(in thousands) $898 $339 $257
- -----------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) May 13, 2002 (commencement of sale) through December 31, 2002.
(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, 2002.
See Notes to Financial Statements.
- ------
18
Share Class Information
Three classes of shares are authorized for sale by the fund: Class I, Class II,
and Class III.
CLASS I shares are sold through insurance company separate accounts. Class I
shareholders do not pay any commissions or other fees to American Century for
the purchase of fund shares.
CLASS II shares are sold through insurance company separate accounts. Class II
shares are subject to a 0.25% Rule 12b-1 distribution fee, which is available to
pay for distribution services provided by the financial intermediary through
which the Class II shares are purchased. The total expense ratio of Class II
shares is higher than the total expense ratio of the Class I shares.
CLASS III shares are sold through insurance company separate accounts. Class III
shareholders do not pay any commissions or other fees to American Century for
the purchase of fund shares. However, Class III shares have a 1.00% redemption
fee for shares that are redeemed or exchanged within 60 days of purchase.
All classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences. Because all shares of the fund are sold
through insurance company separate accounts, additional fees may apply.
- ------
19
Additional Information
The following index is used to illustrate investment market, sector, or style
performance or to serve as a fund performance comparison. It is not an
investment product available for purchase.
The DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials but including
service-oriented firms. Prepared and published by Dow Jones & Co., it is the
oldest and most widely quoted of all the market indicators.
The S&P 500 INDEX is a market-value weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure
of U.S. stock market performance.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, 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 manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-378-9878. It is also available on American Century's Web site at
americancentury.com and on the Securities and Exchange Commission's Web site at
sec.gov.
- ------
20
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, INC.
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century logo, American Century and
American Century Investments are service marks
of American Century Services Corporation.
0408 American Century Investment Services, Inc.
SH-SAN-38970 (c)2004 American Century Services Corporation
[front cover]
JUNE 30, 2004
American Century Variable Portfolios
Semiannual Report
[graphic of market chart]
[graphic of starfish]
{graphic of side by side steel bridges]
VP Value Fund
[american century logo and text logo]
Table of Contents
VP VALUE
Performance ................................................................2
Portfolio Commentary .......................................................4
Top Ten Holdings ........................................................4
Top Five Industries .....................................................5
Types of Investments in Portfolio .......................................5
Schedule of Investments ....................................................6
FINANCIAL STATEMENTS
Statement of Assets and Liabilities ........................................9
Statement of Operations ...................................................10
Statement of Changes in Net Assets ........................................11
Notes to Financial Statements .............................................12
Financial Highlights ......................................................17
OTHER INFORMATION
Share Class Information ...................................................20
Additional Information ....................................................21
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
VP Value - Performance
TOTAL RETURNS AS OF JUNE 30, 2004
----------------------
AVERAGE ANNUAL RETURNS
- -------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- -------------------------------------------------------------------------------
CLASS I 25.20% 6.93% 11.02% 5/1/96
- -------------------------------------------------------------------------------
LIPPER MULTI-CAP VALUE INDEX 22.22% 3.63% 9.16% --
- -------------------------------------------------------------------------------
S&P 500 INDEX 19.11% -2.20% 8.73% --
- -------------------------------------------------------------------------------
RUSSELL 3000 VALUE INDEX 22.14% 2.63% 10.37% --
- -------------------------------------------------------------------------------
Class II 25.19% -- 7.59% 8/14/01
- -------------------------------------------------------------------------------
Class III 25.20% -- 9.33% 5/6/02
- -------------------------------------------------------------------------------
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 the 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.
Unless otherwise indicated, performance reflects Class I 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 indices 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 indices do not.
- ------
1
VP Value - Performance
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made May 1, 1996
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended June 30
- ----------------------------------------------------------------------------------------------------------
1996* 1997 1998 1999 2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------------------------------------
Class I 2.75% 23.86% 17.80% 11.98% -15.88% 31.94% 1.12% -0.49% 25.20%
- ----------------------------------------------------------------------------------------------------------
Lipper Multi-Cap
Value Index 0.73% 28.73% 20.39% 9.61% -6.66% 15.14% -10.89% 2.13% 22.22%
- ----------------------------------------------------------------------------------------------------------
S&P 500 Index 2.89% 34.70% 30.16% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11%
- ----------------------------------------------------------------------------------------------------------
Russell 3000
Value Index 1.24% 32.66% 27.95% 14.39% -8.38% 11.64% -7.75% -1.23% 22.14%
- ----------------------------------------------------------------------------------------------------------
* From 5/1/96, the Class I inception date, to 6/30/96. Not annualized.
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.
Unless otherwise indicated, performance reflects Class I 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 indices 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 indices do not.
- ------
2
VP Value - Portfolio Commentary
[photo of Michael Liss, Phil Davidson and Scott Moore]
A PORTFOLIO COMMENTARY FROM MICHAEL LISS, PHIL DAVIDSON AND SCOTT MOORE,
PORTFOLIO MANAGERS ON THE VP VALUE INVESTMENT TEAM.
PERFORMANCE SUMMARY
VP Value was up 6.23%* for the six months ended June 30, 2004, outperforming the
4.59% gain posted by the Lipper Multi-Cap Value Index.
We seek to provide you with solid long-term results, and VP Value's performance
over time is a sign of our commitment. From the fund's inception on May 1, 1996,
it has produced an average annualized total return of 11.02%, significantly
ahead of the 9.16% figure posted by the Lipper Multi-Cap Value Index for the
same time period.
THE STOCK MARKET TAKES A BREATHER
Stocks encountered some headwinds during the first half of 2004. As the year
unfolded, concerns about higher interest rates, rising energy prices and growing
fears about terrorism restrained equities. The S&P 500 Index dropped more than
5% from February 11 to March 24, driven down by profit-taking in the technology
sector, disappointing payroll reports, and terrorist attacks in Madrid. The
second quarter saw stocks weighed down by signals that the Federal Reserve was
ready to hike interest rates and a move by China's central bank to cool that
country's economy.
When we closed our books, the S&P 500 showed a gain of 3.44% for the six months,
while the Nasdaq Composite and Dow Jones Industrial Average posted returns of
2.43% and 0.80%, respectively. Value-oriented firms generally fared better than
their growth counterparts, with all capitalization companies recording strong
gains.
SOURCES OF STRENGTH
All 10 of VP Value's sector stakes contributed to results, with industrials
proving to be the richest source of absolute performance. Our shares of
industrial distributor W.W. Grainger, Inc. emerged as a top contributor as the
company improved its productivity by redesigning its network of distribution
TOP TEN HOLDINGS
AS OF JUNE 30, 2004
- ----------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- ----------------------------------------------------------------------------
SunTrust Banks, Inc. 3.5% 4.1%
- ----------------------------------------------------------------------------
Union Pacific Corp. 3.4% 1.1%
- ----------------------------------------------------------------------------
Kraft Foods Inc. 2.8% 2.8%
- ----------------------------------------------------------------------------
Martin Marietta
Materials, Inc. 2.7% 2.5%
- ----------------------------------------------------------------------------
Exxon Mobil Corp. 2.7% 3.9%
- ----------------------------------------------------------------------------
Bank of America Corp. 2.6% 1.1%
- ----------------------------------------------------------------------------
MetLife, Inc. 2.5% 1.6%
- ----------------------------------------------------------------------------
Marsh & McLennan
Companies, Inc. 2.5% 1.1%
- ----------------------------------------------------------------------------
Royal Dutch Petroleum
Co. New York Shares 2.4% 2.3%
- ----------------------------------------------------------------------------
FPL Group, Inc. 2.3% 1.0%
- ----------------------------------------------------------------------------
* All fund returns referenced in this commentary are for Class I shares.
(continued)
- ------
4
VP Value - Portfolio Commentary
centers. Stand-outs in this area also included defense and aerospace systems
supplier Raytheon Co., one of the portfolio's top-ten contributing securities,
which benefited from increasing government and defense sales during the first
quarter and a higher-than-expected earnings forecast for 2004.
Financials, representing about a fifth of the portfolio on average during the
period, were lifted by Freddie Mac, whose shares have risen following partial
resolution of accounting issues that plagued the company in 2003. American
International Group and Allstate Corp. were other strong contributors as both
insurance giants benefited from improving fundamentals across the industry and
higher prices for premiums.
DEMAND FOR CONSUMER STAPLES
Companies that produce everyday household products and staples such as food and
beverages often are in a position to hold their value during periods of economic
uncertainty, as consumers tend to continue those purchases. Household products
leader Kimberly-Clark was our top contributor for the period, buoyed by a gain
in market share, the result of an improving competitive position as well as
ongoing increases in its dividend and share buybacks.
MIXED RESULTS IN ENERGY
Firms in the oil and gas industry generally enjoyed a run up in response to
rising demand and concerns that Middle Eastern shipments could be disrupted by
violence in Iraq. The strongest performance in this group came from Exxon Mobil
Corp. and BP plc.
SOME DETRACTORS
Some holdings detracted from absolute performance during the period. Two hailed
from the auto components industry. Superior Industries International struggled
due to pricing and margin pressures, while aluminum wheel maker TRW Automotive's
progress was restrained due to costs associated with debt repayment
transactions. We believe both firms' problems are transitory, and are
maintaining our stake in each.
As the year progresses, we will continue to follow our long-held investment
discipline--searching for fundamentally sound businesses that, because of
transitory issues, are selling at what we believe to be below fair market value.
TOP FIVE INDUSTRIES
AS OF JUNE 30, 2004
- -----------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- -----------------------------------------------------------------------------
Insurance 11.5% 8.6%
- -----------------------------------------------------------------------------
Commercial Banks 7.8% 6.6%
- -----------------------------------------------------------------------------
Oil & Gas 6.5% 8.8%
- -----------------------------------------------------------------------------
Pharmaceuticals 5.7% 4.3%
- -----------------------------------------------------------------------------
Food Products 5.7% 4.9%
- -----------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Common Stocks 97.7% 97.1%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 2.3% 2.9%
- --------------------------------------------------------------------------------
- ------
5
VP Value - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- -------------------------------------------------------------------------------
COMMON STOCKS -- 97.7%
AEROSPACE & DEFENSE -- 1.9%
- -------------------------------------------------------------------------------
487,100 Honeywell International Inc. $ 17,842,473
- -------------------------------------------------------------------------------
237,800 Lockheed Martin Corp. 12,384,624
- -------------------------------------------------------------------------------
439,340 Raytheon Company 15,715,192
- -------------------------------------------------------------------------------
45,942,289
- -------------------------------------------------------------------------------
AUTO COMPONENTS -- 1.5%
- -------------------------------------------------------------------------------
538,456 Superior Industries
International, Inc. 18,011,353
- -------------------------------------------------------------------------------
978,151 TRW Automotive
Holdings Corp.(1) 18,438,147
- -------------------------------------------------------------------------------
36,449,500
- -------------------------------------------------------------------------------
AUTOMOBILES -- 0.6%
- -------------------------------------------------------------------------------
378,300 Toyota Motor Corp. ORD 15,371,970
- -------------------------------------------------------------------------------
BEVERAGES -- 1.0%
- -------------------------------------------------------------------------------
437,300 Anheuser-Busch
Companies, Inc. 23,614,200
- -------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.5%
- -------------------------------------------------------------------------------
407,100 Masco Corp. 12,693,378
- -------------------------------------------------------------------------------
CAPITAL MARKETS -- 3.5%
- -------------------------------------------------------------------------------
1,343,923 Edwards (A.G.), Inc. 45,733,700
- -------------------------------------------------------------------------------
338,900 Merrill Lynch & Co., Inc. 18,293,822
- -------------------------------------------------------------------------------
398,100 Morgan Stanley 21,007,737
- -------------------------------------------------------------------------------
85,035,259
- -------------------------------------------------------------------------------
CHEMICALS -- 2.3%
- -------------------------------------------------------------------------------
297,811 Air Products & Chemicals, Inc. 15,620,187
- -------------------------------------------------------------------------------
278,600 Ecolab Inc. 8,831,620
- -------------------------------------------------------------------------------
171,016 International Flavors &
Fragrances Inc. 6,395,998
- -------------------------------------------------------------------------------
211,417 Minerals Technologies Inc. 12,262,186
- -------------------------------------------------------------------------------
293,900 Rohm and Haas Co. 12,220,362
- -------------------------------------------------------------------------------
55,330,353
- -------------------------------------------------------------------------------
COMMERCIAL BANKS -- 7.8%
- -------------------------------------------------------------------------------
745,800 Bank of America Corp. 63,109,596
- -------------------------------------------------------------------------------
481,900 BB&T Corporation 17,815,843
- -------------------------------------------------------------------------------
143,000 Marshall & Ilsley Corp. 5,589,870
- -------------------------------------------------------------------------------
1,296,497 SunTrust Banks, Inc. 84,259,340
- -------------------------------------------------------------------------------
292,300 Zions Bancorporation 17,961,835
- -------------------------------------------------------------------------------
188,736,484
- -------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 2.8%
- -------------------------------------------------------------------------------
1,303,702 Republic Services, Inc. Cl A 37,729,136
- -------------------------------------------------------------------------------
1,006,317 Waste Management, Inc. 30,843,616
- -------------------------------------------------------------------------------
68,572,752
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 0.9%
- -------------------------------------------------------------------------------
1,445,200 Nokia Oyj ADR 21,013,208
- -------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 1.1%
- -------------------------------------------------------------------------------
99,700 International Business
Machines Corp. $ 8,788,555
- -------------------------------------------------------------------------------
1,294,600 Seagate Technology 18,681,078
- -------------------------------------------------------------------------------
27,469,633
- -------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 2.7%
- -------------------------------------------------------------------------------
1,494,712 Martin Marietta Materials, Inc. 66,260,583
- -------------------------------------------------------------------------------
DIVERSIFIED -- 1.0%
- -------------------------------------------------------------------------------
213,200 Standard and Poor's 500
Depositary Receipt 24,417,796
- -------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.5%
- -------------------------------------------------------------------------------
281,900 Citigroup Inc. 13,108,350
- -------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.4%
- -------------------------------------------------------------------------------
593,366 CenturyTel Inc. 17,824,715
- -------------------------------------------------------------------------------
270,067 Commonwealth Telephone
Enterprise Inc.(1) 12,090,900
- -------------------------------------------------------------------------------
479,628 SBC Communications Inc. 11,630,979
- -------------------------------------------------------------------------------
1,137,800 Verizon Communications 41,176,981
- -------------------------------------------------------------------------------
82,723,575
- -------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 4.1%
- -------------------------------------------------------------------------------
590,874 Ameren Corp. 25,383,947
- -------------------------------------------------------------------------------
863,983 FPL Group, Inc. 55,251,713
- -------------------------------------------------------------------------------
561,000 Wisconsin Energy Corp. 18,294,210
- -------------------------------------------------------------------------------
98,929,870
- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 2.0%
- -------------------------------------------------------------------------------
662,900 Emerson Electric Co. 42,127,295
- -------------------------------------------------------------------------------
210,124 Thomas & Betts Corp. 5,721,677
- -------------------------------------------------------------------------------
47,848,972
- -------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.1%
- -------------------------------------------------------------------------------
1,764,300 AVX Corp. 25,494,135
- -------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 1.0%
- -------------------------------------------------------------------------------
296,100 Diamond Offshore Drilling, Inc. 7,056,063
- -------------------------------------------------------------------------------
623,700 Global SantaFe Corp. 16,528,050
- -------------------------------------------------------------------------------
23,584,113
- -------------------------------------------------------------------------------
FOOD PRODUCTS -- 5.7%
- -------------------------------------------------------------------------------
951,136 Campbell Soup Company 25,566,536
- -------------------------------------------------------------------------------
2,147,500 Kraft Foods Inc. 68,032,800
- -------------------------------------------------------------------------------
626,600 Unilever N.V. New York Shares 42,928,366
- -------------------------------------------------------------------------------
136,527,702
- -------------------------------------------------------------------------------
GAS UTILITIES -- 2.7%
- -------------------------------------------------------------------------------
1,264,261 AGL Resources Inc. 36,726,782
- -------------------------------------------------------------------------------
963,800 WGL Holdings Inc. 27,680,336
- -------------------------------------------------------------------------------
64,407,118
- -------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.3%
- -------------------------------------------------------------------------------
235,820 Hospira Inc.(1) 6,508,632
- -------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
6
VP Value - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- -------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.5%
- -------------------------------------------------------------------------------
632,600 HCA Inc. $ 26,309,834
- -------------------------------------------------------------------------------
746,300 Universal Health
Services, Inc. Cl B 34,247,707
- -------------------------------------------------------------------------------
60,557,541
- -------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 3.2%
- -------------------------------------------------------------------------------
599,459 Brinker International, Inc.(1) 20,453,541
- -------------------------------------------------------------------------------
806,959 Darden Restaurants, Inc. 16,583,007
- -------------------------------------------------------------------------------
791,900 Outback Steakhouse, Inc. 32,752,984
- -------------------------------------------------------------------------------
187,454 Speedway Motorsports Inc. 6,268,462
- -------------------------------------------------------------------------------
76,057,994
- -------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.6%
- -------------------------------------------------------------------------------
570,200 Newell Rubbermaid Inc. 13,399,700
- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.7%
- -------------------------------------------------------------------------------
217,422 Clorox Company 11,692,955
- -------------------------------------------------------------------------------
432,800 Kimberly-Clark Corp. 28,512,864
- -------------------------------------------------------------------------------
40,205,819
- -------------------------------------------------------------------------------
INSURANCE -- 11.5%
- -------------------------------------------------------------------------------
334,300 Allstate Corp. 15,561,665
- -------------------------------------------------------------------------------
423,800 American International
Group, Inc. 30,208,464
- -------------------------------------------------------------------------------
202 Berkshire Hathaway Inc. Cl A(1) 17,967,900
- -------------------------------------------------------------------------------
615,900 Chubb Corp. 41,992,062
- -------------------------------------------------------------------------------
539,400 Genworth Financial Inc.(1) 12,379,230
- -------------------------------------------------------------------------------
812,400 Horace Mann Educators Corp. 14,200,752
- -------------------------------------------------------------------------------
490,100 Jefferson-Pilot Corp. 24,897,080
- -------------------------------------------------------------------------------
1,336,100 Marsh & McLennan
Companies, Inc. 60,632,218
- -------------------------------------------------------------------------------
1,699,562 MetLife, Inc. 60,929,298
- -------------------------------------------------------------------------------
278,768,669
- -------------------------------------------------------------------------------
IT SERVICES -- 1.3%
- -------------------------------------------------------------------------------
438,398 BISYS Group Inc. (The)(1) 6,163,876
- -------------------------------------------------------------------------------
512,072 DST Systems, Inc.(1) 24,625,542
- -------------------------------------------------------------------------------
30,789,418
- -------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.6%
- -------------------------------------------------------------------------------
850,000 Mattel, Inc. 15,512,500
- -------------------------------------------------------------------------------
MACHINERY -- 0.8%
- -------------------------------------------------------------------------------
433,810 Dover Corp. 18,263,401
- -------------------------------------------------------------------------------
MEDIA -- 3.3%
- -------------------------------------------------------------------------------
280,201 ADVO, Inc. 9,224,217
- -------------------------------------------------------------------------------
307,700 Dow Jones & Co. Inc. 13,877,270
- -------------------------------------------------------------------------------
828,333 New York Times Co. (The) Cl A 37,034,768
- -------------------------------------------------------------------------------
607,500 Valassis Communications, Inc.(1) 18,510,525
- -------------------------------------------------------------------------------
78,646,780
- -------------------------------------------------------------------------------
MULTILINE RETAIL -- 0.5%
- -------------------------------------------------------------------------------
626,500 Dollar General Corp. 12,254,340
- -------------------------------------------------------------------------------
OIL & GAS -- 6.5%
- -------------------------------------------------------------------------------
630,700 BP plc ADR $ 33,786,599
- -------------------------------------------------------------------------------
1,465,100 Exxon Mobil Corp. 65,065,091
- -------------------------------------------------------------------------------
1,122,113 Royal Dutch Petroleum Co.
New York Shares 57,979,579
- -------------------------------------------------------------------------------
156,831,269
- -------------------------------------------------------------------------------
PHARMACEUTICALS -- 5.7%
- -------------------------------------------------------------------------------
733,800 Abbott Laboratories 29,909,688
- -------------------------------------------------------------------------------
1,458,024 Bristol-Myers Squibb Co. 35,721,588
- -------------------------------------------------------------------------------
632,400 Merck & Co., Inc. 30,039,000
- -------------------------------------------------------------------------------
649,300 Schering-Plough Corp. 11,999,064
- -------------------------------------------------------------------------------
1,120,800 Watson Pharmaceuticals, Inc.(1) 30,149,520
- -------------------------------------------------------------------------------
137,818,860
- -------------------------------------------------------------------------------
ROAD & RAIL -- 3.4%
- -------------------------------------------------------------------------------
1,392,665 Union Pacific Corp. 82,793,934
- -------------------------------------------------------------------------------
SOFTWARE -- 2.9%
- -------------------------------------------------------------------------------
825,500 Microsoft Corporation 23,576,280
- -------------------------------------------------------------------------------
697,123 Reynolds & Reynolds Co. Cl A 16,124,455
- -------------------------------------------------------------------------------
1,082,343 Synopsys, Inc.(1) 30,771,011
- -------------------------------------------------------------------------------
70,471,746
- -------------------------------------------------------------------------------
SPECIALTY RETAIL -- 0.5%
- -------------------------------------------------------------------------------
286,853 Sherwin-Williams Co. 11,918,742
- -------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 2.0%
- -------------------------------------------------------------------------------
257,533 Jones Apparel Group, Inc. 10,167,403
- -------------------------------------------------------------------------------
1,040,342 Liz Claiborne, Inc. 37,431,505
- -------------------------------------------------------------------------------
47,598,908
- -------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.9%
- -------------------------------------------------------------------------------
738,600 Freddie Mac 46,753,380
- -------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 0.4%
- -------------------------------------------------------------------------------
165,356 Grainger (W.W.), Inc. 9,507,970
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $2,144,986,359) 2,358,190,843
- -------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.3%
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations), in a joint trading
account at 1.16%, dated
6/30/04, due 7/1/04
(Delivery value $54,301,750)
(Cost $54,300,000) 54,300,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES - 100.0%
(Cost $2,199,286,359) $2,412,490,843
================================================================================
See Notes to Financial Statements. (continued)
- ------
7
VP Value - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Contracts to Sell Settlement Date Value Unrealized Gain
- ---------------------------------------------------------------------------------------
29,433,850 Euro for USD 7/30/04 $ 35,835,850 $ 20,977
- ---------------------------------------------------------------------------------------
47,240,805 Euro for USD 7/30/04 57,515,902 70,738
- ---------------------------------------------------------------------------------------
23,316,375 Euro for USD 7/30/04 28,387,797 17,197
- ---------------------------------------------------------------------------------------
7,571,975 GBP for USD 7/30/04 13,717,830 100,505
- ---------------------------------------------------------------------------------------
10,962,290 GBP for USD 7/30/04 19,859,922 147,760
- ---------------------------------------------------------------------------------------
1,195,572,000 JPY for USD 7/30/04 11,003,844 101,538
- ---------------------------------------------------------------------------------------
$166,321,145 $458,715
=======================================
(Value on Settlement Date $166,779,860)
*FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the future -
and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
GBP = British Pounds
JPY = Japanese Yen
ORD = Foreign Ordinary Share
USD = United States Dollars
(1) Non-income producing.
See Notes to Financial Statements.
- ------
8
Statement of Assets and Liabilities
JUNE 30, 2004 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(cost of $2,199,286,359) $2,412,490,843
- -----------------------------------------------------------
Cash 2,773,377
- -----------------------------------------------------------
Receivable for investments sold 35,173,774
- -----------------------------------------------------------
Receivable for forward foreign
currency exchange contracts 458,715
- -----------------------------------------------------------
Dividends and interest receivable 2,579,384
- --------------------------------------------------------------------------------
2,453,476,093
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 61,755,633
- -----------------------------------------------------------
Accrued management fees 1,768,439
- -----------------------------------------------------------
Distribution fees payable 63,283
- --------------------------------------------------------------------------------
63,587,355
- --------------------------------------------------------------------------------
NET ASSETS $2,389,888,738
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $2,018,915,087
- -----------------------------------------------------------
Undistributed net investment income 12,570,000
- -----------------------------------------------------------
Undistributed net realized gain on investment
and foreign currency transactions 146,551,417
- -----------------------------------------------------------
Net unrealized appreciation on
investments and translation of assets
and liabilities in foreign currencies 211,852,234
- --------------------------------------------------------------------------------
$2,389,888,738
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $2,065,446,795
- -----------------------------------------------------------
Shares outstanding 254,037,084
- -----------------------------------------------------------
Net asset value per share $8.13
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $320,730,185
- -----------------------------------------------------------
Shares outstanding 39,457,059
- -----------------------------------------------------------
Net asset value per share $8.13
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $3,711,758
- -----------------------------------------------------------
Shares outstanding 456,531
- -----------------------------------------------------------
Net asset value per share $8.13
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
9
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- --------------------------------------------------------
Dividends (net of foreign taxes withheld of $519,651) $ 23,388,211
- --------------------------------------------------------
Interest 308,224
- --------------------------------------------------------------------------------
23,696,435
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------
Management fees 10,385,847
- --------------------------------------------------------
Distribution fees - Class II 330,755
- --------------------------------------------------------
Directors' fees and expenses 16,284
- --------------------------------------------------------
Other expenses 11,805
- --------------------------------------------------------------------------------
10,744,691
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 12,951,744
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON:
- --------------------------------------------------------
Investment transactions 202,838,501
- --------------------------------------------------------
Foreign currency transactions 5,296,198
- --------------------------------------------------------------------------------
208,134,699
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- --------------------------------------------------------
Investments (82,894,810)
- --------------------------------------------------------
Translation of assets and
liabilities in foreign currencies (1,409,762)
- --------------------------------------------------------------------------------
(84,304,572)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 123,830,127
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $136,781,871
================================================================================
See Notes to Financial Statements.
- ------
10
Statement of Changes in Net Assets
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 12,951,744 $ 23,161,953
- -----------------------------------------
Net realized gain 208,134,699 106,185,444
- -----------------------------------------
Change in net
unrealized appreciation (84,304,572) 326,711,971
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 136,781,871 456,059,368
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- -----------------------------------------
Class I (20,153,212) (16,414,513)
- -----------------------------------------
Class II (2,176,260) (955,890)
- -----------------------------------------
Class III (25,471) (7,827)
- -----------------------------------------
From net realized gains:
- -----------------------------------------
Class I (15,633,098) --
- -----------------------------------------
Class II (1,997,564) --
- -----------------------------------------
Class III (19,758) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (40,005,363) (17,378,230)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 153,572,346 152,240,223
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 250,348,854 590,921,361
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 2,139,539,884 1,548,618,523
- --------------------------------------------------------------------------------
End of period $2,389,888,738 $2,139,539,884
================================================================================
Undistributed net investment income $12,570,000 $21,973,199
================================================================================
See Notes to Financial Statements.
- ------
11
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Value 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 long-term capital growth. Income is a
secondary objective. The fund seeks to achieve its investment objective by
investing primarily in equity securities of companies management believes to be
undervalued at the time of purchase. The following is a summary of the fund's
significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II and Class
III. The share classes differ principally in their respective shareholder
servicing and distribution expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the assets of the class to which such
shares belong, and have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except for class specific expenses and
exclusive rights to vote on matters affecting only individual classes. Income,
non-class specific expenses, and realized and unrealized capital gains and
losses of the fund are allocated to each class of shares based on their relative
net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending on
local convention or regulation, securities traded over-the-counter are valued at
the mean of the latest bid and asked prices, the last sales price, or the
official close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade
date. Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks of
entering into futures contracts is the possibility that the change in value of
the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. For assets and
liabilities, other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose taxes
on the contract amount of purchases and sales of foreign currency contracts in
their currency. The fund records the foreign tax expense, if any, as a reduction
to the net realized gain (loss) on
(continued)
- ------
12
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM 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, 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.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes, and may result in reclassification among certain
capital accounts on the financial statements.
The fund has elected to treat $307,593 of net foreign currency losses incurred
in the two-month period ended December 31, 2003, as having been incurred in the
following fiscal year for federal income tax purposes.
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee is
retained by the fund and helps cover transaction costs that long-term investors
may bear when a fund sells securities to meet investor redemptions.
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.
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
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 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 daily and paid
monthly in arrears based on each class's pro rata share of the fund's average
daily closing net assets during the previous month.
The annual management fee schedule for each class is as follows:
- -------------------------------------------------------------------------------
CLASS I CLASS II CLASS III
- -------------------------------------------------------------------------------
FUND AVERAGE NET ASSETS
- -------------------------------------------------------------------------------
First $500 million 1.00% 0.90% 1.00%
- -------------------------------------------------------------------------------
Next $500 million 0.95% 0.85% 0.95%
- -------------------------------------------------------------------------------
Over $1 billion 0.90% 0.80% 0.90%
- -------------------------------------------------------------------------------
The effective annual management fee for the six months ended June 30, 2004 was
0.93%, 0.83%, and 0.93% for Class I, Class II, and Class III, respectively.
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 daily and
paid monthly in arrears based on the Class II average daily closing net assets
during the previous month. 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, 2004, 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
manager, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services Corporation.
During the six months ended June 30, 2004, the fund invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The fund has a bank
line of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a wholly
owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2004, were $1,796,619,095 and $1,638,105,633,
respectively.
As of June 30, 2004, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $2,260,844,097
================================================================================
Gross tax appreciation of investments $175,950,063
- --------------------------------------------------------------
Gross tax depreciation of investments (24,303,317)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $151,646,746
================================================================================
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.
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 600,000,000
================================================================================
Sold 17,849,955 $142,199,227
- ----------------------------------------
Issued in reinvestment of distributions 4,467,704 35,786,310
- ----------------------------------------
Redeemed (14,732,397) (116,875,912)
- --------------------------------------------------------------------------------
Net increase 7,585,262 $ 61,109,625
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 500,000,000
================================================================================
Sold 56,209,783 $374,051,568
- ----------------------------------------
Issued in reinvestment of distributions 3,034,106 16,414,513
- ----------------------------------------
Redeemed (52,331,377) (336,610,636)
- --------------------------------------------------------------------------------
Net increase 6,912,512 $ 53,855,445
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 11,633,637 $92,312,198
- ----------------------------------------
Issued in reinvestment of distributions 521,077 4,173,824
- ----------------------------------------
Redeemed (733,623) (5,796,156)
- --------------------------------------------------------------------------------
Net increase 11,421,091 $90,689,866
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 14,880,290 $100,119,973
- ----------------------------------------
Issued in reinvestment of distributions 176,690 955,890
- ----------------------------------------
Redeemed (603,643) (3,901,251)
- --------------------------------------------------------------------------------
Net increase 14,453,337 $ 97,174,612
================================================================================
CLASS III
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 264,855 $2,103,553
- ----------------------------------------
Issued in reinvestment of distributions 5,647 45,229
- ----------------------------------------
Redeemed (47,564)
(375,927)(1)
- --------------------------------------------------------------------------------
Net increase 222,938 $1,772,855
================================================================================
YEAR ENDED DECEMBER 31, 2003
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 317,372 $2,161,508
- ----------------------------------------
Issued in reinvestment of distributions 1,447 7,827
- ----------------------------------------
Redeemed (143,379)
(959,169)(2)
- --------------------------------------------------------------------------------
Net increase 175,440 $1,210,166
================================================================================
(1) Net of redemption fees of $134.
(2) Net of redemption fees of $1,888.
(continued)
- ------
15
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the six months ended June 30, 2004.
- ------
16
VP Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- ----------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------
2004(1) 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ----------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.79 $6.12 $7.44 $6.67 $5.95 $6.73
- ----------------------------------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------
Net Investment
Income 0.05(2) 0.09(2) 0.08(2) 0.08(2) 0.08 0.08
- ---------------------------
Net Realized
and Unrealized
Gain (Loss) 0.43 1.65 (0.95) 0.77 0.90 (0.15)
- ----------------------------------------------------------------------------------------------------------
Total From
Investment
Operations 0.48 1.74 (0.87) 0.85 0.98 (0.07)
- ----------------------------------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income (0.08) (0.07) (0.06) (0.08) (0.07) (0.07)
- ---------------------------
From Net
Realized Gains (0.06) -- (0.39) -- (0.19) (0.64)
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.14) (0.07) (0.45) (0.08) (0.26) (0.71)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $8.13 $7.79 $6.12 $7.44 $6.67 $5.95
==========================================================================================================
TOTAL RETURN(3) 6.23% 28.96% (12.62)% 12.82% 18.14% (0.85)%
- ----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to
Average Net Assets 0.94%(4) 0.95% 0.95% 0.97% 1.00% 1.00%
- ---------------------------
Ratio of Net
Investment Income
to Average Net Assets 1.16%(4) 1.37% 1.17% 1.28% 1.81% 1.40%
- ---------------------------
Portfolio Turnover Rate 74% 109% 106% 174% 159% 118%
- ---------------------------
Net Assets, End of
Period (in thousands) $2,065,447 $1,919,580 $1,465,287 $1,424,235 $672,214 $416,166
- ----------------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
17
VP Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2004(1) 2003 2002 2001(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.78 $6.11 $7.44 $7.19
- --------------------------------------------------------------------------------
Income From
Investment Operations
- ------------------------------
Net Investment
Income(3) 0.04 0.08 0.07 0.02
- ------------------------------
Net Realized and
Unrealized Gain (Loss) 0.44 1.65 (0.95) 0.23
- --------------------------------------------------------------------------------
Total From
Investment Operations 0.48 1.73 (0.88) 0.25
- --------------------------------------------------------------------------------
Distributions
- ------------------------------
From Net Investment Income (0.07) (0.06) (0.06) --
- ------------------------------
From Net Realized Gains (0.06) -- (0.39) --
- --------------------------------------------------------------------------------
Total Distributions (0.13) (0.06) (0.45) --
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $8.13 $7.78 $6.11 $7.44
================================================================================
TOTAL RETURN(4) 6.21% 28.81% (12.81)% 3.48%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.09%(5) 1.10% 1.10% 1.11%(5)
- ------------------------------
Ratio of Net Investment
Income to Average Net Assets 1.01%(5) 1.22% 1.02% 0.81%(5)
- ------------------------------
Portfolio Turnover Rate 74% 109% 106% 174%(6)
- ------------------------------
Net Assets, End of Period
(in thousands) $320,730 $218,141 $82,976 $17,145
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) August 14, 2001 (commencement of sale) through December 31, 2001.
(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, 2001.
See Notes to Financial Statements.
- ------
18
VP Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
CLASS III
- --------------------------------------------------------------------------------
2004(1) 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.79 $6.12 $6.92
- --------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------
Net Investment Income(3) 0.05 0.09 0.06
- -----------------------------------
Net Realized and
Unrealized Gain (Loss) 0.43 1.65 (0.86)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.48 1.74 (0.80)
- --------------------------------------------------------------------------------
Distributions
- -----------------------------------
From Net Investment Income (0.08) (0.07) --
- -----------------------------------
From Net Realized Gains (0.06) -- --
- --------------------------------------------------------------------------------
Total Distributions (0.14) (0.07) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $8.13 $7.79 $6.12
================================================================================
TOTAL RETURN(4) 6.23% 28.96% (11.56)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.94%(5) 0.95% 0.95%(5)
- -----------------------------------
Ratio of Net Investment
- -----------------------------------
Income to Average Net Assets 1.16%(5) 1.37% 1.50%(5)
- -----------------------------------
Portfolio Turnover Rate 74% 109% 106%(6)
- -----------------------------------
Net Assets, End of Period
(in thousands) $3,712 $1,819 $356
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) May 6, 2002 (commencement of sale) through December 31, 2002.
(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, 2002.
See Notes to Financial Statements.
- ------
19
Share Class Information
Three classes of shares are authorized for sale by the fund: Class I, Class II,
and Class III.
CLASS I shares are sold through insurance company separate accounts. Class I
shareholders do not pay any commissions or other fees to American Century for
the purchase of portfolio shares.
CLASS II shares are sold through insurance company separate accounts. Class II
shares are subject to a 0.25% Rule 12b-1 distribution fee, which is available to
pay for distribution services provided by the financial intermediary through
which the Class II shares are purchased. The total expense ratio of Class II
shares is higher than the total expense ratio of the Class I shares.
CLASS III shares are sold through insurance company separate accounts. Class III
shareholders do not pay any commissions or other fees to American Century for
the purchase of portfolio shares. However, Class III shares have a 1.00%
redemption fee for shares that are redeemed or exchanged within 60 days of
purchase.
All classes of shares represent a pro rata interest in the portfolio and
generally have the same rights and preferences. Because all shares of the
portfolio are sold through insurance company separate accounts, additional fees
may apply.
- ------
20
Additional Information
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 DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials but including
service-oriented firms. Prepared and published by Dow Jones & Co., it is the
oldest and most widely quoted of all the market indicators.
The LIPPER MULTI-CAP VALUE INDEX is an equally-weighted index of, typically, the
30 largest mutual funds that use a value investment strategy to purchase
securities of companies of all market capitalizations.
The NASDAQ COMPOSITE INDEX is a market-value weighted index of all domestic and
international common stocks listed on the Nasdaq stock market.
The RUSSELL 3000 INDEX measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market. As of the latest reconstitution, the
average market capitalization was approximately $4 billion; the median market
capitalization was approximately $700 million. The index had a total market
capitalization range of approximately $309 billion to $128 million. The RUSSELL
3000 VALUE INDEX measures the performance of those Russell 3000 Index companies
(the 3,000 largest U.S. companies based on total market capitalization) with
lower price-to-book ratios and lower forecasted growth values.
The S&P 500 INDEX is a market-value weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure
of U.S. stock market performance.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, 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 manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-378-9878. It is also available on American Century's Web site at
americancentury.com and on the Securities and Exchange Commission's Web site at
sec.gov.
- ------
21
Notes
- ------
22
Notes
- ------
23
Notes
- ------
24
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, INC.
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century logo, American Century and
American Century Investments are service marks
of American Century Services Corporation.
0408 American Century Investment Services, Inc.
SH-SAN-38967 (c)2004 American Century Services Corporation
[front cover]
JUNE 30, 2004
[graphic of chart]
[graphic of starfish]
[graphic of two steal bridges]
American Century Variable Portfolios
Semiannual Report
VP Vista Fund
[american century logo and text logo]
Table of Contents
VP VISTA
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . . . 4
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . .5
FINANCIAL STATEMENTS
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . .8
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . .9
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .10
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 11
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
OTHER INFORMATION
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . .15
The opinions expressed in the Portfolio Commentary reflect those of the
portfolio management team as of the date of the report, and do not necessarily
represent the opinions of American Century or any other person in the American
Century organization. Any such opinions are subject to change at any time based
upon market or other conditions and American Century disclaims any
responsibility to update such opinions. These opinions may not be relied upon as
investment advice and, because investment decisions made by American Century
funds are based on numerous factors, may not be relied upon as an indication of
trading intent on behalf of any American Century fund. Security examples are
used for representational purposes only and are not intended as recommendations
to purchase or sell securities. Performance information for comparative indices
and securities is provided to American Century by third party vendors. To the
best of American Century's knowledge, such information is accurate at the time
of printing.
VP Vista - Performance
TOTAL RETURNS AS OF JUNE 30, 2004
--------------
AVERAGE ANNUAL
RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 31.98% 9.17% 10/5/01
- --------------------------------------------------------------------------------
RUSSELL MIDCAP GROWTH INDEX 27.33% 10.75% --
- --------------------------------------------------------------------------------
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 the insurance
contracts.
GROWTH OF $10,000 OVER LIFE OF CLASS
$10,000 investment made October 5, 2001
ONE-YEAR RETURNS OVER LIFE OF CLASS
Periods ended June 30
- ----------------------------------------------------------------------------
2002* 2003 2004
- ----------------------------------------------------------------------------
Class I -3.20% -0.52% 31.98%
- ----------------------------------------------------------------------------
Russell Midcap Growth Index -3.25% 7.35% 27.33%
- ----------------------------------------------------------------------------
* From 10/5/01, the fund's inception date, through 6/30/02. Not annualized.
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.
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.
- ------
2
VP Vista - Portfolio Commentary
[photo of Glenn Fogle and David M. Hollond}
A PORTFOLIO COMMENTARY FROM GLENN FOGLE AND DAVID M. HOLLOND, PORTFOLIO MANAGERS
ON THE VP VISTA INVESTMENT TEAM.
VP Vista gained 9.66% in the six months ended June 30, 2004, surpassing its
benchmark, the Russell Midcap Growth Index, which rose 5.94%.
The period saw changes on VP Vista's management team. Portfolio manager David
Rose moved to another American Century team in March. David Hollond, who has
been an analyst on the team since 1998, was promoted to portfolio manager.
VP Vista's performance was particularly noteworthy given that the growth style
of investing generally lagged its value counterparts: Looking at the Russell
indices, smaller-capitalization stocks outperformed larger issues, and value
stocks beat growth offerings in all capitalization ranges. Small cap value
performed best, yet VP Vista exceeded the 7.83% return of the small-cap value
proxy, the Russell 2000 Value Index. VP Vista's longer term performance is
equally impressive.
VP Vista's advance during the six months covered by this report was achieved as
the market fought a number of headwinds. The stock market began the year with
the wind at its back as the upswing in economic growth, corporate profits, and
stock returns in late 2003 carried into January. The rally lost momentum,
however, amid concerns about the sustainability of the economic expansion given
weak job growth, high oil prices, and the threat of higher interest rates.
Terrorism fears and continued violence in Iraq also restrained investor
sentiment.
In this environment, VP Vista's health care stake was the primary boost to
performance. The biggest gains came from pharmaceutical companies. Reports
that the FDA designated the new multiple sclerosis drug Antegren for priority
review and accelerated approval helped ignite the shares of Elan. This
biopharmaceutical company filed their Antegren application about a year earlier
than expected based on positive clinical trials. Similarly, ImClone Systems's
stock surged in part due to the strength of sales of the drug Erbitux,
which received FDA approval in February as a treatment for colon cancer.
TOP TEN HOLDINGS
AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Boston Scientific Corp. 3.5% 4.1%
- --------------------------------------------------------------------------------
Whole Foods Market, Inc. 3.3% --
- --------------------------------------------------------------------------------
Research In Motion Ltd. 2.5% 3.0%
- --------------------------------------------------------------------------------
Amphenol Corp. Cl A 2.5% 2.5%
- --------------------------------------------------------------------------------
Copart Inc. 2.4% --
- --------------------------------------------------------------------------------
Elan Corp. plc ADR 2.4% --
- --------------------------------------------------------------------------------
Estee Lauder
Companies, Inc. Cl A 2.4% 1.1%
- --------------------------------------------------------------------------------
National Semiconductor
Corp. 2.4% 1.2%
- --------------------------------------------------------------------------------
MGI Pharma Inc. 2.1% 1.8%
- --------------------------------------------------------------------------------
Corinthian Colleges, Inc. 2.0% 1.4%
- --------------------------------------------------------------------------------
- ------
3
VP Vista - Portfolio Commentary
Erbitux, which received FDA approval in February as a treatment for colon
cancer.
Investments in companies that make and sell consumer staple products lifted the
portfolio's performance. A leading contributor was Whole Foods Market, which
benefited from the country's growing appetite for healthier diets and
lifestyles. Companies within the consumer discretionary sector also turned in
strong results, led by casino-related stocks.
VP Vista's information technology position generated solid results,
outperforming the benchmark's stake even though the sector as a whole struggled
during the period. Research in Motion was the portfolio's top contributor as the
company posted another quarter of strong profits on brisk sales of its
BlackBerry(reg.tm) wireless e-mail system. Citing further expected gains in
BlackBerry subscribers, the company also increased its revenue and earnings
guidance. On the negative side, OmniVision Technologies, which manufactures
chips used in digital cameras and other electronic imaging products, declined on
concerns that increasing competition could depress prices and hamper margins.
The specter of rising interest rates loomed over financial stocks, and VP
Vista's financial stake detracted from performance. New York Community Bancorp
was one setback. The banking company narrowly missed first-quarter earnings
expectations, and analysts cited heavy investments in mortgage-backed securities
as the culprit.
The portfolio was hurt by its investment in Corinthian Colleges. Shares of this
for-profit, post-secondary school declined amid news that one of its campuses
filed improper federal financial aid applications.
Looking ahead, we are encouraged by the resilience demonstrated by the economy
and the stock market during the past six months. While it is impossible to be
certain that the progress can be sustained, we believe there will be
opportunities for companies to grow their profits at accelerating rates. Our
focus will be on owning these improving businesses in order to achieve solid
performance in the long run.
TOP FIVE INDUSTRIES
AS OF JUNE 30, 2004
- --------------------------------------------------------------------------------
% OF FUND % OF FUND
INVESTMENTS INVESTMENTS
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Health Care Equipment
& Supplies 10.3% 5.5%
- --------------------------------------------------------------------------------
Pharmaceuticals 8.3% 1.8%
- --------------------------------------------------------------------------------
Hotels, Restaurants
& Leisure 6.3% 1.5%
- --------------------------------------------------------------------------------
Commercial Services
& Supplies 6.2% 5.3%
- --------------------------------------------------------------------------------
Communications
Equipment 5.0% 8.8%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/04 12/31/03
- --------------------------------------------------------------------------------
Common Stocks 95.6% 100.0%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 4.4% --
- --------------------------------------------------------------------------------
- ------
4
VP Vista - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 95.6%
AEROSPACE & DEFENSE -- 1.0%
- --------------------------------------------------------------------------------
674 L-3 Communications
Holdings, Inc. $ 45,023
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 4.0%
- --------------------------------------------------------------------------------
1,683 CNF Inc. 69,945
- --------------------------------------------------------------------------------
1,351 Expeditors International
of Washington, Inc. 66,753
- --------------------------------------------------------------------------------
620 J.B. Hunt Transport Services, Inc. 23,920
- --------------------------------------------------------------------------------
579 Ryder System, Inc. 23,201
- --------------------------------------------------------------------------------
183,819
- --------------------------------------------------------------------------------
BEVERAGES -- 1.9%
- --------------------------------------------------------------------------------
3,028 Coca-Cola Enterprises 87,782
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.8%
- --------------------------------------------------------------------------------
938 ImClone Systems Inc.(1) 80,471
- --------------------------------------------------------------------------------
CHEMICALS -- 0.2%
- --------------------------------------------------------------------------------
276 Great Lakes Chemical Corp. 7,469
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 2.9%
- --------------------------------------------------------------------------------
275 Comerica Inc. 15,092
- --------------------------------------------------------------------------------
773 East West BanCorp, Inc. 23,731
- --------------------------------------------------------------------------------
399 Marshall & Ilsley Corp. 15,597
- --------------------------------------------------------------------------------
455 Mercantile Bankshares Corporation 21,303
- --------------------------------------------------------------------------------
963 TCF Financial Corp. 55,902
- --------------------------------------------------------------------------------
131,625
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 6.2%
- --------------------------------------------------------------------------------
924 Career Education Corp.(1) 42,097
- --------------------------------------------------------------------------------
4,170 Copart Inc.(1) 111,340
- --------------------------------------------------------------------------------
3,764 Corinthian Colleges, Inc.(1) 93,121
- --------------------------------------------------------------------------------
745 Republic Services, Inc. Cl A 21,560
- --------------------------------------------------------------------------------
142 Strayer Education Inc. 15,843
- --------------------------------------------------------------------------------
283,961
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 5.0%
- --------------------------------------------------------------------------------
3,433 Andrew Corporation(1) 68,694
- --------------------------------------------------------------------------------
619 QUALCOMM Inc. 45,175
- --------------------------------------------------------------------------------
1,665 Research In Motion Ltd.(1) 113,953
- --------------------------------------------------------------------------------
227,822
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.9%
- --------------------------------------------------------------------------------
620 Capital One Financial Corp. 42,396
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.7%
- --------------------------------------------------------------------------------
234 Chicago Mercantile Exchange 33,783
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.7%
- --------------------------------------------------------------------------------
3,364 Amphenol Corp. Cl A(1) 112,088
- --------------------------------------------------------------------------------
161 Rogers Corp.(1) 11,254
- --------------------------------------------------------------------------------
123,342
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 1.7%
- --------------------------------------------------------------------------------
717 BJ Services Co.(1) $ 32,867
- --------------------------------------------------------------------------------
786 Smith International, Inc.(1) 43,828
- --------------------------------------------------------------------------------
76,695
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 3.3%
- --------------------------------------------------------------------------------
1,558 Whole Foods Market, Inc. 148,711
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.7%
- --------------------------------------------------------------------------------
49 McCormick & Company, Incorporated 1,666
- --------------------------------------------------------------------------------
1,103 Smithfield Foods Inc.(1) 32,428
- --------------------------------------------------------------------------------
34,094
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 10.3%
- --------------------------------------------------------------------------------
1,321 Advanced Medical Optics Inc.(1) 56,234
- --------------------------------------------------------------------------------
1,544 Apogent Technologies Inc.(1) 49,408
- --------------------------------------------------------------------------------
551 Bard (C.R.), Inc. 31,214
- --------------------------------------------------------------------------------
524 Beckman Coulter Inc. 31,964
- --------------------------------------------------------------------------------
3,764 Boston Scientific Corp.(1) 161,098
- --------------------------------------------------------------------------------
606 Fisher Scientific International(1) 34,997
- --------------------------------------------------------------------------------
375 Inamed Corp.(1) 23,569
- --------------------------------------------------------------------------------
1,610 Mentor Corp. 55,207
- --------------------------------------------------------------------------------
469 Waters Corp.(1) 22,409
- --------------------------------------------------------------------------------
466,100
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.9%
- --------------------------------------------------------------------------------
922 Aetna Inc. 78,370
- --------------------------------------------------------------------------------
1,142 Coventry Health Care Inc.(1) 55,844
- --------------------------------------------------------------------------------
134,214
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 6.3%
- --------------------------------------------------------------------------------
1,323 CKE Restaurants, Inc.(1) 17,636
- --------------------------------------------------------------------------------
1,789 Hilton Hotels Corporation 33,383
- --------------------------------------------------------------------------------
524 International Game Technology 20,226
- --------------------------------------------------------------------------------
428 Marriott International, Inc. 21,349
- --------------------------------------------------------------------------------
565 Shuffle Master, Inc.(1) 20,515
- --------------------------------------------------------------------------------
832 Sonic Corporation(1) 18,928
- --------------------------------------------------------------------------------
1,569 Station Casinos Inc. 75,940
- --------------------------------------------------------------------------------
2,689 WMS Industries Inc.(1) 80,131
- --------------------------------------------------------------------------------
288,108
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 2.1%
- --------------------------------------------------------------------------------
276 Fortune Brands, Inc. 20,819
- --------------------------------------------------------------------------------
1,338 Helen of Troy Ltd.(1) 49,332
- --------------------------------------------------------------------------------
510 Stanley Works (The) 23,246
- --------------------------------------------------------------------------------
93,397
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 0.5%
- --------------------------------------------------------------------------------
800 Priceline.com Inc.(1) 21,544
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.0%
- --------------------------------------------------------------------------------
551 Ask Jeeves, Inc.(1) 21,506
- --------------------------------------------------------------------------------
675 Yahoo! Inc.(1) 24,522
- --------------------------------------------------------------------------------
46,028
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
5
VP Vista - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
IT SERVICES -- 1.0%
- --------------------------------------------------------------------------------
565 Certegy Inc. $ 21,922
- --------------------------------------------------------------------------------
798 Sabre Holdings Corp. 22,113
- --------------------------------------------------------------------------------
44,035
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.5%
- --------------------------------------------------------------------------------
524 Brunswick Corp. 21,379
- --------------------------------------------------------------------------------
MACHINERY -- 2.0%
- --------------------------------------------------------------------------------
331 Deere & Co. 23,216
- --------------------------------------------------------------------------------
688 Illinois Tool Works Inc. 65,973
- --------------------------------------------------------------------------------
89,189
- --------------------------------------------------------------------------------
METALS & MINING -- 0.9%
- --------------------------------------------------------------------------------
596 Inco Ltd.(1) 20,598
- --------------------------------------------------------------------------------
278 Phelps Dodge Corp.(1) 21,548
- --------------------------------------------------------------------------------
42,146
- --------------------------------------------------------------------------------
OIL & GAS -- 4.3%
- --------------------------------------------------------------------------------
814 EOG Resources Inc. 48,604
- --------------------------------------------------------------------------------
345 Murphy Oil Corp. 25,427
- --------------------------------------------------------------------------------
2,317 Western Gas Resources Inc. 75,256
- --------------------------------------------------------------------------------
1,627 XTO Energy Inc. 48,468
- --------------------------------------------------------------------------------
197,755
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 3.9%
- --------------------------------------------------------------------------------
938 Avon Products, Inc. 43,279
- --------------------------------------------------------------------------------
2,270 Estee Lauder Companies, Inc. Cl A 110,731
- --------------------------------------------------------------------------------
979 Nu Skin Enterprises Inc., Cl A 24,788
- --------------------------------------------------------------------------------
178,798
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 8.3%
- --------------------------------------------------------------------------------
4,487 Elan Corp. plc ADR(1) 111,007
- --------------------------------------------------------------------------------
1,434 Eon Labs Inc.(1) 58,694
- --------------------------------------------------------------------------------
896 IVAX Corp.(1) 21,495
- --------------------------------------------------------------------------------
1,473 Medicis Pharmaceutical Corp. Cl A 58,846
- --------------------------------------------------------------------------------
3,496 MGI Pharma Inc.(1) 94,427
- --------------------------------------------------------------------------------
979 Salix Pharmaceuticals Ltd.(1) 32,258
- --------------------------------------------------------------------------------
376,727
- --------------------------------------------------------------------------------
ROAD & RAIL -- 1.1%
- --------------------------------------------------------------------------------
1,214 Yellow Roadway Corp.(1) 48,390
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 2.8%
- --------------------------------------------------------------------------------
468 Analog Devices, Inc. 22,033
- --------------------------------------------------------------------------------
4,881 National Semiconductor Corp.(1) 107,334
- --------------------------------------------------------------------------------
129,367
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SOFTWARE -- 4.7%
- --------------------------------------------------------------------------------
1,406 Activision, Inc.(1) $ 22,355
- --------------------------------------------------------------------------------
3,364 Check Point Software Technologies(1) 90,795
- --------------------------------------------------------------------------------
814 Hyperion Solutions Corp.(1) 35,588
- --------------------------------------------------------------------------------
953 Red Hat Inc.(1) 21,890
- --------------------------------------------------------------------------------
1,029 Symantec Corp.(1) 45,050
- --------------------------------------------------------------------------------
215,678
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.0%
- --------------------------------------------------------------------------------
759 American Eagle Outfitters, Inc.(1) 21,943
- --------------------------------------------------------------------------------
716 O'Reilly Automotive, Inc.(1) 32,363
- --------------------------------------------------------------------------------
593 Urban Outfitters Inc.(1) 36,120
- --------------------------------------------------------------------------------
90,426
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 2.0%
- --------------------------------------------------------------------------------
1,475 Coach Inc.(1) 66,655
- --------------------------------------------------------------------------------
317 NIKE, Inc. Cl B 24,013
- --------------------------------------------------------------------------------
90,668
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 1.8%
- --------------------------------------------------------------------------------
4,802 W Holding Company, Inc. 82,450
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 2.2%
- --------------------------------------------------------------------------------
800 Fastenal Company 45,464
- --------------------------------------------------------------------------------
1,707 MSC Industrial Direct Co. 56,058
- --------------------------------------------------------------------------------
101,522
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES -- 2.0%
- --------------------------------------------------------------------------------
2,673 NII Holdings Inc. Cl B(1) 90,053
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $3,790,071) 4,354,967
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 4.4%
Repurchase Agreement, State Street Corp.,
(U.S. Treasury obligations), in a joint
trading account at 1.16%, dated 6/30/04,
due 7/1/04 (Delivery value $200,006)
(Cost $200,000) 200,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $3,990,071) $4,554,967
================================================================================
See Notes to Financial Statements. (continued)
- ------
6
VP Vista - Schedule of Investments
JUNE 30, 2004 (UNAUDITED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
- ---------------------------------------------------------------------------------------------
26,240 Euro for USD 7/30/04 $31,947 $(11)
- ---------------------------------------------------------------------------------------------
12,205 Euro for USD 7/30/04 14,860 9
- ---------------------------------------------------------------------------------------------
24,728 Euro for USD 7/30/04 30,107 37
- ---------------------------------------------------------------------------------------------
$76,914 $ 35
==============================================
(Value on Settlement Date $76,949)
*FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the future -
and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
7
Statement of Assets and Liabilities
JUNE 30, 2004 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $3,990,071) $4,554,967
- --------------------------------------------------------------------
Cash 129,683
- --------------------------------------------------------------------
Receivable for investments sold 128,818
- --------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 46
- --------------------------------------------------------------------
Dividends and interest receivable 1,207
- --------------------------------------------------------------------------------
4,814,721
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 300,839
- --------------------------------------------------------------------
Accrued management fees 3,202
- --------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 11
- --------------------------------------------------------------------------------
304,052
- --------------------------------------------------------------------------------
NET ASSETS $4,510,669
================================================================================
CAPITAL SHARES, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized 50,000,000
================================================================================
Outstanding 354,894
================================================================================
NET ASSET VALUE PER SHARE $12.71
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $3,892,654
- --------------------------------------------------------------------
Accumulated net investment loss (10,426)
- --------------------------------------------------------------------
Undistributed net realized gain on investment and foreign currency
transactions 63,948
- --------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currency 564,493
- --------------------------------------------------------------------------------
$4,510,669
================================================================================
See Notes to Financial Statements.
- ------
8
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- --------------------------------------------------------------------
Dividends $ 5,510
- --------------------------------------------------------------------
Interest 1,150
- --------------------------------------------------------------------------------
6,660
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------
Management fees 14,871
- --------------------------------------------------------------------
Directors' fees and expenses 18
- --------------------------------------------------------------------
Other expenses 10
- --------------------------------------------------------------------------------
14,899
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (8,239)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON:
- --------------------------------------------------------------------
Investment transactions 151,918
- --------------------------------------------------------------------
Foreign currency transactions 2,126
- --------------------------------------------------------------------------------
154,044
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- --------------------------------------------------------------------
Investments 129,941
- --------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (152)
- --------------------------------------------------------------------------------
129,789
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 283,833
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $275,594
================================================================================
See Notes to Financial Statements.
- ------
9
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2004 2003
OPERATIONS
- --------------------------------------------------------------------------------
Net investment loss $ (8,239) $
(9,085)
- ---------------------------------------------------------
Net realized gain 154,044 160,008
- ---------------------------------------------------------
Change in net unrealized appreciation 129,789 422,011
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 275,594 572,934
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Proceeds from shares sold 2,087,941 613,658
- ---------------------------------------------------------
Payments for shares redeemed (59,170) (144,180)
- --------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions 2,028,771
469,478
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 2,304,365 1,042,412
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 2,206,304 1,163,892
- --------------------------------------------------------------------------------
End of period $4,510,669 $2,206,304
================================================================================
Accumulated net investment loss $(10,426) $(2,187)
================================================================================
TRANSACTIONS IN SHARES OF THE FUND
- --------------------------------------------------------------------------------
Sold 169,365 63,455
- ---------------------------------------------------------
Redeemed (4,834) (15,988)
- --------------------------------------------------------------------------------
Net increase 164,531 47,467
================================================================================
See Notes to Financial Statements.
- ------
10
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation) is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Vista 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 long-term capital growth. The fund seeks to
achieve its investment objective by investing in equity securities of companies
with medium to small market capitalization and that are considered by management
to have a greater-than-average chance to increase in value. The following is a
summary of the fund's significant accounting policies.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending on
local convention or regulation, securities traded over-the-counter are valued at
the mean of the latest bid and asked prices, the last sales price, or the
official close price. Debt securities not traded on a principal securities
exchange are valued through a commercial pricing service or at the mean of the
most recent bid and asked prices. Discount notes may be valued through a
commercial pricing service or at amortized cost, which approximates fair value.
If the investment manager, American Century Investment Management, Inc. (ACIM),
determines that the current market price of a security owned by a non-money
market fund is not readily available, the investment manager may determine its
fair value in accordance with procedures adopted by the Board of Directors if
such fair value determination would materially impact a fund's net asset value.
Valuations may not be readily available if, for example: an event occurred after
the close of the exchange on which a portfolio security principally trades (but
before the close of the New York Stock Exchange) that was likely to have changed
the value of the security; a security has been declared in default; trading in a
security has been halted during the trading day; or the demand for the security
(as reflected by its trading volume) is insufficient for quoted prices to be
reliable.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade
date. Net realized gains and losses are determined on the identified cost basis,
which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks of
entering into futures contracts is the possibility that the change in value of
the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage of
the contract value (initial margin). Subsequent payments (variation margin) are
made or received daily, in cash, by the fund. The variation margin is equal to
the daily change in the contract value and is recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the contract is closed
or expires. Net realized and unrealized gains or losses occurring during the
holding period of futures contracts are a component of realized gain (loss) on
investment transactions and unrealized appreciation (depreciation) on
investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed
in foreign currencies are translated into U.S. dollars at prevailing exchange
rates at period end. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. For assets and
liabilities, other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of investment securities are a component of realized
gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose taxes
on the contract amount of purchases and sales of foreign currency contracts in
their currency. The fund records the foreign tax expense, if any, as a reduction
to the net realized gain (loss) on foreign currency transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and
(continued)
- ------
11
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that ACIM 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, 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.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains, if any, are generally declared and paid annually.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes, and may result in reclassification among certain
capital accounts on the financial statements.
As of December 31, 2003, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $87,254 (expiring in 2010), which
may be used to offset future taxable gains.
The fund has elected to treat $2,412 of foreign currency losses incurred in the
two-month period ended December 31, 2003, as having been incurred in the
following fiscal year for federal income tax purposes.
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.
(continued)
- ------
12
Notes to Financial Statements
JUNE 30, 2004 (UNAUDITED)
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 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 daily and paid
monthly in arrears based on the fund's average daily closing net assets during
the previous month. The effective annual management fee for the fund is 1.00%.
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
manager, ACIM, the distributor of the corporation, American Century Investment
Services, Inc., and the corporation's transfer agent, American Century Services
Corporation.
During the six months ended June 30, 2004, the fund invested in a money market
fund for temporary purposes, which was managed by J.P. Morgan Investment
Management, Inc. (JPMIM). JPMIM is a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC. The fund has a bank
line of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a wholly
owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2004, were $5,097,802 and $3,209,081,
respectively.
As of June 30, 2004, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $3,992,914
================================================================================
Gross tax appreciation of investments $586,080
- --------------------------------------------------------------------
Gross tax depreciation of investments (24,027)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $562,053
================================================================================
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 and on return of capital dividends.
4. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM, has a $650,000,000
unsecured bank line of credit agreement with JPMCB. The fund may borrow money
for temporary or emergency purposes to fund shareholder redemptions. Borrowings
under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund
did not borrow from the line during the six months ended June 30, 2004.
- ------
13
VP Vista - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- ---------------------------------------------------------------------------------------------
CLASS I
- ---------------------------------------------------------------------------------------------
2004(1) 2003 2002 2001(2)
- ---------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------
Net Asset Value, Beginning of Period $11.59 $8.15 $10.15 $10.00
- ---------------------------------------------------------------------------------------------
Income From Investment Operations
- --------------------------------------------
Net Investment Loss (0.03) (0.05) (0.02) (0.01)
- --------------------------------------------
Net Realized and Unrealized Gain (Loss) 1.15 3.49 (1.98) 0.16
- ---------------------------------------------------------------------------------------------
Total From Investment Operations 1.12 3.44 (2.00) 0.15
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.71 $11.59 $8.15 $10.15
=============================================================================================
TOTAL RETURN(3) 9.66% 42.21% (19.70)% 1.50%
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.00%(4) 1.00% 1.00% 1.00%(4)
- --------------------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.55)%(4) (0.58)% (0.29)% (0.32)%(4)
- --------------------------------------------
Portfolio Turnover Rate 111% 262% 294% 50%
- --------------------------------------------
Net Assets, End of Period (in thousands) $4,511 $2,206 $1,164 $1,072
- ---------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2004 (unaudited).
(2) October 5, 2001 (inception) through December 31, 2001.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.
(4) Annualized.
See Notes to Financial Statements.
- ------
14
INDEX DEFINITIONS
Additional Information
The following index is used to illustrate investment market, sector, or style
performance or to serve as fund performance comparisons. It is not an investment
product available for purchase.
The RUSSELL MIDCAP GROWTH INDEX measures the performance of those Russell Midcap
Index companies (the 800 smallest of the 1,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000 VALUE INDEX measures the performance of those Russell 2000
companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book ratios
and lower forecasted growth rates.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's manager, 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 manager uses
in fulfilling this responsibility is available without charge, upon request, by
calling 1-800-378-9878. It is also available on American Century's Web site at
americancentury.com and on the Securities and Exchange Commission's Web site at
sec.gov.
- ------
15
Notes
- ------
16
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, INC.
INVESTMENT MANAGER:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century logo, American Century and
American Century Investments are service marks
of American Century Services Corporation.
0408 American Century Investment Services, Inc.
SH-SAN-38971 (c)2004 American Century Services Corporation
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. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant does not currently have in place procedures by which
shareholders may recommend nominees to the registrant's board.
ITEM 10. 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 last fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 11. 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, Inc.
By: /s/ William M. Lyons
-----------------------------------------------------
Name: William M. Lyons
Title: President
Date: August 13, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ William M. Lyons
-----------------------------------------------------
Name: William M. Lyons
Title: President
(principal executive officer)
Date: August 13, 2004
By: /s/ Maryanne L. Roepke
-----------------------------------------------------
Name: Maryanne L. Roepke
Title: Sr. Vice President, Treasurer, and
Chief Accounting Officer
(principal financial officer)
Date: August 13, 2004
