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
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Date of fiscal year end: DECEMBER 31
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Date of reporting period: JUNE 30, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP Balanced Fund
[american century investments logo and text logo]
[inside front cover - blank]
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
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 19
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .21
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
OTHER INFORMATION
Approval of Management Agreement for VP Balanced . . . . . . . . . . . . . . .27
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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, 2005
---------------------------------
AVERAGE ANNUAL RETURNS
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SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
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CLASS I 8.43% 2.25% 7.25% 7.80% 5/1/91
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BLENDED INDEX(1) 6.93% 1.86% 9.06% 9.68%(2) --
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S&P 500 INDEX(3) 6.32% -2.37% 9.94% 10.72%(2) --
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LEHMAN BROTHERS U.S.
AGGREGATE INDEX(3) 6.80% 7.40% 6.83% 7.42%(2) --
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(1) See Index Definitions page.
(2) Since 4/30/91, the date nearest the fund's inception for which data are
available.
(3) (c) 2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by
Lipper Inc. - A Reuters Company and may be incomplete. No offer or
solicitations to buy or sell any of the securities herein is being made by
Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity or
variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company separate
account prospectus for a discussion of the charges related to insurance
contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-6488. As interest rates
rise, bond values will decline.
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.
(continued)
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2
VP Balanced - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made June 30, 1995
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended June 30
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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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Class I 13.17% 16.18% 21.61% 5.39% 7.00% -5.41% -7.95% 5.71% 11.98% 8.43%
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Blended index 17.24% 23.63% 22.21% 15.21% 6.43% -4.78% -7.77% 4.85% 11.36% 6.93%
- ---------------------------------------------------------------------------------------------------------
S&P 500 Index 26.00% 34.70% 30.16% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32%
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Lehman Brothers
U.S. Aggregate
Index 5.02% 8.15% 10.54% 3.15% 4.57% 11.23% 8.63% 10.40% 0.32% 6.80%
- ---------------------------------------------------------------------------------------------------------
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-6488. As interest rates
rise, bond values will decline.
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
PORTFOLIO MANAGERS: JEFF TYLER (EQUITY TEAM LEADER) AND JEFF HOUSTON
(FIXED-INCOME TEAM LEADER)
PERFORMANCE SUMMARY
VP Balanced and its benchmark (a custom blended index that is 60% S&P 500 Index
and 40% Lehman Brothers U.S. Aggregate Index) gained 1.58%* and 0.84%,
respectively, in the six months ended June 30, 2005. VP Balanced outperformed
because its stock portfolio outpaced the S&P 500.
ECONOMIC REVIEW
The U.S. economy grew at a moderate pace in the first half of 2005--the
annualized real rate of GDP growth was 3.8% in the first quarter and was
anticipated to be between 3% and 4% in the second. Growth slowed from 4.4% in
2004 as short-term U.S. interest rates and oil prices rose. The Federal Reserve
raised its overnight interest rate target four times in six months, from 2.25%
to 3.25%, the highest since September 2001. Meanwhile, crude oil jumped 30%,
from $43.45 to $56.50 a barrel, closing briefly above $60 in late June.
Despite soaring energy costs, "core" inflation (excluding food and energy
prices) was stable--the year-to-date annualized gain for core CPI as of June 30,
2005, was 2.2%, the same as for all of 2004. As economic growth slowed and
inflation remained low, longer-term interest rates and bond yields fell. The
combination of rising short-term and falling long-term rates reduced the
difference between the two, resulting in a "flatter" Treasury yield curve, often
a harbinger of slower economic growth and tame inflation.
STOCK MARKET REVIEW
The S&P 500 declined 0.81% in the first half of 2005. The large-cap benchmark
underperformed its smaller-cap counterparts--the S&P MidCap 400 and SmallCap 600
indices gained 3.85% and 1.79%, respectively. The full S&P 500 also trailed its
value subindex, which eked out a 0.09% gain compared with a 1.73% loss for the
growth subindex. As the large-cap growth style struggled (the Nasdaq Composite
fell 5.12%), the
VP BALANCED'S TOP TEN STOCK HOLDINGS
AS OF JUNE 30, 2005
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% OF EQUITY % OF S&P
PORTFOLIO 500 INDEX
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Exxon Mobil Corp. 3.7% 3.4%
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Johnson & Johnson 3.1% 1.8%
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Intel Corp. 3.1% 1.5%
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Bank of America Corp. 3.0% 1.7%
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American Express Co. 2.0% 0.6%
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Wells Fargo & Co. 1.9% 1.0%
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Sunoco, Inc. 1.9% 0.1%
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Chevron Corp. 1.9% 1.1%
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Countrywide
Financial Corporation 1.8% 0.2%
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McKesson Corp. 1.8% 0.1%
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VP BALANCED'S TOP FIVE STOCK INDUSTRIES
AS OF JUNE 30, 2005
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% OF EQUITY % OF S&P
PORTFOLIO 500 INDEX
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Oil, Gas &
Consumable Fuels 8.7% 7.5%
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Insurance 7.5% 4.4%
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Commercial Banks 7.0% 5.8%
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Pharmaceuticals 6.4% 7.1%
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Media 6.0% 3.5%
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*Returns for periods less than one year are not annualized. (continued)
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4
VP Balanced - Portfolio Commentary
information technology sector detracted most from the S&P 500's performance. The
energy sector was the biggest positive contributor as oil prices soared.
BOND MARKET REVIEW
As the Treasury yield curve flattened, falling bond yields produced bond price
gains. The Lehman Aggregate gained 2.51% and the 10-year Treasury note returned
4.11% as its yield fell from 4.22% to 3.92%. Longer-maturity/ duration indices
and bonds performed even better--the 30-year Treasury bond returned 11.67%. That
helped make Treasurys (up 3.20%) the top major sector of the Lehman Aggregate
while mortgage-backed securities (MBS, up 2.15%) lagged.
PORTFOLIO PERFORMANCE
VP Balanced's stock and bond portfolios gained 1.20% and 1.95%, respectively, in
the first half of 2005. Security selection in the health care and financials
sectors contributed most to stock portfolio outperformance vs. the S&P 500,
including overweights (vs. the index) in Kos Pharmaceuticals, a non-index
holding, and W.R. Berkley Corp., a non-index insurance industry holding. These
stocks gained 74.02% and 13.79%, respectively.
The bond portfolio trailed the Lehman Aggregate; portfolio returns were reduced
by operating expenses while the index's were not. Like the index, the bond
portfolio's returns were primarily governed by the performance of the taxable,
investment-grade U.S. bond market's three largest sectors (MBS, Treasurys, and
corporate securities), which posted gains for the six months. Note: Our use of
mortgage dollar rolls, a forward commitment defined on page 22, inflated
portfolio turnover (shown on page 26) for calendar year 2004 and the first half
of 2005.
OUR COMMITMENT
We remain committed to seeking long-term capital growth and current income by
investing in a balanced portfolio consisting of approximately 60% equity
securities and the remainder in bonds and other fixed-income securities.
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
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Common Stocks
& Futures 60.4% 60.7%
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U.S. Government Agency
Mortgage-Backed
Securities 13.6% 15.2%
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Asset-Backed Securities
and Collateralized
Mortgage Obligations 12.2% 10.9%
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Corporate Bonds 9.4% 10.3%
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U.S. Treasury Securities 6.0% 4.9%
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U.S. Government
Agency Securities 4.7% 4.3%
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Other Securities 0.8% 0.1%
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Other Assets
and Liabilities* -7.1% -6.4%
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*Includes temporary cash investments, collateral received for securities lending
and other assets and liabilities.
KEY FIXED-INCOME PORTFOLIO STATISTICS
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AS OF AS OF
6/30/05 12/31/04
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Weighted Average
Maturity 5.8 yrs 5.0 yrs
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Average Duration
(modified) 4.8 yrs 4.3 yrs
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5
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
(continued)
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6
Shareholder Fee Example (Unaudited)
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
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VP BALANCED CLASS I SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
Actual $1,000 $1,015.80 $4.45 0.89%
- --------------------------------------------------------------------------------
Hypothetical $1,000 $1,020.38 $4.46 0.89%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
7
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 59.8%
AIR FREIGHT & LOGISTICS -- 0.4%
- --------------------------------------------------------------------------------
1,314 FedEx Corporation $ 106,447
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9,635 United Parcel Service, Inc.
Cl B 666,357
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772,804
- --------------------------------------------------------------------------------
AIRLINES -- 0.1%
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8,662 Southwest Airlines Co. 120,662
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AUTO COMPONENTS -- 0.6%
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6,981 Autoliv, Inc. 305,768
- --------------------------------------------------------------------------------
46,039 Goodyear Tire & Rubber Co.
(The)(1)(2) 685,981
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15,610 TRW Automotive Holdings
Corp.(1) 382,601
- --------------------------------------------------------------------------------
1,374,350
- --------------------------------------------------------------------------------
BEVERAGES -- 1.0%
- --------------------------------------------------------------------------------
444 Molson Coors Brewing Co. 27,528
- --------------------------------------------------------------------------------
47,183 Pepsi Bottling Group Inc. 1,349,906
- --------------------------------------------------------------------------------
26,523 PepsiAmericas Inc.(2) 680,580
- --------------------------------------------------------------------------------
2,058,014
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.3%
- --------------------------------------------------------------------------------
32,404 Amgen Inc.(1) 1,959,146
- --------------------------------------------------------------------------------
21,542 Applera Corporation-Applied
Biosystems Group 423,731
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7,133 Cephalon, Inc.(1)(2) 283,965
- --------------------------------------------------------------------------------
992 Gilead Sciences, Inc.(1) 43,638
- --------------------------------------------------------------------------------
507 Invitrogen Corp.(1)(2) 42,228
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2,752,708
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BUILDING PRODUCTS -- 0.1%
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3,164 USG Corp.(1)(2) 134,470
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CAPITAL MARKETS -- 0.3%
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7,018 Edwards (A.G.), Inc.(2) 316,863
- --------------------------------------------------------------------------------
5,473 Franklin Resources, Inc. 421,311
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738,174
- --------------------------------------------------------------------------------
CHEMICALS -- 1.3%
- --------------------------------------------------------------------------------
23,491 Eastman Chemical Company 1,295,529
- --------------------------------------------------------------------------------
12,603 FMC Corp.(1)(2) 707,532
- --------------------------------------------------------------------------------
11,825 Monsanto Co. 743,438
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2,746,499
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 4.2%
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84,165 Bank of America Corp. 3,838,765
- --------------------------------------------------------------------------------
15,241 Comerica Inc. 880,930
- --------------------------------------------------------------------------------
35,253 Wachovia Corp. 1,748,549
- --------------------------------------------------------------------------------
39,795 Wells Fargo & Co. 2,450,576
- --------------------------------------------------------------------------------
8,918,820
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.1%
- --------------------------------------------------------------------------------
5,229 Cendant Corporation 116,973
- --------------------------------------------------------------------------------
4,987 Deluxe Corp. 202,472
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
26,987 Equifax Inc. $ 963,705
- --------------------------------------------------------------------------------
23,439 John H. Harland Company 890,682
- --------------------------------------------------------------------------------
4,872 Republic Services, Inc. Cl A 175,441
- --------------------------------------------------------------------------------
2,349,273
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.4%
- --------------------------------------------------------------------------------
17,454 Cisco Systems Inc.(1) 333,546
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17,280 Harris Corp. 539,309
- --------------------------------------------------------------------------------
112,613 Motorola, Inc. 2,056,313
- --------------------------------------------------------------------------------
2,929,168
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 1.7%
- --------------------------------------------------------------------------------
35,149 Apple Computer, Inc.(1) 1,293,835
- --------------------------------------------------------------------------------
34,654 Dell Inc.(1) 1,369,180
- --------------------------------------------------------------------------------
1,226 Intergraph Corp.(1)(2) 42,248
- --------------------------------------------------------------------------------
11,962 International Business
Machines Corp. 887,580
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4,536 Western Digital Corp.(1)(2) 60,873
- --------------------------------------------------------------------------------
3,653,716
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 2.4%
- --------------------------------------------------------------------------------
47,423 American Express Co. 2,524,327
- --------------------------------------------------------------------------------
24,046 Capital One Financial Corp. 1,923,920
- --------------------------------------------------------------------------------
7,898 CompuCredit Corp.(1)(2) 270,743
- --------------------------------------------------------------------------------
2,729 Nelnet Inc. Cl A(1)(2) 90,794
- --------------------------------------------------------------------------------
5,643 WFS Financial Inc.(1) 286,157
- --------------------------------------------------------------------------------
5,095,941
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.4%
- --------------------------------------------------------------------------------
5,900 Greif, Inc. Cl A(2) 360,490
- --------------------------------------------------------------------------------
8,454 Silgan Holdings Inc. 475,453
- --------------------------------------------------------------------------------
835,943
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.6%
- --------------------------------------------------------------------------------
3,411 ALLTEL Corp. 212,437
- --------------------------------------------------------------------------------
10,170 AT&T Corp. 193,637
- --------------------------------------------------------------------------------
17,836 BellSouth Corp. 473,903
- --------------------------------------------------------------------------------
1,745 CenturyTel Inc. 60,429
- --------------------------------------------------------------------------------
6,780 Commonwealth Telephone
Enterprise Inc.(2) 284,150
- --------------------------------------------------------------------------------
17,289 SBC Communications Inc. 410,614
- --------------------------------------------------------------------------------
32,636 Sprint Corp. 818,837
- --------------------------------------------------------------------------------
29,519 Verizon Communications 1,019,881
- --------------------------------------------------------------------------------
3,473,888
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.6%
- --------------------------------------------------------------------------------
7,486 Edison International 303,557
- --------------------------------------------------------------------------------
5,610 Entergy Corp. 423,836
- --------------------------------------------------------------------------------
9,157 Exelon Corporation 470,029
- --------------------------------------------------------------------------------
2,088 TXU Corp. 173,492
- --------------------------------------------------------------------------------
1,370,914
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 0.6%
- --------------------------------------------------------------------------------
22,618 Cal Dive International Inc.(1)(2) 1,184,504
- --------------------------------------------------------------------------------
1,124 Veritas DGC Inc.(1) 31,180
- --------------------------------------------------------------------------------
1,215,684
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
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8
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 0.4%
- --------------------------------------------------------------------------------
13,696 7-Eleven, Inc.(1) $ 414,166
- --------------------------------------------------------------------------------
9,350 BJ's Wholesale Club Inc.(1)(2) 303,782
- --------------------------------------------------------------------------------
3,590 Longs Drug Stores Corp.(2) 154,550
- --------------------------------------------------------------------------------
872,498
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.3%
- --------------------------------------------------------------------------------
56,436 Archer-Daniels-Midland Co. 1,206,602
- --------------------------------------------------------------------------------
7,341 Bunge Ltd.(2) 465,419
- --------------------------------------------------------------------------------
13,536 Chiquita Brands International
Inc.(2) 371,699
- --------------------------------------------------------------------------------
12,041 General Mills, Inc. 563,398
- --------------------------------------------------------------------------------
8,316 Gold Kist Inc.(1)(2) 179,459
- --------------------------------------------------------------------------------
52,034 Pilgrim's Pride Corp.(2) 1,775,921
- --------------------------------------------------------------------------------
147 Seaboard Corp.(2) 244,608
- --------------------------------------------------------------------------------
4,807,106
- --------------------------------------------------------------------------------
GAS UTILITIES -- 0.8%
- --------------------------------------------------------------------------------
57,562 UGI Corp. 1,605,980
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.9%
- --------------------------------------------------------------------------------
34,134 Becton Dickinson & Co. 1,791,011
- --------------------------------------------------------------------------------
483 Kinetic Concepts Inc.(1)(2) 28,980
- --------------------------------------------------------------------------------
2,982 Mettler-Toledo International,
Inc.(1)(2) 138,902
- --------------------------------------------------------------------------------
1,958,893
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.8%
- --------------------------------------------------------------------------------
8,108 Aetna Inc. 671,505
- --------------------------------------------------------------------------------
18,714 AmerisourceBergen Corp. 1,294,073
- --------------------------------------------------------------------------------
16,902 Cardinal Health, Inc. 973,217
- --------------------------------------------------------------------------------
11,449 Kindred Healthcare Inc.(1)(2) 453,495
- --------------------------------------------------------------------------------
49,550 McKesson Corp. 2,219,344
- --------------------------------------------------------------------------------
7,397 UnitedHealth Group
Incorporated 385,680
- --------------------------------------------------------------------------------
5,997,314
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 0.7%
- --------------------------------------------------------------------------------
35,545 Darden Restaurants, Inc. 1,172,274
- --------------------------------------------------------------------------------
9,704 McDonald's Corporation 269,286
- --------------------------------------------------------------------------------
1,441,560
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.0%
- --------------------------------------------------------------------------------
22,531 Black & Decker Corporation 2,024,410
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.4%
- --------------------------------------------------------------------------------
7,738 Clorox Company 431,161
- --------------------------------------------------------------------------------
8,292 Energizer Holdings Inc.(1) 515,514
- --------------------------------------------------------------------------------
946,675
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.4%
- --------------------------------------------------------------------------------
26,650 Tyco International Ltd. 778,180
- --------------------------------------------------------------------------------
INSURANCE -- 4.5%
- --------------------------------------------------------------------------------
6,054 Arch Capital Group Ltd.(1) 272,733
- --------------------------------------------------------------------------------
14,654 Axis Capital Holdings Limited 414,708
- --------------------------------------------------------------------------------
47,759 Berkley (W.R.) Corp. 1,704,041
- --------------------------------------------------------------------------------
15,722 Chubb Corp. 1,345,960
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
40,929 Endurance Specialty Holdings
Ltd. $ 1,547,935
- --------------------------------------------------------------------------------
20,067 First American Financial Corp.
(The) 805,489
- --------------------------------------------------------------------------------
5,965 HCC Insurance Holdings, Inc.(2) 225,895
- --------------------------------------------------------------------------------
5,479 Loews Corp. 424,623
- --------------------------------------------------------------------------------
1,416 Platinum Underwriters
Holdings 45,057
- --------------------------------------------------------------------------------
4,658 Protective Life Corporation 196,661
- --------------------------------------------------------------------------------
30,609 Prudential Financial Inc. 2,009,786
- --------------------------------------------------------------------------------
917 Selective Insurance Group(2) 45,437
- --------------------------------------------------------------------------------
7,582 Zenith National Insurance
Corp. 514,515
- --------------------------------------------------------------------------------
9,552,840
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 0.2%
- --------------------------------------------------------------------------------
53,804 Earthlink Inc.(1) 465,943
- --------------------------------------------------------------------------------
IT SERVICES -- 0.8%
- --------------------------------------------------------------------------------
11,897 Acxiom Corp.(2) 248,409
- --------------------------------------------------------------------------------
33,340 Computer Sciences Corp.(1) 1,456,958
- --------------------------------------------------------------------------------
1,705,367
- --------------------------------------------------------------------------------
MACHINERY -- 0.9%
- --------------------------------------------------------------------------------
21,693 Cummins Inc. 1,618,514
- --------------------------------------------------------------------------------
1,208 Danaher Corp. 63,227
- --------------------------------------------------------------------------------
3,709 Kennametal Inc.(2) 170,058
- --------------------------------------------------------------------------------
862 Toro Co. (The)(2) 33,282
- --------------------------------------------------------------------------------
1,885,081
- --------------------------------------------------------------------------------
MEDIA -- 3.6%
- --------------------------------------------------------------------------------
83,551 Disney (Walt) Co. 2,103,814
- --------------------------------------------------------------------------------
3,655 John Wiley & Sons Inc. Cl A(2) 145,213
- --------------------------------------------------------------------------------
18,455 Pixar(1)(2) 923,673
- --------------------------------------------------------------------------------
12,895 Regal Entertainment Group(2) 243,458
- --------------------------------------------------------------------------------
129,170 Time Warner Inc.(1) 2,158,430
- --------------------------------------------------------------------------------
62,692 Viacom, Inc. Cl B 2,007,398
- --------------------------------------------------------------------------------
7,581,986
- --------------------------------------------------------------------------------
METALS & MINING -- 1.0%
- --------------------------------------------------------------------------------
1,439 Nucor Corp. 65,647
- --------------------------------------------------------------------------------
17,166 Phelps Dodge Corp. 1,587,855
- --------------------------------------------------------------------------------
2,690 Quanex Corporation 142,597
- --------------------------------------------------------------------------------
8,160 United States Steel Corp. 280,459
- --------------------------------------------------------------------------------
2,076,558
- --------------------------------------------------------------------------------
MULTI-UTILITIES -- 0.8%
- --------------------------------------------------------------------------------
52,237 AES Corporation (The)(1) 855,642
- --------------------------------------------------------------------------------
13,296 Constellation Energy Group Inc. 767,046
- --------------------------------------------------------------------------------
1,622,688
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.0%
- --------------------------------------------------------------------------------
27,128 Federated Department Stores,
Inc. 1,987,940
- --------------------------------------------------------------------------------
1,294 Sears Holdings Corp.(1) 193,932
- --------------------------------------------------------------------------------
2,181,872
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
9
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.2%
- --------------------------------------------------------------------------------
34,086 Xerox Corp.(1) $ 470,046
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 5.2%
- --------------------------------------------------------------------------------
42,888 Chevron Corp. 2,398,297
- --------------------------------------------------------------------------------
14,323 ConocoPhillips 823,429
- --------------------------------------------------------------------------------
81,018 Exxon Mobil Corp. 4,656,103
- --------------------------------------------------------------------------------
4,186 Marathon Oil Corp. 223,407
- --------------------------------------------------------------------------------
4,713 Premcor Inc. 349,610
- --------------------------------------------------------------------------------
21,291 Sunoco, Inc. 2,420,361
- --------------------------------------------------------------------------------
2,233 Valero Energy Corp. 176,640
- --------------------------------------------------------------------------------
11,047,847
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.0%
- --------------------------------------------------------------------------------
41,936 Louisiana-Pacific Corp. 1,030,787
- --------------------------------------------------------------------------------
9,127 Potlatch Corp. 477,616
- --------------------------------------------------------------------------------
8,337 Weyerhaeuser Co. 530,650
- --------------------------------------------------------------------------------
2,039,053
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 3.8%
- --------------------------------------------------------------------------------
3,193 Allergan, Inc. 272,171
- --------------------------------------------------------------------------------
60,172 Johnson & Johnson 3,911,180
- --------------------------------------------------------------------------------
20,152 King Pharmaceuticals, Inc.(1) 209,984
- --------------------------------------------------------------------------------
6,793 Kos Pharmaceuticals, Inc.(1)(2) 444,942
- --------------------------------------------------------------------------------
49,508 Merck & Co., Inc. 1,524,846
- --------------------------------------------------------------------------------
65,158 Pfizer, Inc. 1,797,058
- --------------------------------------------------------------------------------
8,160,181
- --------------------------------------------------------------------------------
REAL ESTATE -- 0.2%
- --------------------------------------------------------------------------------
2,397 Taubman Centers Inc.(2) 81,714
- --------------------------------------------------------------------------------
11,873 Trizec Properties Inc. 244,227
- --------------------------------------------------------------------------------
325,941
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.1%
- --------------------------------------------------------------------------------
400 Burlington Northern Santa Fe
Corp. 18,832
- --------------------------------------------------------------------------------
2,757 Union Pacific Corp. 178,654
- --------------------------------------------------------------------------------
197,486
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 1.8%
- --------------------------------------------------------------------------------
149,743 Intel Corp. 3,902,303
- --------------------------------------------------------------------------------
SOFTWARE -- 1.1%
- --------------------------------------------------------------------------------
4,945 Autodesk, Inc. 169,960
- --------------------------------------------------------------------------------
13,706 Intuit Inc.(1) 618,278
- --------------------------------------------------------------------------------
24,415 Microsoft Corporation 606,469
- --------------------------------------------------------------------------------
42,267 Oracle Corp.(1) 557,924
- --------------------------------------------------------------------------------
64,235 Parametric Technology Corp.(1) 409,819
- --------------------------------------------------------------------------------
3,280 Symantec Corp.(1) 71,307
- --------------------------------------------------------------------------------
2,433,757
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.2%
- --------------------------------------------------------------------------------
417 Advance Auto Parts, Inc.(1) 26,917
- --------------------------------------------------------------------------------
9,922 American Eagle Outfitters, Inc. 304,109
- --------------------------------------------------------------------------------
5,495 Barnes & Noble Inc.(1) 213,206
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
6,634 Children's Place Retail Stores,
Inc. (The)(1)(2) $ 309,609
- --------------------------------------------------------------------------------
32,216 Home Depot, Inc. 1,253,202
- --------------------------------------------------------------------------------
36,306 Michaels Stores, Inc. 1,501,980
- --------------------------------------------------------------------------------
5,722 Movie Gallery Inc.(2) 151,232
- --------------------------------------------------------------------------------
17,949 Payless ShoeSource, Inc.(1)(2) 344,621
- --------------------------------------------------------------------------------
21,471 Rent-A-Center Inc.(1) 500,060
- --------------------------------------------------------------------------------
4,604,936
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 2.6%
- --------------------------------------------------------------------------------
990 Corus Bankshares Inc. 54,935
- --------------------------------------------------------------------------------
59,749 Countrywide Financial
Corporation 2,306,909
- --------------------------------------------------------------------------------
3,762 Downey Financial Corp. 275,378
- --------------------------------------------------------------------------------
31,634 Golden West Financial Corp. 2,036,597
- --------------------------------------------------------------------------------
21,111 Washington Mutual, Inc. 859,007
- --------------------------------------------------------------------------------
5,532,826
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $108,651,509) 126,760,355
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES(3) -- 13.6%
$1,750,000 FHLMC, 5.00%, settlement
date 7/19/05(4) 1,769,688
- --------------------------------------------------------------------------------
139,728 FHLMC, 7.00%, 11/1/13 146,264
- --------------------------------------------------------------------------------
220,033 FHLMC, 6.50%, 6/1/16 228,972
- --------------------------------------------------------------------------------
157,513 FHLMC, 6.50%, 6/1/16 163,913
- --------------------------------------------------------------------------------
1,810,912 FHLMC, 5.00%, 11/1/17(5) 1,833,288
- --------------------------------------------------------------------------------
1,194,986 FHLMC, 4.50%, 1/1/19(5) 1,190,547
- --------------------------------------------------------------------------------
49,262 FHLMC, 6.50%, 1/1/28 51,183
- --------------------------------------------------------------------------------
34,567 FHLMC, 6.50%, 6/1/29 35,904
- --------------------------------------------------------------------------------
43,721 FHLMC, 8.00%, 7/1/30 47,082
- --------------------------------------------------------------------------------
1,139,983 FHLMC, 5.50%, 12/1/33(5) 1,156,925
- --------------------------------------------------------------------------------
1,144,800 FNMA, 5.50%, settlement
date 7/14/05(4) 1,160,541
- --------------------------------------------------------------------------------
3,447,700 FNMA, 6.00%, settlement
date 7/14/05(4) 3,534,967
- --------------------------------------------------------------------------------
3,238,000 FNMA, 6.50%, settlement
date 7/14/05(4) 3,351,330
- --------------------------------------------------------------------------------
600,000 FNMA, 4.50%, settlement
date 7/19/05(4) 597,375
- --------------------------------------------------------------------------------
3,400,000 FNMA, 5.00%, settlement
date 7/19/05(4) 3,438,250
- --------------------------------------------------------------------------------
1,790,000 FNMA, 5.50%, settlement
date 7/19/05(4) 1,837,546
- --------------------------------------------------------------------------------
865,000 FNMA, 5.00%, settlement
date 8/11/05(4) 863,378
- --------------------------------------------------------------------------------
282,537 FNMA, 5.50%, 12/1/08 289,026
- --------------------------------------------------------------------------------
16,062 FNMA, 6.50%, 11/1/11 16,722
- --------------------------------------------------------------------------------
41,724 FNMA, 6.00%, 4/1/13 43,176
- --------------------------------------------------------------------------------
15,915 FNMA, 6.00%, 4/1/13 16,469
- --------------------------------------------------------------------------------
23,303 FNMA, 6.00%, 5/1/13 24,115
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
10
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 96,346 FNMA, 6.50%, 6/1/13 $ 100,333
- --------------------------------------------------------------------------------
12,096 FNMA, 6.50%, 6/1/13 12,596
- --------------------------------------------------------------------------------
26,247 FNMA, 6.00%, 7/1/13 27,160
- --------------------------------------------------------------------------------
203,627 FNMA, 6.00%, 1/1/14 210,715
- --------------------------------------------------------------------------------
592,993 FNMA, 4.50%, 5/1/19 590,758
- --------------------------------------------------------------------------------
7,516 FNMA, 6.50%, 1/1/28 7,806
- --------------------------------------------------------------------------------
62,264 FNMA, 7.00%, 1/1/28 65,792
- --------------------------------------------------------------------------------
99,760 FNMA, 6.50%, 1/1/29 103,598
- --------------------------------------------------------------------------------
82,094 FNMA, 7.50%, 7/1/29 87,792
- --------------------------------------------------------------------------------
48,757 FNMA, 7.50%, 9/1/30 52,099
- --------------------------------------------------------------------------------
139,871 FNMA, 6.50%, 1/1/32 145,087
- --------------------------------------------------------------------------------
736,208 FNMA, 5.50%, 6/1/33(5) 746,955
- --------------------------------------------------------------------------------
696,117 FNMA, 5.50%, 8/1/33(5) 706,278
- --------------------------------------------------------------------------------
2,414,112 FNMA, 5.50%, 1/1/34(5) 2,449,351
- --------------------------------------------------------------------------------
113,804 GNMA, 7.00%, 4/20/26 120,284
- --------------------------------------------------------------------------------
69,397 GNMA, 7.50%, 8/15/26 74,545
- --------------------------------------------------------------------------------
37,164 GNMA, 7.00%, 2/15/28 39,403
- --------------------------------------------------------------------------------
53,386 GNMA, 7.50%, 2/15/28 57,268
- --------------------------------------------------------------------------------
42,193 GNMA, 6.50%, 3/15/28 44,170
- --------------------------------------------------------------------------------
28,967 GNMA, 6.50%, 3/15/28 30,324
- --------------------------------------------------------------------------------
5,007 GNMA, 6.50%, 5/15/28 5,242
- --------------------------------------------------------------------------------
8,498 GNMA, 6.50%, 5/15/28 8,896
- --------------------------------------------------------------------------------
44,948 GNMA, 7.00%, 12/15/28 47,656
- --------------------------------------------------------------------------------
29,608 GNMA, 8.00%, 12/15/29 32,013
- --------------------------------------------------------------------------------
245,045 GNMA, 7.00%, 5/15/31 259,558
- --------------------------------------------------------------------------------
949,079 GNMA, 5.50%, 11/15/32(5) 970,619
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $28,677,155) 28,792,959
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 9.4%
AEROSPACE & DEFENSE -- 0.2%
- --------------------------------------------------------------------------------
280,000 United Technologies Corp.,
4.375%, 5/1/10 282,894
- --------------------------------------------------------------------------------
140,000 United Technologies Corp.,
5.40%, 5/1/35 147,647
- --------------------------------------------------------------------------------
430,541
- --------------------------------------------------------------------------------
BEVERAGES -- 0.2%
- --------------------------------------------------------------------------------
90,000 Diageo Capital plc, 4.375%,
5/3/10 90,565
- --------------------------------------------------------------------------------
250,000 Miller Brewing Co., 4.25%,
8/15/08 (Acquired 1/6/04,
Cost $254,055)(6) 249,089
- --------------------------------------------------------------------------------
339,654
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 0.4%
- --------------------------------------------------------------------------------
250,000 Goldman Sachs Group, Inc.,
5.70%, 9/1/12(2) 266,397
- --------------------------------------------------------------------------------
250,000 Goldman Sachs Group, Inc.,
5.25%, 10/15/13 258,408
- --------------------------------------------------------------------------------
170,000 Merrill Lynch & Co., Inc.,
4.25%, 2/8/10 169,753
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 90,000 Morgan Stanley, 4.00%,
1/15/10 $ 88,749
- --------------------------------------------------------------------------------
100,000 Morgan Stanley, 4.25%,
5/15/10 99,444
- --------------------------------------------------------------------------------
90,000 Residential Capital Corp., VRN,
6.375%, 12/20/05 (Acquired
6/21/05, Cost $89,735)(6) 90,528
- --------------------------------------------------------------------------------
973,279
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.7%
- --------------------------------------------------------------------------------
100,000 AmSouth Bancorp., 5.20%,
4/1/15 104,200
- --------------------------------------------------------------------------------
600,000 Bank of America Corp.,
4.375%, 12/1/10(5) 603,133
- --------------------------------------------------------------------------------
200,000 SouthTrust Corp., 5.80%,
6/15/14 215,255
- --------------------------------------------------------------------------------
230,000 Wachovia Bank N.A., 4.80%,
11/1/14 233,120
- --------------------------------------------------------------------------------
340,000 Wachovia Bank N.A., 4.875%,
2/1/15 346,610
- --------------------------------------------------------------------------------
50,000 Wells Fargo Bank N.A.,
4.75%, 2/9/15 50,699
- --------------------------------------------------------------------------------
1,553,017
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 0.2%
- --------------------------------------------------------------------------------
100,000 R.R. Donnelley & Sons
Company, 3.75%, 4/1/09 96,923
- --------------------------------------------------------------------------------
150,000 R.R. Donnelley & Sons
Company, 4.95%, 5/15/10
(Acquired 5/18/05-5/19/05,
Cost $149,643)(6) 150,862
- --------------------------------------------------------------------------------
180,000 Waste Management, Inc.,
7.00%, 7/15/28 209,410
- --------------------------------------------------------------------------------
457,195
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.2%
- --------------------------------------------------------------------------------
200,000 American Express Centurion
Bank, 4.375%, 7/30/09 201,640
- --------------------------------------------------------------------------------
230,000 Capital One Financial Corp.,
4.80%, 2/21/12 229,146
- --------------------------------------------------------------------------------
430,786
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.2%
- --------------------------------------------------------------------------------
350,000 Ball Corp., 7.75%, 8/1/06 364,000
- --------------------------------------------------------------------------------
DIVERSIFIED -- 0.5%
- --------------------------------------------------------------------------------
880,000 Morgan Stanley TRACERS(SM),
7.71%, 3/1/32 (Acquired
3/15/02-8/28/02, Cost
$923,403)(6) 1,097,242
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.0%
- --------------------------------------------------------------------------------
250,000 American General Finance
Corp., Series 2002 H, 4.50%,
11/15/07 250,668
- --------------------------------------------------------------------------------
200,000 CIT Group Inc., 4.25%, 2/1/10 198,716
- --------------------------------------------------------------------------------
220,000 CIT Group Inc., 5.125%,
9/30/14 223,988
- --------------------------------------------------------------------------------
300,000 Citigroup Inc., 5.00%, 9/15/14 307,447
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
11
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 110,000 Ford Motor Credit Co., 6.50%,
1/25/07 $ 110,830
- --------------------------------------------------------------------------------
300,000 Ford Motor Credit Co., 7.375%,
10/28/09 293,422
- --------------------------------------------------------------------------------
170,000 Ford Motor Credit Co., 7.25%,
10/25/11 163,788
- --------------------------------------------------------------------------------
200,000 General Motors Acceptance
Corp., 6.125%, 8/28/07 198,041
- --------------------------------------------------------------------------------
145,000 HSBC Finance Corp., 4.75%,
4/15/10 147,214
- --------------------------------------------------------------------------------
300,000 J.P. Morgan Chase & Co.,
6.75%, 2/1/11 332,159
- --------------------------------------------------------------------------------
2,226,273
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.8%
- --------------------------------------------------------------------------------
164,000 AT&T Corp., 9.05%, 11/15/11 189,830
- --------------------------------------------------------------------------------
180,000 BellSouth Corp., 5.20%,
12/15/16 184,380
- --------------------------------------------------------------------------------
240,000 British Telecommunications
plc, 7.00%, 5/23/07 251,918
- --------------------------------------------------------------------------------
150,000 Deutsche Telekom
International Finance BV,
8.50%, 6/15/10 174,020
- --------------------------------------------------------------------------------
100,000 Deutsche Telekom
International Finance BV,
5.25%, 7/22/13 103,993
- --------------------------------------------------------------------------------
100,000 France Telecom, 8.00%,
3/1/11 116,183
- --------------------------------------------------------------------------------
220,000 Sprint Capital Corp., 8.375%,
3/15/12 264,970
- --------------------------------------------------------------------------------
90,000 Sprint Capital Corp., 8.75%,
3/15/32 125,592
- --------------------------------------------------------------------------------
90,000 Telecom Italia Capital SA,
4.00%, 1/15/10 (Acquired
6/29/05, Cost $87,539)(6) 87,540
- --------------------------------------------------------------------------------
130,000 Verizon Virginia Inc., 4.625%,
3/15/13 128,140
- --------------------------------------------------------------------------------
1,626,566
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.6%
- --------------------------------------------------------------------------------
150,000 Carolina Power & Light Co.,
5.15%, 4/1/15 155,582
- --------------------------------------------------------------------------------
325,000 CenterPoint Energy Resources
Corp., 6.50%, 2/1/08 341,051
- --------------------------------------------------------------------------------
140,000 Florida Power Corp., 4.50%,
6/1/10 141,054
- --------------------------------------------------------------------------------
150,000 Pacific Gas & Electric Co.,
6.05%, 3/1/34 165,903
- --------------------------------------------------------------------------------
100,000 Tampa Electric Co., 6.375%,
8/15/12 110,532
- --------------------------------------------------------------------------------
250,000 Virginia Electric and Power
Co., 5.25%, 12/15/15 257,717
- --------------------------------------------------------------------------------
1,171,839
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 0.3%
- --------------------------------------------------------------------------------
140,000 CVS Corp., 4.00%, 9/15/09 138,848
- --------------------------------------------------------------------------------
300,000 Safeway Inc., 6.50%, 3/1/11 324,630
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 230,000 Wal-Mart Stores, Inc.,
4.125%, 7/1/10 $ 229,569
- --------------------------------------------------------------------------------
693,047
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.1%
- --------------------------------------------------------------------------------
170,000 Cadbury Schweppes U.S.
Finance LLC, 3.875%,
10/1/08 (Acquired 6/14/05,
Cost $167,010)(6) 167,750
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.1%
- --------------------------------------------------------------------------------
240,000 Beckman Coulter Inc., 7.45%,
3/4/08 258,628
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 0.5%
- --------------------------------------------------------------------------------
200,000 Mandalay Resort Group,
6.45%, 2/1/06 203,000
- --------------------------------------------------------------------------------
350,000 MGM Mirage, 6.00%, 10/1/09 353,500
- --------------------------------------------------------------------------------
400,000 Yum! Brands Inc., 8.875%,
4/15/11 485,213
- --------------------------------------------------------------------------------
1,041,713
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.2%
- --------------------------------------------------------------------------------
200,000 D.R. Horton Inc., 7.875%,
8/15/11 225,796
- --------------------------------------------------------------------------------
140,000 KB Home, 6.375%, 8/15/11(2) 146,392
- --------------------------------------------------------------------------------
372,188
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.4%
- --------------------------------------------------------------------------------
170,000 General Electric Capital Corp.,
6.125%, 2/22/11 184,921
- --------------------------------------------------------------------------------
550,000 General Electric Co., 5.00%,
2/1/13(5) 568,772
- --------------------------------------------------------------------------------
753,693
- --------------------------------------------------------------------------------
INSURANCE -- 0.5%
- --------------------------------------------------------------------------------
140,000 Allstate Corp. (The), 5.55%,
5/9/35 145,407
- --------------------------------------------------------------------------------
250,000 Allstate Financial Global
Funding, 4.25%, 9/10/08
(Acquired 9/3/03, Cost
$249,510)(6) 250,939
- --------------------------------------------------------------------------------
100,000 American International Group,
Inc., 4.25%, 5/15/13 97,148
- --------------------------------------------------------------------------------
250,000 Genworth Financial Inc.,
5.75%, 6/15/14 268,582
- --------------------------------------------------------------------------------
90,000 Metlife, Inc., 5.00%, 6/15/15(2) 91,516
- --------------------------------------------------------------------------------
250,000 Monumental Global Funding II,
3.85%, 3/3/08 (Acquired
2/5/03, Cost $249,995)(6) 247,934
- --------------------------------------------------------------------------------
1,101,526
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL(7)
- --------------------------------------------------------------------------------
50,000 IAC/InterActiveCorp, 7.00%,
1/15/13(2) 53,392
- --------------------------------------------------------------------------------
MEDIA -- 0.7%
- --------------------------------------------------------------------------------
48,000 Comcast Cable
Communications Holdings Inc.,
8.375%, 3/15/13 58,615
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
12
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 500,000 Comcast Corp., 5.50%,
3/15/11(2) $ 522,299
- --------------------------------------------------------------------------------
360,000 Cox Communications Inc.,
4.625%, 1/15/10 359,412
- --------------------------------------------------------------------------------
250,000 News America Holdings,
7.75%, 1/20/24 300,840
- --------------------------------------------------------------------------------
230,000 Reed Elsevier Capital Inc.,
4.625%, 6/15/12 229,276
- --------------------------------------------------------------------------------
1,470,442
- --------------------------------------------------------------------------------
METALS & MINING -- 0.1%
- --------------------------------------------------------------------------------
170,000 Alcan Inc., 4.50%, 5/15/13 167,368
- --------------------------------------------------------------------------------
50,000 Alcan Inc., 5.00%, 6/1/15 50,328
- --------------------------------------------------------------------------------
217,696
- --------------------------------------------------------------------------------
MULTI-UTILITIES -- 0.2%
- --------------------------------------------------------------------------------
250,000 Dominion Resources Inc.,
4.125%, 2/15/08 249,087
- --------------------------------------------------------------------------------
130,000 Dominion Resources Inc.,
4.75%, 12/15/10 130,944
- --------------------------------------------------------------------------------
380,031
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 0.2%
- --------------------------------------------------------------------------------
100,000 May Department Stores Co.,
3.95%, 7/15/07 99,357
- --------------------------------------------------------------------------------
300,000 May Department Stores Co.,
4.80%, 7/15/09 303,537
- --------------------------------------------------------------------------------
402,894
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 0.5%
- --------------------------------------------------------------------------------
300,000 Devon Energy Corp., 2.75%,
8/1/06 294,868
- --------------------------------------------------------------------------------
380,000 Enterprise Products Operating
L.P., 4.625%, 10/15/09 378,664
- --------------------------------------------------------------------------------
60,000 Magellan Midstream Partners,
5.65%, 10/15/16 62,147
- --------------------------------------------------------------------------------
190,000 Nexen Inc., 5.875%, 3/10/35 193,781
- --------------------------------------------------------------------------------
190,000 XTO Energy Inc., 5.30%,
6/30/15(2) 194,010
- --------------------------------------------------------------------------------
1,123,470
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.1%
- --------------------------------------------------------------------------------
100,000 Schering-Plough Corp.,
5.55%, 12/1/13 106,204
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.3%
- --------------------------------------------------------------------------------
300,000 Canadian National Railway
Co., 6.25%, 8/1/34 347,241
- --------------------------------------------------------------------------------
200,000 Norfolk Southern Corp.,
5.64%, 5/17/29 209,860
- --------------------------------------------------------------------------------
557,101
- --------------------------------------------------------------------------------
SOFTWARE -- 0.1%
- --------------------------------------------------------------------------------
200,000 Computer Associates
International Inc., 4.75%,
12/1/09 (Acquired 12/9/04,
Cost $202,868)(6) 199,559
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
- --------------------------------------------------------------------------------
$ 250,000 Nextel Communications Inc.,
5.95%, 3/15/14(2) $ 260,938
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $19,332,798) 19,830,664
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS(3) -- 6.1%
5,730,575 Bank of America Commercial
Mortgage Inc. STRIPS -
COUPON, Series 2004-1,
Class XP, VRN, 0.80%, 7/1/05 152,319
- --------------------------------------------------------------------------------
250,000 Bank of America Large Loan,
Series 2005 BOCA, Class A1,
VRN, 3.34%, 7/15/05, resets
monthly off the 1-month
LIBOR plus 0.12% with no
caps (Acquired 3/4/05, Cost
$250,000)(6) 250,107
- --------------------------------------------------------------------------------
1,200,000 Bank of America Mortgage
Securities, Series 2004 F,
Class 2A5, VRN, 4.17%,
7/1/05(5) 1,191,986
- --------------------------------------------------------------------------------
1,050,000 Bear Stearns Adjustable Rate
Mortgage Trust, Series 2005-4,
Class 2A2, 4.57%, 8/25/35 1,048,950
- --------------------------------------------------------------------------------
6,500,000 Bear Stearns Commercial
Mortgage Securities STRIPS -
COUPON, Series 2004 T16,
Class X2, VRN, 0.81%, 7/1/05 262,288
- --------------------------------------------------------------------------------
807,142 Bear Stearns Commercial
Mortgage Securities, Series
2004 BA5A, Class A1, VRN,
3.35%, 7/15/05, resets
monthly off the 1-month
LIBOR plus 0.13% with no
caps (Acquired 12/15/04,
Cost $807,142)(5)(6) 807,703
- --------------------------------------------------------------------------------
784,663 Citigroup Commercial
Mortgage Trust, Series
2004 FL1, Class A1, VRN,
3.35%, 7/15/05, resets
monthly off the 1-month
LIBOR plus 0.13% with no
caps, Final Maturity 7/15/08(5) 785,665
- --------------------------------------------------------------------------------
402,215 Commercial Mortgage
Pass-Through Certificates,
Series 2004 HTL1, Class A1,
VRN, 3.46%, 7/15/05, resets
monthly off the 1-month
LIBOR plus 0.24% with
no caps(5) 402,784
- --------------------------------------------------------------------------------
641,018 Commercial Mortgage
Pass-Through Certificates,
Series 2005 F10A, Class A1,
VRN, 3.32%, 7/15/05, resets
monthly off the 1-month
LIBOR plus 0.10% with no
caps (Acquired 3/18/05,
Cost $641,018)(5)(6) 641,293
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
13
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 800,000 FHLMC, Series 2005-2937,
Class KA, 4.50%, 12/15/14 $ 804,095
- --------------------------------------------------------------------------------
436,713 GMAC Commercial Mortgage
Securities Inc., Series
2002 C2, Class A1 SEQ,
4.32%, 10/15/38(5) 437,894
- --------------------------------------------------------------------------------
1,100,000 GMAC Commercial Mortgage
Securities, Inc., Series
2005 C1, Class A2 SEQ,
4.47%, 5/10/43(5) 1,106,858
- --------------------------------------------------------------------------------
1,000,000 LB-UBS Commercial Mortgage
Trust, Series 2003 C5,
Class A2 SEQ, 3.48%,
7/15/27(5) 983,789
- --------------------------------------------------------------------------------
900,000 LB-UBS Commercial Mortgage
Trust, Series 2005 C3,
Class A3, 4.65%, 7/30/30 910,688
- --------------------------------------------------------------------------------
167,243 MASTR Alternative Loans Trust,
Series 2003-8, Class 4A1,
7.00%, 12/25/33 169,223
- --------------------------------------------------------------------------------
7,656 Nationslink Funding Corp.,
Series 1998-2, Class A1 SEQ,
6.00%, 8/20/30 7,645
- --------------------------------------------------------------------------------
749,721 Wachovia Bank Commercial
Mortgage Trust, Series
2005 WL5A, Class A1, VRN,
3.32%, 7/15/05, resets
monthly off the 1-month
LIBOR plus 0.10% with no
caps, Final Maturity 1/15/18
(Acquired 3/24/05, Cost
$749,721)(5)(6) 749,926
- --------------------------------------------------------------------------------
750,000 Washington Mutual, Series
2004 AR4, Class A6, 3.81%,
6/25/34(5) 738,452
- --------------------------------------------------------------------------------
600,000 Washington Mutual, Series
2004 AR9, Class A6, 4.28%,
8/25/34(5) 597,817
- --------------------------------------------------------------------------------
970,000 Washington Mutual, Series
2004 AR9, Class A7, VRN,
4.21%, 7/1/05(5) 969,496
- --------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $13,019,657) 13,018,978
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(3) -- 6.1%
39,616 ABSC Net Interest Margin
Trust, Series 2004 HE5,
Class A1, 5.00%, 8/27/34
(Acquired 6/22/04, Cost
$39,510)(6) 39,403
- --------------------------------------------------------------------------------
472,492 Accredited Mortgage Loan
Trust, Series 2004-4,
Class A2A, VRN, 3.46%,
7/25/05, resets monthly off
the 1-month LIBOR plus
0.15% with no caps(5) 472,954
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,694 AQ Finance Net Interest
Margin Trust, Series
2003 N11A, 7.14%, 11/25/33
(Acquired 9/18/03, Cost
$3,694)(6) $ 3,688
- --------------------------------------------------------------------------------
26,524 AQ Finance Net Interest
Margin Trust, Series
2004 RN4, Class A, 4.60%,
7/25/34 (Acquired 6/9/04,
Cost $26,504)(6) 26,434
- --------------------------------------------------------------------------------
35,462 AQ Finance Net Interest
Margin Trust, Series
2004 RN5, Class A, 5.19%,
6/29/34 (Acquired 6/24/04,
Cost $35,462)(6) 35,322
- --------------------------------------------------------------------------------
37,643 Argent Net Interest Margin
Trust, Series 2004 WN10,
Class A, 4.21%, 11/25/34
(Acquired 10/19/04, Cost
$37,643)(6) 37,596
- --------------------------------------------------------------------------------
8,356 Argent Net Interest Margin
Trust, Series 2004 WN2,
Class A, 4.55%, 4/25/34
(Acquired 3/4/04, Cost
$8,356)(6) 8,358
- --------------------------------------------------------------------------------
25,353 Argent Net Interest Margin
Trust, Series 2004 WN8,
Class A, 4.70%, 7/25/34
(Acquired 6/18/04, Cost
$25,330)(6) 25,284
- --------------------------------------------------------------------------------
24,927 Argent Net Interest Margin
Trust, Series 2004 WN9,
Class A, 5.19%, 10/25/34
(Acquired 9/9/04, Cost
$24,926)(6) 24,931
- --------------------------------------------------------------------------------
40,347 Asset Backed Funding Corp.
Net Interest Margin Trust,
Series 2004 OPT4, Class N1,
4.45%, 5/26/34 40,142
- --------------------------------------------------------------------------------
800,000 Capital One Prime Auto
Receivables Trust, Series
2004-2, Class A4, VRN, 3.28%,
7/15/05, resets monthly off
the 1-month LIBOR plus
0.06% with no caps(5) 801,282
- --------------------------------------------------------------------------------
195,234 Centex Home Equity, Series
2004 C, Class AF1, VRN,
2.82%, 7/1/05 194,341
- --------------------------------------------------------------------------------
800,000 CNH Equipment Trust, Series
2004 A, Class A3A, VRN,
3.29%, 7/15/05, resets
monthly off the 1-month
LIBOR plus 0.07% and no
caps, Final Maturity 10/15/18(5) 800,898
- --------------------------------------------------------------------------------
190,860 Countrywide Asset-Backed
Certificates, Series 2004-11,
Class A1, VRN, 3.50%,
7/25/05, resets monthly off
the 1-month LIBOR plus
0.19% with no caps 191,027
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
14
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 28,727 Countrywide Asset-Backed
Certificates, Series 2004-11N,
Class N, 5.25%, 4/25/36
(Acquired 10/27/04, Cost
$28,712)(6) $ 28,613
- --------------------------------------------------------------------------------
496,912 Countrywide Asset-Backed
Certificates, Series 2004-13,
Class AV1, VRN, 3.45%,
7/25/05, resets monthly off
the 1-month LIBOR plus
0.14% with no caps(5) 497,345
- --------------------------------------------------------------------------------
40,833 Countrywide Asset-Backed
Certificates, Series 2004-5N,
Class N1, 5.50%, 10/25/35 40,713
- --------------------------------------------------------------------------------
925,000 Countrywide Asset-Backed
Certificates, Series 2005-7,
Class 3AV1, VRN, 3.44%,
7/25/05, resets monthly off
the 1-month LIBOR plus
0.12% with no caps(5) 925,001
- --------------------------------------------------------------------------------
187,851 Countrywide Partnership Trust,
Series 2004 EC1, Class 2A1,
VRN, 3.48%, 7/25/05, resets
monthly off the 1-month
LIBOR plus 0.17% with
no caps 187,987
- --------------------------------------------------------------------------------
217,902 Equifirst Mortgage Loan Trust,
Series 2004-3, Class A1, VRN,
3.47%, 7/25/05, resets
monthly off the 1-month
LIBOR plus 0.16% with
no caps 218,063
- --------------------------------------------------------------------------------
27,677 Finance America
Net Interest Margin Trust,
Series 2004-1, Class A,
5.25%, 6/27/34 27,545
- --------------------------------------------------------------------------------
581,092 First Franklin Mortgage Loan
Asset Backed Certificates,
Series 2004 FF11, Class 2A1,
VRN, 3.46%, 7/25/05, resets
monthly off the 1-month
LIBOR plus 0.15% with no
caps, Final Maturity 1/25/35(5) 581,418
- --------------------------------------------------------------------------------
481,744 First Franklin Mortgage Loan
Asset Backed Certificates,
Series 2005 FF4, Class 2A1,
VRN, 3.39%, 7/25/05, resets
monthly off the 1-month
LIBOR plus 0.08% with
no caps(5) 482,071
- --------------------------------------------------------------------------------
12,187 First Franklin
Net Interest Margin Trust,
Series 2004 FF1, Class N1,
4.50%, 11/25/34 (Acquired
3/31/04, Cost $12,188)(6) 12,163
- --------------------------------------------------------------------------------
250,000 Ford Credit Auto Owner Trust,
Series 2002 A, Class B,
4.79%, 11/15/06 250,285
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$1,725,000 Ford Credit Floorplan Master
Owner Trust, Series 2004-1,
Class A, VRN, 3.26%, 7/15/05,
resets monthly off the
1-month LIBOR plus 0.04%
with no caps(5) $ 1,727,367
- --------------------------------------------------------------------------------
19,075 Fremont Net Interest Margin
Trust, Series 2004 B, 4.70%,
5/25/34 (Acquired 5/20/04,
Cost $19,075)(6) 19,023
- --------------------------------------------------------------------------------
1,004,198 GE Corporate Aircraft
Financing LLC, Series 2004-1A,
Class A1, VRN, 3.40%,
7/25/05, resets monthly off
the 1-month LIBOR plus
0.09% with no caps (Acquired
10/5/04, Cost $1,004,198)(5)(6) 1,003,595
- --------------------------------------------------------------------------------
42,131 GSAMP Trust, Series 2004,
Class N1, 5.50%, 9/25/34
(Acquired 9/20/04, Cost
$42,150)(6) 42,122
- --------------------------------------------------------------------------------
33,952 Long Beach Asset Holdings
Corp., Series 2004-5, Class C
and P, 5.00%, 9/25/34
(Acquired 9/15/04, Cost
$34,026)(6) 33,824
- --------------------------------------------------------------------------------
122,130 Long Beach Asset Holdings
Corp., Series 2005-1, Class N1,
4.12%, 2/25/35 (Acquired
1/19/05, Cost $122,130)(6) 122,142
- --------------------------------------------------------------------------------
5,432 MASTR Net Interest Margin
Trust, Series 2004 CI3,
Class N1, 4.45%, 2/26/34
(Acquired 5/18/04, Cost
$5,432)(6) 5,420
- --------------------------------------------------------------------------------
7,610 Merrill Lynch Mortgage
Investors Inc., Series
2003 OP1N, Class N1, 7.25%,
7/25/34 7,598
- --------------------------------------------------------------------------------
397,881 NovaStar Home Equity Loan,
Series 2004-4, Class A2A,
VRN, 3.50%, 7/25/05, resets
monthly off the 1-month
LIBOR plus 0.19% with a cap
of 11.00% 398,170
- --------------------------------------------------------------------------------
676,252 NovaStar Home Equity Loan,
Series 2005-1, Class A2A,
VRN, 3.43%, 7/25/05, resets
monthly off the 1-month
LIBOR plus 0.12% with a cap
of 11.00%(5) 676,774
- --------------------------------------------------------------------------------
32,993 NovaStar Net Interest Margin
Trust, Series 2004 N2, Class X,
O and P, 4.46%, 6/26/34
(Acquired 7/20/04, Cost
$32,993)(6) 32,845
- --------------------------------------------------------------------------------
749,651 Park Place Securities Inc.,
Series 2004 WHQ2, Class A3B,
VRN, 3.47%, 7/25/05, resets
monthly off the 1-month
LIBOR plus 0.16% with
no caps(5) 750,261
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
15
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 451,337 Residential Asset Mortgage
Products Inc., Series 2004
RS10, Class AII1, VRN, 3.48%,
7/25/05, resets monthly off
the 1-month LIBOR plus
0.17% with a cap of 14.00%,
Final Maturity 5/25/27(5) $ 451,718
- --------------------------------------------------------------------------------
100,000 Residential Asset Securities
Corp., Series 2004 KS2,
Class MI1, 4.71%, 3/25/34 98,871
- --------------------------------------------------------------------------------
569,143 Residential Asset Securities
Corp., Series 2004 KS7,
Class A2B1, VRN, 3.45%,
7/25/05, resets monthly off
the 1-month LIBOR plus
0.14% with no caps(5) 569,608
- --------------------------------------------------------------------------------
28,615 Sail Net Interest Margin Notes,
Series 2004 BNCA, Class A,
5.00%, 9/27/34 (Acquired
8/5/04, Cost $28,573)(6) 28,645
- --------------------------------------------------------------------------------
47,456 Sail Net Interest Margin Notes,
Series 2004-8A, Class A,
5.00%, 9/27/34 (Acquired
9/13/04, Cost $47,560)(6) 47,243
- --------------------------------------------------------------------------------
35,441 Sharps SP I LLC Net Interest
Margin Trust, Series 2004
OP1N, Class NA, 5.19%,
4/25/34 (Acquired 6/9/04,
Cost $35,440)(6) 35,439
- --------------------------------------------------------------------------------
41,199 SLM Student Loan Trust,
Series 2004-8, Class A1, VRN,
3.15%, 7/25/05, resets
quarterly off the 3-month
LIBOR minus 0.01% with no
caps, Final Maturity 4/27/09 41,226
- --------------------------------------------------------------------------------
900,880 SLM Student Loan Trust,
Series 2005-2, Class A1, VRN,
3.14%, 7/25/05, resets
quarterly off the 3-month
LIBOR minus 0.02% with
no caps(2) 901,206
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $12,940,815) 12,945,961
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 6.0%
800,000 U.S. Treasury Bonds, 8.00%,
11/15/21(2) 1,152,969
- --------------------------------------------------------------------------------
2,200,000 U.S. Treasury Bonds, 6.25%,
8/15/23(2) 2,742,352
- --------------------------------------------------------------------------------
1,050,000 U.S. Treasury Bonds, 6.125%,
11/15/27(5) 1,326,364
- --------------------------------------------------------------------------------
300,000 U.S. Treasury Bonds, 5.50%,
8/15/28 353,379
- --------------------------------------------------------------------------------
Principal Amount Value
- --------------------------------------------------------------------------------
$1,350,000 U.S. Treasury Bonds, 5.375%,
2/15/31(2) $ 1,593,423
- --------------------------------------------------------------------------------
1,732,147 U.S. Treasury Inflation Indexed
Notes, 1.625%, 1/15/15(2) 1,726,396
- --------------------------------------------------------------------------------
2,220,000 U.S. Treasury Notes, 4.00%,
6/15/09(2) 2,244,629
- --------------------------------------------------------------------------------
200,000 U.S. Treasury Notes, 4.75%,
5/15/14(2) 212,281
- --------------------------------------------------------------------------------
1,300,000 U.S. Treasury Notes, 4.125%,
5/15/15(2) 1,319,399
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES
(Cost $12,108,413) 12,671,192
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES -- 4.7%
800,000 FHLB, 4.43%, 4/7/08(5) 803,260
- --------------------------------------------------------------------------------
1,880,000 FHLB, 4.60%, 4/11/08(5) 1,891,036
- --------------------------------------------------------------------------------
2,000,000 FHLMC, 3.875%, 6/15/08(5) 2,001,762
- --------------------------------------------------------------------------------
2,900,000 FNMA, 5.25%, 4/15/07(5) 2,972,351
- --------------------------------------------------------------------------------
500,000 FNMA, 6.625%, 10/15/07(5) 530,442
- --------------------------------------------------------------------------------
800,000 FNMA, 5.75%, 2/15/08 838,032
- --------------------------------------------------------------------------------
900,000 FNMA, 6.125%, 3/15/12(2) 1,007,895
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $10,031,870) 10,044,778
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 0.6%
700,000 Commonwealth of
Massachusetts, 5.50%,
1/1/34 (FGIC)(4) 856,422
- --------------------------------------------------------------------------------
300,000 Illinois GO, (Taxable Pension),
5.10%, 6/1/33 312,285
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL SECURITIES
(Cost $1,158,019) 1,168,707
- --------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS &
AGENCIES -- 0.2%
280,000 Republic of Italy, 4.00%,
6/16/08(2) 280,821
- --------------------------------------------------------------------------------
240,000 United Mexican States,
5.875%, 1/15/14(2) 251,040
- --------------------------------------------------------------------------------
50,000 United Mexican States,
6.75%, 9/27/34 53,125
- --------------------------------------------------------------------------------
TOTAL SOVEREIGN GOVERNMENTS
& AGENCIES
(Cost $579,141) 584,986
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
16
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS
SEGREGATED FOR FUTURES* -- 0.6%
$1,195,500 FHLMC Discount Notes,
2.60%, 7/1/05(5)(8)
(Cost $1,195,500) $ 1,195,500
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.9%
2,004,500 FHLMC Discount Notes,
2.60%, 7/1/05(5)(8)
(Cost $2,004,500) 2,004,500
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED FOR
SECURITIES LENDING(9) -- 9.0%
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, Barclays Bank plc,
(collateralized by various U.S. Government
Agency obligations in a pooled account at
the lending agent), 3.35%, dated 6/30/05,
due 7/1/05 (Delivery value $9,086,497) $ 9,085,652
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government
Agency obligations in a pooled account at
the lending agent), 3.44%, dated 6/30/05,
due 7/1/05 (Delivery value $10,000,956) 10,000,000
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED FOR
SECURITIES LENDING
(Cost $19,085,652) 19,085,652
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 117.0%
(Cost $228,785,029) 248,104,232
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (17.0)% (36,062,772)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $212,041,460
================================================================================
FUTURES CONTRACTS*
Expiration Underlying Face Unrealized
Contracts Purchased Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
4 S&P 500 Futures September 2005 $1,195,500 $(10,719)
- --------------------------------------------------------------------------------
24 U.S. Treasury
10-Year Notes September 2005 2,723,250 18,321
- --------------------------------------------------------------------------------
$3,918,750 $ 7,602
================================
Expiration Underlying Face Unrealized
Contracts Sold Date Amount at Value Gain (Loss)
- --------------------------------------------------------------------------------
30 U.S. Treasury
5-Year Notes September 2005 $ 3,266,719 $ (911)
- --------------------------------------------------------------------------------
63 U.S. Treasury
2- Year Notes September 2005 13,071,374 (12,939)
- --------------------------------------------------------------------------------
$16,338,093 $(13,850)
================================
*FUTURES CONTRACTS typically are based on an index or specific securities and
tend to track the performance of the index or specific securities while
remaining very liquid (easy to buy and sell). By investing its cash assets in
futures, the fund has increased exposure to certain markets while maintaining
easy access to cash. By selling futures, the fund hedges its investments
against price fluctuations.
See Notes to Financial Statements. (continued)
- ------
17
VP Balanced - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
ABSC = Asset-Backed Securities Corp.
BOCA = Boca Raton
FGIC = Financial Guaranty Insurance Co.
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
GSAMP = Goldman Sachs Mortgage Pass-through
LB-UBS = Lehman Brothers Inc. -- UBS AG
LIBOR = London Interbank Offered Rate
MASTR = Mortgage Asset Securitization Transactions, Inc.
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. Rate shown is
effective June 30, 2005.
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2005.
(3) Final maturity indicated, unless otherwise noted.
(4) Forward commitment or when-issued security.
(5) Security, or a portion thereof, has been segregated for a forward
commitment, futures contract and/or when-issued security.
(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, 2005, was $6,602,562,
which represented 3.1% of net assets.
(7) Industry is less than 0.05% of net assets.
(8) The rate indicated is the yield to maturity at purchase.
(9) 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.
- ------
18
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $209,699,377) --
including $25,544,294 of securities on loan $229,018,580
- ------------------------------------------------------------
Investments made with cash collateral received for
securities on loan, at value (cost of $19,085,652) 19,085,652
- --------------------------------------------------------------------------------
Total investment securities, at value (cost of $228,785,029) 248,104,232
- ------------------------------------------------------------
Receivable for investments sold 872,635
- ------------------------------------------------------------
Dividends and interest receivable 795,294
- --------------------------------------------------------------------------------
249,772,161
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for collateral received from securities on loan 19,085,652
- ------------------------------------------------------------
Disbursements in excess of demand deposit cash 48,763
- ------------------------------------------------------------
Payable for investments purchased 18,434,342
- ------------------------------------------------------------
Payable for variation margin on futures contracts 5,903
- ------------------------------------------------------------
Accrued management fees 156,041
- --------------------------------------------------------------------------------
37,730,701
- --------------------------------------------------------------------------------
NET ASSETS $212,041,460
================================================================================
CLASS I CAPITAL SHARES, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized 100,000,000
================================================================================
Outstanding 29,194,470
================================================================================
NET ASSET VALUE PER SHARE $7.26
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $184,677,223
- ------------------------------------------------------------
Undistributed net investment income 1,847,289
- ------------------------------------------------------------
Undistributed net realized gain on investment transactions 6,203,993
- ------------------------------------------------------------
Net unrealized appreciation on investments 19,312,955
- --------------------------------------------------------------------------------
$212,041,460
================================================================================
See Notes to Financial Statements.
- ------
19
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Interest $ 1,777,913
- ------------------------------------------------------------
Dividends (net of foreign taxes withheld of $1,397) 999,959
- ------------------------------------------------------------
Securities lending 20,172
- --------------------------------------------------------------------------------
2,798,044
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 944,488
- ------------------------------------------------------------
Directors' fees and expenses 1,521
- ------------------------------------------------------------
Other expenses 1,381
- --------------------------------------------------------------------------------
947,390
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,850,654
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 7,516,826
- ------------------------------------------------------------
Change in net unrealized appreciation on investments (5,986,248)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 1,530,578
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,381,232
================================================================================
See Notes to Financial Statements.
- ------
20
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 1,850,654 $ 3,901,794
- --------------------------------------------
Net realized gain 7,516,826 18,271,573
- --------------------------------------------
Change in net unrealized appreciation (5,986,248) (2,288,113)
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 3,381,232 19,885,254
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income (3,907,910) (3,562,413)
- --------------------------------------------
From net realized gains (83,021) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (3,990,931) (3,562,413)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Proceeds from shares sold 7,620,746 18,290,620
- --------------------------------------------
Proceeds from reinvestment of distributions 3,990,931 3,562,413
- --------------------------------------------
Payments for shares redeemed (19,409,251) (32,568,249)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital share transactions (7,797,574) (10,715,216)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (8,407,273) 5,607,625
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 220,448,733 214,841,108
- --------------------------------------------------------------------------------
End of period $212,041,460 $220,448,733
================================================================================
Undistributed net investment income $1,847,289 $3,901,778
================================================================================
TRANSACTIONS IN SHARES OF THE FUND
- --------------------------------------------------------------------------------
Sold 1,062,464 2,676,287
- --------------------------------------------
Issued in reinvestment of distributions 550,473 520,060
- --------------------------------------------
Redeemed (2,707,090) (4,764,997)
- --------------------------------------------------------------------------------
Net decrease (1,094,153) (1,568,650)
================================================================================
See Notes to Financial Statements.
- ------
21
Notes to Financial Statements
JUNE 30, 2005 (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 pursues 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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities
transactions on a when-issued or forward commitment basis. In these
transactions, the securities' prices and yields are fixed on the date of the
commitment. In a when-issued transaction, the payment and delivery are scheduled
for a future date and during this period, securities are subject to market
fluctuations. In a forward commitment transaction, the fund may sell a security
and at the same time make a commitment to purchase the same security at a future
date at a specified price. Conversely, the fund may purchase a security and at
the same time make a commitment to sell the same security at a future date at a
specified price. These types of transactions are executed simultaneously in what
are known as "roll" transactions. The fund will segregate cash, cash equivalents
or other appropriate liquid securities on its records in amounts sufficient to
meet the purchase price. The fund account for "roll" transactions as purchases
and sales; as such these transactions may increase portfolio turnover.
(continued)
- ------
22
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
TRACERS(SM)/TRAINS(SM) -- The fund may invest in TRACERS and TRAINS 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.
SWAP AGREEMENTS -- The fund may enter into a swap agreement in order to attempt
to obtain or preserve a particular return or spread at a lower cost than
obtaining a return or spread through purchases and/or sales of instruments in
other markets; protect against currency fluctuations; attempt to manage duration
to protect against any increase in the price of securities the fund anticipates
purchasing at a later date; or gain exposure to certain markets in the most
economical way possible. A swap agreement is a contract in which two parties
agree to exchange the returns earned or realized on predetermined investments or
instruments. The fund will segregate cash, cash equivalents or other appropriate
liquid securities on its records in amounts sufficient to meet requirements.
Unrealized gains are reported as an asset and unrealized losses are reported as
a liability on the Statement of Assets and Liabilities. Swap agreements are
valued daily and changes in value, including the periodic amounts of interest to
be paid or received on swaps are recorded as unrealized appreciation
(depreciation) on investments. Realized gain or loss is recorded upon receipt or
payment of a periodic settlement or termination of swap agreements. The risks of
entering into swap agreements include the possible lack of liquidity, failure of
the counterparty to meets its obligations, and that there may be unfavorable
changes in the underlying investments and instruments.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. 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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
- ------
23
Notes to Financial Statements
JUNE 30, 2005 (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 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 and accrued
daily based on the daily net assets of the fund and paid monthly in arrears. For
funds with a stepped fee schedule, the rate of the fee is determined by applying
a fee rate calculation formula. This formula takes into account all of the
investment advisor's assets under management in the fund's investment strategy
(strategy assets) to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of the
investment advisor that are not in the American Century family of funds, but
that have the same investment team and investment strategy.
The annual management fee schedule for the fund is as follows:
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $250 million 0.90%
- --------------------------------------------------------------------------------
Next $250 million 0.85%
- --------------------------------------------------------------------------------
Over $500 million 0.80%
- --------------------------------------------------------------------------------
The effective annual management fee for the fund for the six months ended June
30, 2005 was 0.89%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, American Century Investment
Services, Inc., and the corporation's transfer agent, American Century Services,
LLC (formerly American Century Services Corporation).
The fund has a bank line of credit agreement and securities lending agreement
with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly
owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in
ACC.
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for the
six months ended June 30, 2005, totaled $210,171,424, of which $125,621,178
represented U.S. Treausury and Agency obligations.
Sales of investment securities, excluding short-term investments, for the six
months ended June 30, 2005, totaled $219,841,600, of which $127,462,509
represented U.S. Treausury and Agency obligations.
As of June 30, 2005, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes were as follows:
- --------------------------------------------------------------------------------
Federal tax cost of investments $229,819,054
================================================================================
Gross tax appreciation of investments $20,141,567
- -----------------------------------------------------------
Gross tax depreciation of investments (1,856,389)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $18,285,178
================================================================================
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)
- ------
24
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
4. SECURITIES LENDING
As of June 30, 2005, securities in the fund valued at $25,544,294 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
$26,060,529. 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 or ACGIM, has a
$575,000,000 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, 2005.
- ------
25
VP Balanced - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.28 $6.74 $5.81 $6.59 $7.27 $7.79
- --------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment Income 0.06 0.13 0.11 0.16 0.17 0.20
- -------------------------
Net Realized and
Unrealized Gain (Loss) 0.05 0.52 0.98 (0.77) (0.42) (0.40)
- --------------------------------------------------------------------------------------------
Total From
Investment Operations 0.11 0.65 1.09 (0.61) (0.25) (0.20)
- --------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.13) (0.11) (0.16) (0.17) (0.20) (0.20)
- -------------------------
From Net
Realized Gains --(2) -- -- -- (0.23) (0.12)
- --------------------------------------------------------------------------------------------
Total Distributions (0.13) (0.11) (0.16) (0.17) (0.43) (0.32)
- --------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $7.26 $7.28 $6.74 $5.81 $6.59 $7.27
============================================================================================
TOTAL RETURN(3) 1.58% 9.78% 19.46% (9.56)% (3.54)% (2.65)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.89%(4) 0.90% 0.90% 0.90% 0.90% 0.90%
- -------------------------
Ratio of Net Investment
Income to Average
Net Assets 1.75%(4) 1.80% 1.85% 2.43% 2.41% 2.51%
- -------------------------
Portfolio Turnover Rate 102% 205% 142% 109% 112% 96%
- -------------------------
Net Assets, End of Period
(in thousands) $212,041 $220,449 $214,841 $181,445 $227,516 $258,536
- --------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) Per-share amount was less than $0.005.
(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.
- ------
26
Approval of Management Agreement for VP Balanced
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process--referred to as the "15(c) Process"--involves at
least two board meetings spanning a 30 to 60 day period each year. In addition
to this annual review, the board of directors and its committees oversee and
evaluate at quarterly meetings the nature and quality of significant services
the advisor performs on behalf of the fund. At these meetings the board reviews
fund performance, shareholder services and feedback, audit and compliance
information, and a variety of other reports from the advisor concerning fund
operations. The board, or committees of the board, also hold special meetings,
as needed.
Under a new Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for its board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the half-year period, the
Directors requested and received extensive data and information compiled by the
advisor and certain independent providers of evaluative data (the "Independent
15(c) Providers") concerning VP Balanced (the "fund") and the services provided
to the fund under the management agreement. The information included, but was
not limited to:
* the nature, extent and quality of investment management, shareholder services
and other services provided to the fund under the management agreement;
* reports on the advisor's activities relating to the wide range of programs and
services the advisor provides to the fund and its shareholders on a routine
and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning similar
funds;
* data comparing the fund's performance to appropriate benchmarks and/or a peer
group of other mutual funds with similar investment objectives and strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment
management clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and two special meetings to review and discuss the
information provided by the advisor and the Independent 15(c) Providers and to
complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory fee. In
addition, the independent directors met on several occasions in private
(continued)
- ------
27
Approval of Management Agreement for VP Balanced
session to review and discuss the information provided and evaluate the
advisor's performance as manager of the fund.
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
Independent 15(c) Providers, and its independent counsel and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES--GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including, but not limited to:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objective and approved strategies. In
providing these services, the advisor utilizes teams of investment professionals
(portfolio managers, analysts, research assistants, and securities traders) who
require extensive information technology, research, training, compliance and
other systems to conduct their business. At each quarterly meeting the Directors
review investment performance information for the fund, together with
comparative information for appropriate benchmarks and a peer group of funds
managed similarly to the fund. If performance
(continued)
- ------
28
Approval of Management Agreement for VP Balanced
concerns are identified, the Directors discuss with the advisor and its
portfolio managers the reasons for such results (e.g., market conditions,
security selection) and any efforts being undertaken to improve performance.
Annually, the Directors review detailed performance information, as provided by
the Independent 15(c) Providers, comparing the fund's performance with that of
similar funds not managed by the advisor. During the past year, the fund's
performance for both the one and three year period was above the median of its
peer group.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at its regular
quarterly meetings, including the annual meeting concerning contract review.
These reports include, but are not limited to, information regarding the
operational efficiency and accuracy of the shareholder and transfer agency
services provided, staffing levels, shareholder satisfaction (as measured by
external as well as internal sources), technology support, new products and
services offered to fund shareholders, securities trading activities, portfolio
valuation services, auditing services, and legal and operational compliance
activities. Certain aspects of shareholder and transfer agency service level
efficiency and the quality of securities trading activities are measured by
independent third party providers and are presented in comparison to other fund
groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally considered the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices and that the advisor was not implicated in the
industry scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure with precision, particularly on a fund-by-fund
basis. This analysis is further complicated by the fact that the advisor is
required to make a continuing reinvestment in the business to provide additional
content and services for fund shareholders. Accordingly, the Directors also seek
to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of
(continued)
- ------
29
Approval of Management Agreement for VP Balanced
the advisor generally, the profitability of its management of the fund
specifically, the expenses incurred by the advisor in providing various services
to the fund, and the breakpoint fees of competitive funds not managed by the
advisor. The Directors believe the advisor is appropriately sharing any
economies of scale through a competitive fee structure, through breakpoints that
reduce fees as the fund increases in size, and through reinvestment in its
business to provide shareholders additional content and services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other fund groups are charged a variety of
fees, including an investment advisory fee, a transfer agency fee, an
administrative fee, distribution charges and other expenses. Other than their
investment advisory fees and Rule 12b-1 distribution fees, all other components
of the total fees charged by these other fund groups may be increased without
shareholder approval. The board believes the unified fee structure is a benefit
to fund shareholders because it clearly discloses to shareholders the cost of
owning fund shares, and, since the unified fee cannot be increased without a
vote of fund shareholders, it shifts to the advisor the increased costs of
operating the funds and the risk of administrative inefficiencies. Part of the
Directors' analysis of fee levels involves comparing the fund's unified fee to
the total expense ratio of other funds in the fund's peer group. The unified fee
charged to shareholders of the fund was at the median of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker dealers
(continued)
- ------
30
Approval of Management Agreement for VP Balanced
that execute fund portfolio transactions and concluded that this research is
likely to benefit fund shareholders. The Directors also determined that the
advisor is able to provide investment management services to clients other than
the fund, at least in part, due to its existing infrastructure built to serve
the fund complex. The Directors concluded, however, that the assets of those
other clients are modest in comparison to the funds and that, in any event, the
addition of such other assets to the assets of the funds that use substantially
the same investment management team and strategy to determine whether
breakpoints have been achieved captures for the shareholders a portion of any
benefit that exists by accelerating fee reductions as breakpoints are reached at
lower fund asset levels.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel that is independent of the advisor, taking into account all of
the factors discussed above and the information provided by the advisor and the
Independent 15(c) Providers, concluded that the investment management agreement
between the fund and the advisor is fair and reasonable in light of the services
provided and should be renewed.
- ------
31
Additional Information
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
32
Index Definitions
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 NASDAQ COMPOSITE INDEX is a market value-weighted index of all domestic and
international common stocks listed on the Nasdaq stock market.
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.
The S&P MIDCAP 400 INDEX, a capitalization-weighted index consisting of 400
domestic stocks, measures the performance of the mid-size company segment of the
U.S. market.
The S&P SMALLCAP 600 INDEX, a capitalization-weighted index consisting of 600
domestic stocks, measures the small company segment of the U.S. market.
The S&P 500/BARRA VALUE AND GROWTH INDICES are market value-weighted indices
consisting of stocks in the S&P 500 Index. S&P 500/BARRA VALUE consists of those
stocks with lower price-to-book ratios that are slower growing or undervalued,
and S&P 500/BARRA GROWTH consists of those stocks with higher price-to-book
ratios that are faster growing.
- ------
33
Notes
- ------
34
Notes
- ------
35
Notes
- ------
36
[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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
0508 (c)2005 American Century Proprietary Holdings, Inc.
SH-SAN-44734 All rights reserved.
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP Capital Appreciation Fund
[american century investments logo and text logo]
Table of Contents
VP CAPITAL APPRECIATION
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 5
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .10
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .11
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .12
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .13
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
OTHER INFORMATION
Approval of Management Agreement for VP Capital Appreciation. . . . . . . .17
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 Capital Appreciation - Performance
TOTAL RETURNS AS OF JUNE 30, 2005
----------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 9.54% -6.45% 3.23% 7.08% 11/20/87
- --------------------------------------------------------------------------------
RUSSELL MIDCAP
GROWTH INDEX(1) 10.86% -5.23% 9.43% 12.68%(2) --
- --------------------------------------------------------------------------------
(1) (c) 2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by
Lipper Inc. -- A Reuters Company and may be incomplete. No offer or
solicitations to buy or sell any of the securities herein is being made
by Lipper.
(2) 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 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 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.
(continued)
- ------
2
VP Capital Appreciation - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made June 30, 1995
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended June 30
- --------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
- --------------------------------------------------------------------------------------------------
Class I 11.25% -8.89% 1.09% 12.58% 66.39% -20.36% -24.61% -6.68% 16.69% 9.54%
- --------------------------------------------------------------------------------------------------
Russell Midcap
Growth Index 23.59% 17.59% 24.02% 20.31% 48.59% -31.51% -26.34% 7.35% 27.33% 10.86%
- --------------------------------------------------------------------------------------------------
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.
- ------
3
VP Capital Appreciation - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE VP CAPITAL APPRECIATION INVESTMENT TEAM: KURT STALZER
AND DAVID ROSE.
VP Capital Appreciation gained 4.96%* in the six months ended June 30, 2005,
outperforming its benchmark, the Russell Midcap Growth Index, which rose only
1.70%.
EQUITIES GAIN AMID CHALLENGES
Investor optimism waned in the early months of 2005 as concern grew about the
effects of rising commodity and oil prices and interest rates on the economy and
corporate profit growth. After bottoming out in April, however, stocks managed
to regain their footing by the end of the first half of 2005. For instance, the
Russell Midcap Growth Index, a barometer for the mid-cap growth stocks VP
Capital Appreciation generally invests in, declined 6.17% from the beginning of
the period through April 28, 2005, then gained 8.40% through June 30.
Looking at the benchmark, most of the portfolio's outperformance stemmed from
investments in the telecommunications services and energy sectors. Progress was
slowed somewhat by holdings in the consumer discretionary sector.
TELECOM LEADS ADVANCE
VP Capital Appreciation's strongest performance came from investments in the
telecommunications sector. Wireless companies exposed to the flourishing Latin
American market, such as NII Holdings and America Movil, performed well.
Investments in the health care providers and services industry also boosted
returns. Health insurer Aetna was a top contributor. The managed-care company's
profit rose and it raised its 2005 earnings and membership forecasts based on
higher-than-expected increase in new health-plan members.
However, not all was positive in the health care sector. A top detractor to
returns during the period was biopharmaceutical company Elan. Its share price
declined on the unexpected
TOP TEN HOLDINGS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
NII Holdings Inc. 5.5% 4.5%
- --------------------------------------------------------------------------------
National Oilwell
Varco, Inc. 4.1% 3.2%
- --------------------------------------------------------------------------------
Aetna Inc. 3.5% 3.0%
- --------------------------------------------------------------------------------
Monsanto Co. 3.4% 2.2%
- --------------------------------------------------------------------------------
Harrah's
Entertainment, Inc. 3.3% 2.2%
- --------------------------------------------------------------------------------
America Movil SA
de CV Series L ADR 3.3% 1.8%
- --------------------------------------------------------------------------------
Bard (C.R.), Inc. 3.2% 3.4%
- --------------------------------------------------------------------------------
CVS Corp. 2.5% --
- --------------------------------------------------------------------------------
Station Casinos Inc. 2.5% 0.5%
- --------------------------------------------------------------------------------
Transocean Inc. 2.3% 1.3%
- --------------------------------------------------------------------------------
*Returns for periods less than one year are not annualized. (continued)
- ------
4
VP Capital Appreciation - Portfolio Commentary
withdrawal of Tysabri following the death of a patient who was being treated for
multiple sclerosis with this drug. The stock was sold.
VP Capital Appreciation also booked gains from investments in the industrials
sector. In particular, United Defense Industries' stock surged when it agreed to
be acquired by fellow defense contractor BAE Systems.
HIGH COMMODITY COSTS DOUBLE-EDGED SWORD
High oil and commodity prices were a boon to some firms and a bane to others.
Among the beneficiaries was oil-services company National Oilwell Varco, one of
the portfolio's top contributors during the period. On the other hand, high oil
costs as well as the cancellation of a cruise plagued Royal Caribbean Cruises,
the world's No. 2 cruise company.
In a similar vein, VP Capital Appreciation's investment in the materials sector
suffered from uncertainty over commodity prices and demand. Chemical company
Huntsman was among the detractors.
IT & CONSUMER DISCRETIONARY MIXED
VP Capital Appreciation's outperformance compared to the benchmark was aided by
a large underweight position in the information technology sector. However,
stock selection in the software and semiconductor industries weighed on
results.
The portfolio's progress compared to the benchmark was slowed most by
investments in the consumer discretionary sector. Navigation equipment
manufacturer Garmin was a leading detractor.
OUR COMMITMENT
The VP Capital Appreciation team remains committed to American Century's growth
investment approach that has been in place for more than thirty years. They will
continue to look for mid-sized and smaller companies with earnings and revenues
that are growing at an accelerating rate.
TOP FIVE INDUSTRIES AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Health Care Providers
& Services 11.6% 6.4%
- --------------------------------------------------------------------------------
Hotels, Restaurants
& Leisure 10.6% 13.3%
- --------------------------------------------------------------------------------
Energy Equipment
& Services 10.1% 9.6%
- --------------------------------------------------------------------------------
Wireless
Telecommunication
Services 8.8% 7.0%
- --------------------------------------------------------------------------------
Specialty Retail 7.6% 2.1%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
U.S. Common Stocks 87.5% 86.3%
- --------------------------------------------------------------------------------
Foreign Stocks 10.2% 13.3%
- --------------------------------------------------------------------------------
TOTAL EQUITY EXPOSURE 97.7% 99.6%
- --------------------------------------------------------------------------------
Temporary
Cash Investments 2.2% 0.2%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities 0.1% 0.2%
- --------------------------------------------------------------------------------
- ------
5
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
- --------------------------------------------------------------------------------
VP CAPITAL APPRECIATION CLASS I SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
Actual $1,000 $1,049.60 $5.08 1.00%
- --------------------------------------------------------------------------------
Hypothetical $1,000 $1,019.84 $5.01 1.00%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
6
VP Capital Appreciation - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.7%
AEROSPACE & DEFENSE -- 5.9%
- --------------------------------------------------------------------------------
125,100 Goodrich Corporation $ 5,124,096
- --------------------------------------------------------------------------------
61,400 L-3 Communications
Holdings, Inc. 4,702,012
- --------------------------------------------------------------------------------
21,100 Precision Castparts Corp. 1,643,690
- --------------------------------------------------------------------------------
96,000 Rockwell Collins 4,577,280
- --------------------------------------------------------------------------------
16,047,078
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.3%
- --------------------------------------------------------------------------------
34,522 American Axle &
Manufacturing Holdings, Inc. 872,371
- --------------------------------------------------------------------------------
BEVERAGES -- 1.3%
- --------------------------------------------------------------------------------
123,800 Constellation Brands Inc.(1) 3,652,100
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 2.0%
- --------------------------------------------------------------------------------
35,728 Affymetrix Inc.(1) 1,926,811
- --------------------------------------------------------------------------------
34,500 Gilead Sciences, Inc.(1) 1,517,655
- --------------------------------------------------------------------------------
16,200 Martek Biosciences
Corporation(1) 614,790
- --------------------------------------------------------------------------------
29,709 Techne Corp.(1) 1,363,940
- --------------------------------------------------------------------------------
5,423,196
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 0.4%
- --------------------------------------------------------------------------------
10,300 Legg Mason, Inc. 1,072,333
- --------------------------------------------------------------------------------
CHEMICALS -- 3.7%
- --------------------------------------------------------------------------------
148,500 Monsanto Co. 9,336,195
- --------------------------------------------------------------------------------
7,800 Potash Corp. of Saskatchewan 745,524
- --------------------------------------------------------------------------------
10,081,719
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.5%
- --------------------------------------------------------------------------------
18,700 SVB Financial Group(1) 895,730
- --------------------------------------------------------------------------------
5,300 Zions Bancorporation 389,709
- --------------------------------------------------------------------------------
1,285,439
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.5%
- --------------------------------------------------------------------------------
36,700 F5 Networks, Inc.(1) 1,733,524
- --------------------------------------------------------------------------------
56,431 Ixia(1) 1,097,019
- --------------------------------------------------------------------------------
66,529 SiRF Technology
Holdings, Inc.(1) 1,176,233
- --------------------------------------------------------------------------------
4,006,776
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 0.8%
- --------------------------------------------------------------------------------
61,500 Apple Computer, Inc.(1) 2,263,815
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING -- 4.7%
- --------------------------------------------------------------------------------
159,084 Chicago Bridge & Iron
Company New York Shares 3,636,660
- --------------------------------------------------------------------------------
331,000 Chiyoda Corporation ORD 4,106,885
- --------------------------------------------------------------------------------
46,700 Fluor Corp. 2,689,453
- --------------------------------------------------------------------------------
40,500 Jacobs Engineering
Group Inc.(1) 2,278,530
- --------------------------------------------------------------------------------
12,711,528
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 1.5%
- --------------------------------------------------------------------------------
94,671 Cemex SA de CV ADR $ 4,015,944
- --------------------------------------------------------------------------------
DIVERSIFIED CONSUMER
SERVICES -- 0.7%
- --------------------------------------------------------------------------------
36,000 Weight Watchers
International, Inc.(1) 1,857,960
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.0%
- --------------------------------------------------------------------------------
33,725 Ametek Inc. 1,411,391
- --------------------------------------------------------------------------------
77,100 Vestas Wind Systems AS ORD(1) 1,280,232
- --------------------------------------------------------------------------------
2,691,623
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
& INSTRUMENTS -- 0.7%
- --------------------------------------------------------------------------------
59,743 FLIR Systems, Inc.(1) 1,782,731
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 10.1%
- --------------------------------------------------------------------------------
33,930 Aker Kvaerner ASA ORD(1) 1,378,255
- --------------------------------------------------------------------------------
33,100 Diamond Offshore Drilling, Inc. 1,768,533
- --------------------------------------------------------------------------------
33,800 ENSCO International Inc. 1,208,350
- --------------------------------------------------------------------------------
24,299 Nabors Industries Ltd.(1) 1,473,005
- --------------------------------------------------------------------------------
235,829 National Oilwell Varco, Inc.(1) 11,211,312
- --------------------------------------------------------------------------------
60,000 Noble Corp. 3,690,600
- --------------------------------------------------------------------------------
33,793 Pride International Inc.(1) 868,480
- --------------------------------------------------------------------------------
115,100 Transocean Inc.(1) 6,211,947
- --------------------------------------------------------------------------------
27,810,482
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 2.9%
- --------------------------------------------------------------------------------
235,200 CVS Corp. 6,837,264
- --------------------------------------------------------------------------------
246,766 Wal-Mart de Mexico SA
de CV, Series V ORD 1,003,724
- --------------------------------------------------------------------------------
7,840,988
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT
& SUPPLIES -- 6.0%
- --------------------------------------------------------------------------------
130,700 Bard (C.R.), Inc. 8,692,857
- --------------------------------------------------------------------------------
34,437 Immucor, Inc.(1) 996,951
- --------------------------------------------------------------------------------
50,476 Intuitive Surgical Inc.(1) 2,354,201
- --------------------------------------------------------------------------------
65,100 ResMed Inc.(1) 4,295,949
- --------------------------------------------------------------------------------
16,339,958
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS
& SERVICES -- 11.6%
- --------------------------------------------------------------------------------
116,794 Aetna Inc. 9,672,878
- --------------------------------------------------------------------------------
134,200 Caremark Rx Inc.(1) 5,974,584
- --------------------------------------------------------------------------------
49,400 Community Health
Systems Inc.(1) 1,866,826
- --------------------------------------------------------------------------------
78,545 Covance Inc.(1) 3,524,314
- --------------------------------------------------------------------------------
44,086 Coventry Health Care Inc.(1) 3,119,085
- --------------------------------------------------------------------------------
67,200 Henry Schein, Inc.(1) 2,790,144
- --------------------------------------------------------------------------------
45,773 SFBC International, Inc.(1) 1,768,211
- --------------------------------------------------------------------------------
61,400 Triad Hospitals Inc.(1) 3,354,896
- --------------------------------------------------------------------------------
32,070,938
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
VP Capital Appreciation - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 10.6%
- --------------------------------------------------------------------------------
8,700 Four Seasons Hotels Inc. $ 575,070
- --------------------------------------------------------------------------------
126,069 Harrah's Entertainment, Inc. 9,085,792
- --------------------------------------------------------------------------------
40,286 Panera Bread Co.(1) 2,501,156
- --------------------------------------------------------------------------------
47,853 Penn National Gaming Inc.(1) 1,746,635
- --------------------------------------------------------------------------------
23,900 Red Robin Gourmet
Burgers Inc.(1) 1,481,322
- --------------------------------------------------------------------------------
101,400 Scientific Games Corp. Cl A(1) 2,730,702
- --------------------------------------------------------------------------------
73,871 Starwood Hotels & Resorts
Worldwide, Inc. 4,326,624
- --------------------------------------------------------------------------------
102,400 Station Casinos Inc. 6,799,360
- --------------------------------------------------------------------------------
29,246,661
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.5%
- --------------------------------------------------------------------------------
50,800 Jarden Corp.(1) 2,739,136
- --------------------------------------------------------------------------------
58,300 Tempur-Pedic
International Inc.(1) 1,293,094
- --------------------------------------------------------------------------------
4,032,230
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.9%
- --------------------------------------------------------------------------------
31,500 Textron Inc. 2,389,275
- --------------------------------------------------------------------------------
INSURANCE -- 2.0%
- --------------------------------------------------------------------------------
80,306 HCC Insurance Holdings, Inc. 3,041,188
- --------------------------------------------------------------------------------
35,000 MetLife, Inc. 1,572,900
- --------------------------------------------------------------------------------
43,400 Universal American
Financial Corp.(1) 981,708
- --------------------------------------------------------------------------------
5,595,796
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.2%
- --------------------------------------------------------------------------------
116,400 VeriSign, Inc.(1) 3,347,664
- --------------------------------------------------------------------------------
IT SERVICES -- 1.5%
- --------------------------------------------------------------------------------
38,700 Alliance Data Systems Corp.(1) 1,569,672
- --------------------------------------------------------------------------------
38,200 Global Payments Inc. 2,589,960
- --------------------------------------------------------------------------------
4,159,632
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.5%
- --------------------------------------------------------------------------------
43,900 Nautilus Inc. 1,251,150
- --------------------------------------------------------------------------------
MACHINERY -- 0.8%
- --------------------------------------------------------------------------------
28,375 JLG Industries Inc. 779,745
- --------------------------------------------------------------------------------
41,171 Joy Global Inc. 1,382,934
- --------------------------------------------------------------------------------
2,162,679
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 0.5%
- --------------------------------------------------------------------------------
24,300 Kohl's Corp.(1) 1,358,613
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 4.1%
- --------------------------------------------------------------------------------
22,500 EOG Resources Inc. 1,278,000
- --------------------------------------------------------------------------------
29,200 Foundation Coal Holdings, Inc. 757,448
- --------------------------------------------------------------------------------
34,700 Peabody Energy Corp. 1,805,788
- --------------------------------------------------------------------------------
58,200 Southwestern Energy Company(1) 2,734,236
- --------------------------------------------------------------------------------
30,500 Valero Energy Corp. 2,412,855
- --------------------------------------------------------------------------------
67,033 XTO Energy Inc. 2,278,452
- --------------------------------------------------------------------------------
11,266,779
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.2%
- --------------------------------------------------------------------------------
10,682 Chattem, Inc.(1) $ 442,235
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.2%
- --------------------------------------------------------------------------------
16,303 American Pharmaceutical
Partners Inc.(1) 672,499
- --------------------------------------------------------------------------------
REAL ESTATE -- 0.7%
- --------------------------------------------------------------------------------
62,300 Ventas, Inc. 1,881,460
- --------------------------------------------------------------------------------
SOFTWARE -- 1.0%
- --------------------------------------------------------------------------------
40,100 Micros Systems, Inc.(1) 1,794,475
- --------------------------------------------------------------------------------
34,300 The9 Ltd. ADR(1) 893,172
- --------------------------------------------------------------------------------
2,687,647
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 7.6%
- --------------------------------------------------------------------------------
57,400 Abercrombie & Fitch Co. 3,943,380
- --------------------------------------------------------------------------------
35,400 Advance Auto Parts, Inc.(1) 2,285,070
- --------------------------------------------------------------------------------
141,348 Bebe Stores Inc. 3,741,482
- --------------------------------------------------------------------------------
48,000 Best Buy Co., Inc. 3,290,400
- --------------------------------------------------------------------------------
66,158 Chico's FAS, Inc.(1) 2,267,896
- --------------------------------------------------------------------------------
81,418 Men's Wearhouse, Inc. (The)(1) 2,803,222
- --------------------------------------------------------------------------------
58,000 Michaels Stores, Inc. 2,399,460
- --------------------------------------------------------------------------------
20,730,910
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES -- 8.8%
- --------------------------------------------------------------------------------
149,600 America Movil SA
de CV Series L ADR 8,917,656
- --------------------------------------------------------------------------------
235,068 NII Holdings, Inc.(1) 15,030,248
- --------------------------------------------------------------------------------
23,947,904
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $221,208,639) 267,000,113
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 2.2%
$6,000,000 FHLMC Discount Notes,
2.60%, 7/1/05(2)
(Cost $6,000,000) 6,000,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 99.9%
(Cost $227,208,639) 273,000,113
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.1% 332,672
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $273,332,785
================================================================================
See Notes to Financial Statements. (continued)
- ------
8
VP Capital Appreciation - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
3,816,450 DKK for USD 7/29/05 $ 620,265 $ (601)
- --------------------------------------------------------------------------------
223,756,000 JPY for USD 7/29/05 2,023,667 16,433
- --------------------------------------------------------------------------------
2,729,848 MXN for USD 7/29/05 252,715 (2,362)
- --------------------------------------------------------------------------------
3,948,383 NOK for USD 7/29/05 604,599 (3,339)
- --------------------------------------------------------------------------------
$3,501,246 $10,131
======================================
(Value on Settlement Date $3,511,377)
*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
DKK = Danish Krone
FHLMC = Federal Home Loan Mortgage Corporation
JPY = Japanese Yen
MXN = Mexican Nuevo Peso
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
(2) The rate indicated is yield to maturity at purchase.
See Notes to Financial Statements.
- ------
9
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $227,208,639) $273,000,113
- ---------------------------------------------------------------
Cash 283,632
- ---------------------------------------------------------------
Receivable for investments sold 6,311,501
- ---------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 16,433
- ---------------------------------------------------------------
Dividends and interest receivable 102,657
- --------------------------------------------------------------------------------
279,714,336
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 6,153,066
- ---------------------------------------------------------------
Payable for forward foreign currency exchange contracts 6,302
- ---------------------------------------------------------------
Accrued management fees 222,183
- --------------------------------------------------------------------------------
6,381,551
- --------------------------------------------------------------------------------
NET ASSETS $273,332,785
================================================================================
CLASS I CAPITAL SHARES, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Authorized 100,000,000
================================================================================
Outstanding 33,989,146
================================================================================
Net Asset Value Per Share $8.04
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 335,637,020
- ---------------------------------------------------------------
Accumulated net investment loss (694,904)
- ---------------------------------------------------------------
Accumulated net realized loss on investment
and foreign currency transactions (107,410,514)
- ---------------------------------------------------------------
Net unrealized appreciation on investments
and translation of assets and
liabilities in foreign currencies 45,801,183
- --------------------------------------------------------------------------------
$ 273,332,785
================================================================================
See Notes to Financial Statements.
- ------
10
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- ---------------------------------------------------------------
Dividends (net of foreign taxes withheld of $5,387) $ 593,771
- ---------------------------------------------------------------
Interest 25,209
- --------------------------------------------------------------------------------
618,980
- --------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------
Management fees 1,310,991
- ---------------------------------------------------------------
Directors' fees and expenses 1,855
- ---------------------------------------------------------------
Other expenses 1,038
- --------------------------------------------------------------------------------
1,313,884
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (694,904)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment
and foreign currency transactions 17,645,820
- ---------------------------------------------------------------
Change in net unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (4,299,167)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 13,346,653
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,651,749
================================================================================
See Notes to Financial Statements.
- ------
11
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment loss $ (694,904) $ (1,506,667)
- ----------------------------------------------
Net realized gain 17,645,820 18,196,860
- ----------------------------------------------
Change in net unrealized appreciation (4,299,167) 1,902,260
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 12,651,749 18,592,453
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Proceeds from shares sold 19,055,075 31,016,098
- ----------------------------------------------
Payments for shares redeemed (23,025,641) (70,350,748)
- --------------------------------------------------------------------------------
Net decrease in net assets
from capital share transactions (3,970,566) (39,334,650)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 8,681,183 (20,742,197)
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 264,651,602 285,393,799
- --------------------------------------------------------------------------------
End of period $273,332,785 $264,651,602
================================================================================
Accumulated net investment loss $(694,904) --
================================================================================
TRANSACTIONS IN SHARES OF THE FUND
- --------------------------------------------------------------------------------
Sold 2,430,850 4,332,995
- ----------------------------------------------
Redeemed (3,009,810) (9,873,584)
- --------------------------------------------------------------------------------
Net decrease in shares of the fund (578,960) (5,540,589)
================================================================================
See Notes to Financial Statements.
- ------
12
Notes to Financial Statements
JUNE 30, 2005 (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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
Distributions received on securities that represent a return of capital or
capital gain are recorded as a reduction of cost of investments and/or as a
realized gain. The fund estimates the components of distributions received that
may be considered nontaxable distributions or capital gain distributions for
income tax purposes.
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
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient
to enable the fund to obtain those securities in the event of a default under
the repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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, 2004, the fund has accumulated net realized capital loss
carryovers for federal income tax purposes of $80,386,243 and $43,953,351
expiring in 2009 and 2010, respectively, which may be used to offset future
taxable gains.
The fund has elected to treat $19,931 of net foreign currency losses incurred in
the two-month period ended December 31, 2004, as having been incurred in the
following fiscal year for federal income tax purposes.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
- ------
14
Notes to Financial Statements
JUNE 30, 2005 (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 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 and accrued
daily based on the daily net assets of the fund and paid monthly in arrears. For
funds with a stepped fee schedule, the rate of the fee is determined by
applying a fee rate calculation formula. This formula takes into account all of
the investment advisor's assets under management in the fund's investment
strategy (strategy assets) to calculate the appropriate fee rate for the fund.
The strategy assets include the fund's assets and the assets of other clients of
the investment advisor that are not in the American Century family of funds, but
that have the same investment team and investment strategy.
The annual management fee schedule for the fund is as follows:
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $500 million 1.00%
- --------------------------------------------------------------------------------
Next $500 million 0.95%
- --------------------------------------------------------------------------------
Over $1 billion 0.90%
- --------------------------------------------------------------------------------
The effective annual management fee for the fund for the six months ended June
30, 2005 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 advisor, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC (formerly American Century Services Corporation).
The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended June 30, 2005, were as follows:
- --------------------------------------------------------------------------------
Purchases $308,971,254
- --------------------------------------------------------------------------------
Proceeds from sales $318,842,577
- --------------------------------------------------------------------------------
As of June 30, 2005, 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 $227,693,262
================================================================================
Gross tax appreciation of investments $46,255,287
- -------------------------------------------------------
Gross tax depreciation of investments (948,436)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $45,306,851
================================================================================
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 or ACGIM, has a
$575,000,000 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, 2005.
- ------
15
VP Capital Appreciation - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- -------------------------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.66 $7.12 $5.91 $7.50 $15.78 $14.84
- -------------------------------------------------------------------------------------------------
Income From
Investment Operations
- -----------------------
Net Investment Loss (0.02) (0.04) (0.04) (0.04) (0.03) (0.05)
- -----------------------
Net Realized and
Unrealized
Gain (Loss) 0.40 0.58 1.25 (1.55) (3.64) 1.47
- -------------------------------------------------------------------------------------------------
Total From
Investment Operations 0.38 0.54 1.21 (1.59) (3.67) 1.42
- -------------------------------------------------------------------------------------------------
Distributions
- -----------------------
From Net
Realized Gains -- -- -- -- (4.61) (0.48)
- -------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $8.04 $7.66 $7.12 $5.91 $7.50 $15.78
=================================================================================================
TOTAL RETURN(2) 4.96% 7.58% 20.47% (21.20)% (28.07)% 9.03%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.00%(3) 1.00% 1.00% 1.00% 1.00% 0.98%
- -----------------------
Ratio of Net
Investment Loss
to Average Net Assets (0.53)%(3) (0.57)% (0.58)% (0.55)% (0.35)% (0.31)%
- -----------------------
Portfolio
Turnover Rate 118% 262% 150% 124% 149% 128%
- -----------------------
Net Assets,
End of Period
(in thousands) $273,333 $264,652 $285,394 $260,897 $401,812 $716,855
- -------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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.
- ------
16
Approval of Management Agreement for VP Capital Appreciation
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process -- referred to as the "15(c) Process" -- involves
at least two board meetings spanning a 30 to 60 day period each year. In
addition to this annual review, the board of directors and its committees
oversee and evaluate at quarterly meetings the nature and quality of significant
services the advisor performs on behalf of the fund. At these meetings the board
reviews fund performance, shareholder services and feedback, audit and
compliance information, and a variety of other reports from the advisor
concerning fund operations. The board, or committees of the board, also hold
special meetings, as needed.
Under a new Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for its board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the half-year period, the
Directors requested and received extensive data and information compiled by the
advisor and certain independent providers of evaluative data (the "Independent
15(c) Providers") concerning VP Capital Appreciation (the "fund") and the
services provided to the fund under the management agreement. The information
included, but was not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of
programs and services the advisor provides to the fund and its shareholders
on a routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning
similar funds;
* data comparing the fund's performance to appropriate benchmarks
and/or a peer group of other mutual funds with similar investment
objectives and strategies;
* financial data showing the profitability of the fund to the advisor
and the overall profitability of the advisor; and
* data comparing services provided and charges to other investment
management clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and two special meetings to review and discuss the
information provided by the advisor and the Independent 15(c) Providers and to
complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory fee. In
addition, the independent directors met on several occasions in private session
to review and discuss the information provided and evaluate the advisor's
performance as manager of the fund.
(continued)
- ------
17
Approval of Management Agreement for VP Capital Appreciation
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
Independent 15(c) Providers, and its independent counsel and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including, but not limited to:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands,
competition in the industry and the changing regulatory environment. In
performing their evaluation, the Directors considered information received in
connection with the annual review, as well as information provided on an ongoing
basis at their regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objective and approved strategies. In
providing these services, the advisor utilizes teams of investment professionals
(portfolio managers, analysts, research assistants, and securities traders) who
require extensive information technology, research, training, compliance and
other systems to conduct their business. At each quarterly meeting the Directors
review investment performance information for the fund, together with
comparative information for appropriate benchmarks and a peer group of funds
managed similarly to the fund. If performance concerns are identified, the
Directors discuss with the advisor and its portfolio managers the reasons for
such results (e.g., market conditions, security
(continued)
- ------
18
Approval of Management Agreement for VP Capital Appreciation
selection) and any efforts being undertaken to improve performance. Annually,
the Directors review detailed performance information, as provided by the
Independent 15(c) Providers, comparing the fund's performance with that of
similar funds not managed by the advisor. The fund's performance fell below the
median of its peer group for both one and three year periods during the past
year. The board discussed the fund's performance with the advisor and recognized
the efforts being undertaken by the advisor. The board will continue to monitor
those efforts and the performance of the fund.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at its regular
quarterly meetings, including the annual meeting concerning contract review.
These reports include, but are not limited to, information regarding the
operational efficiency and accuracy of the shareholder and transfer agency
services provided, staffing levels, shareholder satisfaction (as measured by
external as well as internal sources), technology support, new products and
services offered to fund shareholders, securities trading activities, portfolio
valuation services, auditing services, and legal and operational compliance
activities. Certain aspects of shareholder and transfer agency service level
efficiency and the quality of securities trading activities are measured by
independent third party providers and are presented in comparison to other fund
groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall
profitability, and its financial condition. The Directors have reviewed with
the advisor the methodology used to prepare this financial information. This
financial information regarding the advisor is considered in order to evaluate
the advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current management
fee.
ETHICS OF THE ADVISOR. The Directors generally considered the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices and that the advisor was not implicated in the
industry scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure with precision, particularly on a fund-by-fund
basis. This analysis is further complicated by the fact that the advisor is
required to make a continuing reinvestment in the business to provide additional
content and services for fund shareholders. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year
(continued)
- ------
19
Approval of Management Agreement for VP Capital Appreciation
profitability of the advisor generally, the profitability of its management of
the fund specifically, the expenses incurred by the advisor in providing various
services to the fund, and the breakpoint fees of competitive funds not managed
by the advisor. The Directors believe the advisor is appropriately sharing any
economies of scale through a competitive fee structure, through breakpoints that
reduce fees as the fund increases in size, and through reinvestment in its
business to provide shareholders additional content and services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other fund groups are charged a variety of
fees, including an investment advisory fee, a transfer agency fee, an
administrative fee, distribution charges and other expenses. Other than their
investment advisory fees and Rule 12b-1 distribution fees, all other components
of the total fees charged by these other fund groups may be increased without
shareholder approval. The board believes the unified fee structure is a benefit
to fund shareholders because it clearly discloses to shareholders the cost of
owning fund shares, and, since the unified fee cannot be increased without a
vote of fund shareholders, it shifts to the advisor the increased costs of
operating the funds and the risk of administrative inefficiencies. Part of the
Directors' analysis of fee levels involves comparing the fund's unified fee to
the total expense ratio of other funds in the fund's peer group. The unified fee
charged to shareholders of the fund was at the median of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from
(continued)
- ------
20
Approval of Management Agreement for VP Capital Appreciation
broker dealers that execute fund portfolio transactions and concluded that this
research is likely to benefit fund shareholders. The Directors also determined
that the advisor is able to provide investment management services to clients
other than the fund, at least in part, due to its existing infrastructure built
to serve the fund complex. The Directors concluded, however, that the assets of
those other clients are modest in comparison to the funds and that, in any
event, the addition of such other assets to the assets of the funds that use
substantially the same investment management team and strategy to determine
whether breakpoints have been achieved captures for the shareholders a portion
of any benefit that exists by accelerating fee reductions as breakpoints are
reached at lower fund asset levels.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel that is independent of the advisor, taking into account all of
the factors discussed above and the information provided by the advisor and the
Independent 15(c) Providers, concluded that the investment management agreement
between the fund and the advisor is fair and reasonable in light of the services
provided and should be renewed.
- ------
21
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 investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule
of portfolio holdings for the most recent quarter of its fiscal year available
on its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Proprietary Holdings, Inc.
(c)2005 American Century Proprietary Holdings, Inc. All rights reserved.
American Century Investment Services, Inc., Distributor
0508
SH-SAN-44738
[front cover]
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP Income & Growth Fund
[american century investments logo and text logo]
[inside front cover - blank]
Table of Contents
VP INCOME & GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Five Largest Overweights . . . . . . . . . . . . . . . . . . . . . . . . . .5
Five Largest Underweights . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
OTHER INFORMATION
Approval of Management Agreement for VP Income & Growth . . . . . . . . . . . 22
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
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, 2005
----------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 8.29% 0.11% 6.01% 10/30/97
- --------------------------------------------------------------------------------
S&P 500 Index(1) 6.32% -2.37% 5.25% --
- --------------------------------------------------------------------------------
Class II 7.87% -- 6.15% 5/1/02
- --------------------------------------------------------------------------------
Class III 8.29% -- 10.35% 6/26/02
- --------------------------------------------------------------------------------
(1) (c)2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by
Lipper Inc. - A Reuters Company and may be incomplete. No offer or
solicitations to buy or sell any of the securities herein is being made by
Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity or
variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company separate
account prospectus for a discussion of the charges related to insurance
contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-6488.
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.
(continued)
- ------
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 2005
- --------------------------------------------------------------------------------
Class I 26.63% 18.54% 3.68% -10.84% -14.54% 0.71% 21.02% 8.29%
- --------------------------------------------------------------------------------
S&P 500 Index 26.79% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32%
- --------------------------------------------------------------------------------
*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
PORTFOLIO MANAGERS: JOHN SCHNIEDWIND, KURT BORGWARDT, AND ZILI ZHANG
PERFORMANCE SUMMARY
VP Income & Growth returned 0.45%* for the six months ended June 30, 2005,
outperforming the 0.81% decline of the S&P 500 Index.
ECONOMIC REVIEW
The U.S. economy grew at a moderate pace in the first half of 2005--the
annualized real rate of GDP growth was 3.8% in the first quarter and was
anticipated to be between 3% and 4% in the second. Growth slowed from 4.4% in
2004 as short-term U.S. interest rates and oil prices rose. The Federal Reserve
raised its overnight interest rate target four times in six months, from 2.25%
to 3.25%, the highest since September 2001. Meanwhile, the price of a barrel of
crude oil jumped 30%, from $43.45 to $56.50, closing above $60 in the interim in
late June.
Despite soaring energy costs, "core" inflation (excluding food and energy
prices) was stable--the year-to-date annualized gain for core CPI as of June 30,
2005, was 2.2%, the same as for all of 2004. As economic growth slowed and
inflation remained low, longer-term interest rates and bond yields fell. The
combination of rising short-term and falling long-term rates reduced the
difference between the two, resulting in a "flatter" Treasury yield curve, often
a harbinger of slower economic growth and tame inflation.
STOCK MARKET REVIEW
The S&P 500 declined 0.81% in the first half of 2005, after dropping 2.15% in
the first quarter and regaining 1.37% in the second. The large-cap benchmark
underperformed its smaller-cap counterparts for the full six months--the S&P
MidCap 400 and SmallCap 600 indices gained 3.85% and 1.79%, respectively. The
full S&P 500 also trailed its value subindex, which eked out a 0.09% gain
compared with a 1.73% loss for the growth subindex. As the large-cap growth
style struggled (the Nasdaq Composite fell 5.12%), the sector that detracted
most from the S&P 500's first-half performance was information technology.
Conversely, the energy sector was the biggest positive contributor, gaining
nearly 20% as oil prices rose.
TOP TEN HOLDINGS
AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Bank of America Corp. 4.8% 4.7%
- --------------------------------------------------------------------------------
Intel Corp. 3.9% 3.0%
- --------------------------------------------------------------------------------
Johnson & Johnson 3.4% 3.4%
- --------------------------------------------------------------------------------
Chevron Corp. 3.3% 4.7%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 2.8% 1.2%
- --------------------------------------------------------------------------------
National City Corp. 2.7% 2.4%
- --------------------------------------------------------------------------------
Countrywide
Financial Corporation 2.5% 2.0%
- --------------------------------------------------------------------------------
Pfizer, Inc. 2.3% 2.3%
- --------------------------------------------------------------------------------
Merck & Co., Inc. 2.2% 2.0%
- --------------------------------------------------------------------------------
Washington Mutual, Inc. 2.0% --
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Class I shares.
Returns for periods less than one year are not annualized.
(continued)
- ------
4
VP Income & Growth - Portfolio Commentary
PORTFOLIO OVERVIEW
VP Income & Growth outperformed the S&P 500 in absolute returns in large part
through effective securities selection. Strong picks in the financial sector
provided the portfolio's largest return relative to the S&P 500, followed by
health care stocks and utilities stocks. Stock choices among materials, consumer
staples, and the information technology sector accounted for the greatest drag
on portfolio performance relative to the S&P 500.
FINANCIALS AND HEALTH CARE STOCKS OUTPERFORM
Securities selection worked best in the financial group, where choices in the
real estate and insurance industries topped the list. The strongest individual
contributor to relative performance in the financial sector was real estate firm
CBL & Associates Properties Inc., a non-index security. CBL had a 15.20% market
return during the six months. Among health care sector issues, provider CIGNA
Corp. contributed strongly; the holding was heavily overweighted relative to the
S&P 500.
MATERIALS AND CONSUMER STAPLES STOCKS LAG
Materials stocks imposed the heaviest drag on portfolio performance relative to
the index. Metals and mining industry stocks were notably weak. United States
Steel Corp. was a major detractor and was overweighted relative to the S&P 500.
The issue declined 32.66% during the period. In the consumer staples sector,
recently merged Molson Coors Brewing Co. detracted. The stock posted a 17.23%
decline for the six months.
OUR COMMITMENT
VP Income & Growth maintains a structured, disciplined investment approach for
both stock selection and portfolio construction. The portfolio incorporates both
growth and value measures (with a value tilt) into its stock selection process
to seek consistent long-term performance.
VP INCOME & GROWTH'S FIVE LARGEST
OVERWEIGHTS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
PORTFOLIO'S S&P 500
STOCKS INDEX
- --------------------------------------------------------------------------------
Bank of America Corp. 4.81% 1.68%
- --------------------------------------------------------------------------------
National City Corp. 2.68% 0.19%
- --------------------------------------------------------------------------------
Intel Corp. 3.91% 1.48%
- --------------------------------------------------------------------------------
Countrywide
Financial Corporation 2.47% 0.21%
- --------------------------------------------------------------------------------
Chevron Corp. 3.26% 1.08%
- --------------------------------------------------------------------------------
VP INCOME & GROWTH'S FIVE LARGEST
UNDERWEIGHTS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
PORTFOLIO'S S&P 500
STOCKS INDEX
- --------------------------------------------------------------------------------
General Electric Co. 0.15% 3.37%
- --------------------------------------------------------------------------------
Citigroup Inc. -- 2.21%
- --------------------------------------------------------------------------------
Wal-Mart Stores Inc. -- 1.48%
- --------------------------------------------------------------------------------
American International
Group Inc. -- 1.38%
- --------------------------------------------------------------------------------
Cisco Systems Inc. -- 1.12%
- --------------------------------------------------------------------------------
- ------
5
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
(continued)
- ------
6
Shareholder Fee Example (Unaudited)
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
- --------------------------------------------------------------------------------
VP INCOME & GROWTH SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Class I $1,000 $1,004.50 $3.48 0.70%
- --------------------------------------------------------------------------------
Class II $1,000 $1,003.40 $4.72 0.95%
- --------------------------------------------------------------------------------
Class III $1,000 $1,004.50 $3.48 0.70%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Class I $1,000 $1,021.32 $3.51 0.70%
- --------------------------------------------------------------------------------
Class II $1,000 $1,020.08 $4.76 0.95%
- --------------------------------------------------------------------------------
Class III $1,000 $1,021.32 $3.51 0.70%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
7
VP Income & Growth - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.5%
AEROSPACE & DEFENSE -- 1.5%
- --------------------------------------------------------------------------------
218,328 Northrop Grumman Corp. $ 12,062,622
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 1.0%
- --------------------------------------------------------------------------------
21,846 FedEx Corporation 1,769,744
- --------------------------------------------------------------------------------
85,481 United Parcel Service, Inc. Cl B 5,911,866
- --------------------------------------------------------------------------------
7,681,610
- --------------------------------------------------------------------------------
AIRLINES -- 0.1%
- --------------------------------------------------------------------------------
20,400 Delta Air Lines Inc.(1) 76,704
- --------------------------------------------------------------------------------
69,277 Southwest Airlines Co. 965,029
- --------------------------------------------------------------------------------
1,041,733
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.1%
- --------------------------------------------------------------------------------
27,151 TRW Automotive Holdings
Corp.(1) 665,471
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.3%
- --------------------------------------------------------------------------------
1,019,518 Ford Motor Company 10,439,864
- --------------------------------------------------------------------------------
BEVERAGES(2)
- --------------------------------------------------------------------------------
4,388 Molson Coors Brewing Co. 272,056
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.9%
- --------------------------------------------------------------------------------
36,206 Amgen Inc.(1) 2,189,015
- --------------------------------------------------------------------------------
259,357 Applera Corporation-Applied
Biosystems Group 5,101,552
- --------------------------------------------------------------------------------
7,290,567
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 0.3%
- --------------------------------------------------------------------------------
2,240 American Capital Strategies
Ltd. 80,886
- --------------------------------------------------------------------------------
55,744 Edwards (A.G.), Inc. 2,516,842
- --------------------------------------------------------------------------------
2,597,728
- --------------------------------------------------------------------------------
CHEMICALS -- 0.8%
- --------------------------------------------------------------------------------
115,952 Eastman Chemical Company 6,394,753
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 9.9%
- --------------------------------------------------------------------------------
851,946 Bank of America Corp. 38,857,256
- --------------------------------------------------------------------------------
23,821 Comerica Inc. 1,376,854
- --------------------------------------------------------------------------------
20,569 First Horizon National Corp. 868,012
- --------------------------------------------------------------------------------
634,053 National City Corp. 21,633,888
- --------------------------------------------------------------------------------
185,785 Wachovia Corp. 9,214,936
- --------------------------------------------------------------------------------
126,775 Wells Fargo & Co. 7,806,805
- --------------------------------------------------------------------------------
79,757,751
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.8%
- --------------------------------------------------------------------------------
364,946 Cendant Corporation 8,163,841
- --------------------------------------------------------------------------------
27,406 Deluxe Corp. 1,112,684
- --------------------------------------------------------------------------------
31,367 John H. Harland Company 1,191,946
- --------------------------------------------------------------------------------
49,400 Pitney Bowes, Inc. 2,151,370
- --------------------------------------------------------------------------------
51,401 R.R. Donnelley & Sons
Company 1,773,849
- --------------------------------------------------------------------------------
14,393,690
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.2%
- --------------------------------------------------------------------------------
10,734 Harris Corp. $ 335,008
- --------------------------------------------------------------------------------
512,791 Motorola, Inc. 9,363,564
- --------------------------------------------------------------------------------
9,698,572
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.8%
- --------------------------------------------------------------------------------
39,108 Apple Computer, Inc.(1) 1,439,565
- --------------------------------------------------------------------------------
250,853 Hewlett-Packard Co. 5,897,554
- --------------------------------------------------------------------------------
195,786 International Business
Machines Corp. 14,527,322
- --------------------------------------------------------------------------------
72,862 Western Digital Corp.(1) 977,808
- --------------------------------------------------------------------------------
22,842,249
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.1%
- --------------------------------------------------------------------------------
11,520 Capital One Financial Corp. 921,715
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING(2)
- --------------------------------------------------------------------------------
3,936 Silgan Holdings Inc. 221,361
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.1%
- --------------------------------------------------------------------------------
32,921 J.P. Morgan Chase & Co. 1,162,770
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.4%
- --------------------------------------------------------------------------------
118,400 ALLTEL Corp. 7,373,952
- --------------------------------------------------------------------------------
561,164 AT&T Corp. 10,684,563
- --------------------------------------------------------------------------------
17,775 Sprint Corp. 445,975
- --------------------------------------------------------------------------------
269,164 Verizon Communications 9,299,616
- --------------------------------------------------------------------------------
27,804,106
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 2.8%
- --------------------------------------------------------------------------------
242,687 American Electric Power 8,947,870
- --------------------------------------------------------------------------------
47,826 Exelon Corporation 2,454,909
- --------------------------------------------------------------------------------
134,484 FirstEnergy Corp. 6,470,025
- --------------------------------------------------------------------------------
130,541 PG&E Corp. 4,900,509
- --------------------------------------------------------------------------------
22,773,313
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.7%
- --------------------------------------------------------------------------------
135,957 Arrow Electronics, Inc.(1) 3,692,591
- --------------------------------------------------------------------------------
26,550 Avnet Inc.(1) 598,172
- --------------------------------------------------------------------------------
76,454 Ingram Micro Inc. Cl A(1) 1,197,270
- --------------------------------------------------------------------------------
5,488,033
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 0.1%
- --------------------------------------------------------------------------------
33,148 Veritas DGC Inc.(1) 919,526
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 1.9%
- --------------------------------------------------------------------------------
389,540 Albertson's Inc. 8,055,687
- --------------------------------------------------------------------------------
228,324 Supervalu Inc. 7,445,646
- --------------------------------------------------------------------------------
15,501,333
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.2%
- --------------------------------------------------------------------------------
336,162 Archer-Daniels-Midland Co. 7,187,143
- --------------------------------------------------------------------------------
9,178 Bunge Ltd. 581,885
- --------------------------------------------------------------------------------
111,036 Chiquita Brands International
Inc. 3,049,049
- --------------------------------------------------------------------------------
23,927 Gold Kist Inc.(1) 516,345
- --------------------------------------------------------------------------------
161,329 Pilgrim's Pride Corp. 5,506,159
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
VP Income & Growth - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
5,827 Sanderson Farms Inc. $ 264,779
- --------------------------------------------------------------------------------
274 Seaboard Corp. 455,936
- --------------------------------------------------------------------------------
17,561,296
- --------------------------------------------------------------------------------
GAS UTILITIES -- 1.6%
- --------------------------------------------------------------------------------
18,196 National Fuel Gas Co. 526,046
- --------------------------------------------------------------------------------
174,118 NICOR Inc. 7,168,438
- --------------------------------------------------------------------------------
76,890 NiSource Inc. 1,901,490
- --------------------------------------------------------------------------------
109,155 UGI Corp. 3,045,425
- --------------------------------------------------------------------------------
12,641,399
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.6%
- --------------------------------------------------------------------------------
95,202 Becton Dickinson & Co. 4,995,249
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.4%
- --------------------------------------------------------------------------------
103,239 AmerisourceBergen Corp. 7,138,977
- --------------------------------------------------------------------------------
67,951 Cardinal Health, Inc. 3,912,619
- --------------------------------------------------------------------------------
71,056 Kindred Healthcare Inc.(1) 2,814,528
- --------------------------------------------------------------------------------
126,019 McKesson Corp. 5,644,391
- --------------------------------------------------------------------------------
19,510,515
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.1%
- --------------------------------------------------------------------------------
313,956 McDonald's Corporation 8,712,279
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.0%
- --------------------------------------------------------------------------------
47,976 Black & Decker Corporation 4,310,644
- --------------------------------------------------------------------------------
76,974 Newell Rubbermaid Inc. 1,835,060
- --------------------------------------------------------------------------------
5,582 Stanley Works (The) 254,204
- --------------------------------------------------------------------------------
81,556 Tupperware Corp. 1,905,964
- --------------------------------------------------------------------------------
8,305,872
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.2%
- --------------------------------------------------------------------------------
105,339 Kimberly-Clark Corp. 6,593,168
- --------------------------------------------------------------------------------
61,544 Procter & Gamble Co. (The) 3,246,446
- --------------------------------------------------------------------------------
9,839,614
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.9%
- --------------------------------------------------------------------------------
36,068 General Electric Co. 1,249,756
- --------------------------------------------------------------------------------
214,548 Tyco International Ltd. 6,264,802
- --------------------------------------------------------------------------------
7,514,558
- --------------------------------------------------------------------------------
INSURANCE -- 7.3%
- --------------------------------------------------------------------------------
107,013 Ace, Ltd. 4,799,533
- --------------------------------------------------------------------------------
140,380 AON Corp. 3,515,115
- --------------------------------------------------------------------------------
25,963 Axis Capital Holdings Limited 734,753
- --------------------------------------------------------------------------------
132,483 Berkley (W.R.) Corp. 4,726,993
- --------------------------------------------------------------------------------
129,358 Endurance Specialty Holdings
Ltd. 4,892,320
- --------------------------------------------------------------------------------
63,000 Fidelity National Financial, Inc. 2,248,470
- --------------------------------------------------------------------------------
276,034 First American Financial Corp.
(The) 11,080,005
- --------------------------------------------------------------------------------
173,357 Loews Corp. 13,435,167
- --------------------------------------------------------------------------------
16,064 Nationwide Financial Services
Cl A 609,468
- --------------------------------------------------------------------------------
95,357 Protective Life Corporation 4,025,973
- --------------------------------------------------------------------------------
106,675 XL Capital Ltd. Cl A 7,938,754
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
7,383 Zenith National Insurance Corp. $ 501,010
- --------------------------------------------------------------------------------
58,507,561
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.3%
- --------------------------------------------------------------------------------
866,358 Earthlink Inc.(1) 7,502,660
- --------------------------------------------------------------------------------
252,920 United Online, Inc. 2,746,711
- --------------------------------------------------------------------------------
10,249,371
- --------------------------------------------------------------------------------
IT SERVICES -- 1.5%
- --------------------------------------------------------------------------------
2,379 Checkfree Corp.(1) 81,029
- --------------------------------------------------------------------------------
199,714 Computer Sciences Corp.(1) 8,727,501
- --------------------------------------------------------------------------------
147,086 Sabre Holdings Corp. 2,934,366
- --------------------------------------------------------------------------------
11,742,896
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.2%
- --------------------------------------------------------------------------------
70,746 Eastman Kodak Co. 1,899,530
- --------------------------------------------------------------------------------
MACHINERY -- 1.4%
- --------------------------------------------------------------------------------
147,199 Cummins Inc. 10,982,517
- --------------------------------------------------------------------------------
MEDIA -- 3.7%
- --------------------------------------------------------------------------------
359,829 Disney (Walt) Co. 9,060,494
- --------------------------------------------------------------------------------
151,533 Regal Entertainment Group 2,860,943
- --------------------------------------------------------------------------------
661,969 Time Warner Inc.(1) 11,061,503
- --------------------------------------------------------------------------------
209,167 Viacom, Inc. Cl B 6,697,527
- --------------------------------------------------------------------------------
29,680,467
- --------------------------------------------------------------------------------
METALS & MINING -- 1.7%
- --------------------------------------------------------------------------------
58,902 Nucor Corp. 2,687,109
- --------------------------------------------------------------------------------
94,284 Phelps Dodge Corp. 8,721,270
- --------------------------------------------------------------------------------
64,632 United States Steel Corp. 2,221,402
- --------------------------------------------------------------------------------
13,629,781
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 2.3%
- --------------------------------------------------------------------------------
173,874 Federated Department
Stores, Inc. 12,741,486
- --------------------------------------------------------------------------------
37,918 Sears Holdings Corp.(1) 5,682,771
- --------------------------------------------------------------------------------
18,424,257
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.1%
- --------------------------------------------------------------------------------
29,744 Xerox Corp.(1) 410,170
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 9.6%
- --------------------------------------------------------------------------------
471,399 Chevron Corp. 26,360,631
- --------------------------------------------------------------------------------
231,853 ConocoPhillips 13,329,229
- --------------------------------------------------------------------------------
395,540 Exxon Mobil Corp. 22,731,683
- --------------------------------------------------------------------------------
7,130 Frontier Oil Corp. 209,266
- --------------------------------------------------------------------------------
63,022 Marathon Oil Corp. 3,363,484
- --------------------------------------------------------------------------------
84,957 Sunoco, Inc. 9,657,912
- --------------------------------------------------------------------------------
18,583 Valero Energy Corp. 1,470,101
- --------------------------------------------------------------------------------
77,122,306
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 2.7%
- --------------------------------------------------------------------------------
132,884 Georgia-Pacific Corp. 4,225,711
- --------------------------------------------------------------------------------
493,925 Louisiana-Pacific Corp. 12,140,677
- --------------------------------------------------------------------------------
81,693 Weyerhaeuser Co. 5,199,759
- --------------------------------------------------------------------------------
21,566,147
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
9
VP Income & Growth - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 9.4%
- --------------------------------------------------------------------------------
454,409 Bristol-Myers Squibb Co. $ 11,351,137
- --------------------------------------------------------------------------------
417,225 Johnson & Johnson 27,119,625
- --------------------------------------------------------------------------------
132,777 King Pharmaceuticals, Inc.(1) 1,383,536
- --------------------------------------------------------------------------------
566,533 Merck & Co., Inc. 17,449,216
- --------------------------------------------------------------------------------
671,122 Pfizer, Inc. 18,509,545
- --------------------------------------------------------------------------------
75,813,059
- --------------------------------------------------------------------------------
REAL ESTATE -- 3.4%
- --------------------------------------------------------------------------------
106,140 Apartment Investment and
Management Co. 4,343,249
- --------------------------------------------------------------------------------
309,413 CBL & Associates Properties,
Inc. 13,326,417
- --------------------------------------------------------------------------------
85,908 Colonial Properties Trust 3,779,952
- --------------------------------------------------------------------------------
75,644 Crescent Real Estate Equities
Co. 1,418,325
- --------------------------------------------------------------------------------
19,689 Lexington Corporate
Properties Trust 478,640
- --------------------------------------------------------------------------------
82,894 Trizec Properties Inc. 1,705,130
- --------------------------------------------------------------------------------
29,412 Vornado Realty Trust 2,364,725
- --------------------------------------------------------------------------------
27,416,438
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.5%
- --------------------------------------------------------------------------------
29,306 Burlington Northern Santa Fe
Corp. 1,379,727
- --------------------------------------------------------------------------------
15,300 CSX Corporation 652,698
- --------------------------------------------------------------------------------
30,070 Norfolk Southern Corp. 930,967
- --------------------------------------------------------------------------------
20,768 Union Pacific Corp. 1,345,766
- --------------------------------------------------------------------------------
4,309,158
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 4.1%
- --------------------------------------------------------------------------------
1,212,894 Intel Corp. 31,608,018
- --------------------------------------------------------------------------------
78,583 OmniVision Technologies, Inc.(1) 1,067,943
- --------------------------------------------------------------------------------
3,502 Sigmatel Inc.(1) 60,094
- --------------------------------------------------------------------------------
32,736,055
- --------------------------------------------------------------------------------
SOFTWARE -- 1.9%
- --------------------------------------------------------------------------------
627,870 Microsoft Corporation 15,596,291
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.2%
- --------------------------------------------------------------------------------
11,632 American Eagle Outfitters, Inc. 356,521
- --------------------------------------------------------------------------------
80,450 Barnes & Noble Inc.(1) 3,121,461
- --------------------------------------------------------------------------------
74,626 Charming Shoppes, Inc.(1) 696,261
- --------------------------------------------------------------------------------
25,688 GameStop Corp.(1) 768,071
- --------------------------------------------------------------------------------
26,194 Movie Gallery Inc. 692,307
- --------------------------------------------------------------------------------
56,504 Payless ShoeSource, Inc.(1) 1,084,877
- --------------------------------------------------------------------------------
94,732 Rent-A-Center Inc.(1) 2,206,308
- --------------------------------------------------------------------------------
33,771 Sonic Automotive, Inc. 717,971
- --------------------------------------------------------------------------------
9,643,777
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 4.5%
- --------------------------------------------------------------------------------
1,667 Corus Bankshares Inc. $ 92,502
- --------------------------------------------------------------------------------
517,541 Countrywide Financial
Corporation 19,982,257
- --------------------------------------------------------------------------------
398,869 Washington Mutual, Inc. 16,229,980
- --------------------------------------------------------------------------------
36,304,739
- --------------------------------------------------------------------------------
TOBACCO -- 0.9%
- --------------------------------------------------------------------------------
92,819 Altria Group Inc. 6,001,676
- --------------------------------------------------------------------------------
11,711 Reynolds American Inc. 922,827
- --------------------------------------------------------------------------------
6,924,503
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $711,893,620) 801,970,628
- --------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.4%
AUTOMOBILES -- 0.2%
- --------------------------------------------------------------------------------
26,552 Ford Motor Company Capital
Trust II, 6.50%, 1/15/32 1,070,842
- --------------------------------------------------------------------------------
31,630 General Motors Corp., Series B,
5.25%, 3/6/32 587,053
- --------------------------------------------------------------------------------
1,657,895
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 0.2%
- --------------------------------------------------------------------------------
11,500 Xerox Corp., 6.25%, 7/1/06 1,369,190
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $3,233,386) 3,027,085
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 0.3%
$2,800,000 FHLMC Discount Notes,
2.60%, 7/1/05(3)
(Cost $2,800,000) 2,800,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.2%
(Cost $717,927,006) 807,797,713
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- (0.2)% (1,669,965)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $806,127,748
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
(1) Non-income producing.
(2) Industry is less than 0.05% of total net assets.
(3) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
10
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $717,927,006) $807,797,713
- ------------------------------------------------------------
Receivable for investments sold 4,309,898
- ------------------------------------------------------------
Dividends and interest receivable 1,241,586
- --------------------------------------------------------------------------------
813,349,197
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash 1,950,984
- ------------------------------------------------------------
Payable for investments purchased 4,795,764
- ------------------------------------------------------------
Accrued management fees 469,138
- ------------------------------------------------------------
Distribution fees payable 5,563
- --------------------------------------------------------------------------------
7,221,449
- --------------------------------------------------------------------------------
NET ASSETS $806,127,748
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $782,032,951
- ------------------------------------------------------------
Undistributed net investment income 6,177,631
- ------------------------------------------------------------
Accumulated net realized loss on investment transactions (71,953,541)
- ------------------------------------------------------------
Net unrealized appreciation on investments 89,870,707
- --------------------------------------------------------------------------------
$806,127,748
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $773,779,073
- ------------------------------------------------------------
Shares outstanding 107,359,295
- ------------------------------------------------------------
Net asset value per share $7.21
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $26,800,020
- ------------------------------------------------------------
Shares outstanding 3,720,679
- ------------------------------------------------------------
Net asset value per share $7.20
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $5,548,655
- ------------------------------------------------------------
Shares outstanding 769,839
- ------------------------------------------------------------
Net asset value per share $7.21
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
11
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Dividends $ 9,046,511
- ------------------------------------------------------------
Interest 19,525
- --------------------------------------------------------------------------------
9,066,036
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 2,821,166
- ------------------------------------------------------------
Distribution fees -- Class II 32,552
- ------------------------------------------------------------
Directors' fees and expenses 5,941
- ------------------------------------------------------------
Other expenses 2,673
- --------------------------------------------------------------------------------
2,862,332
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,203,704
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 22,477,942
- ------------------------------------------------------------
Change in net unrealized appreciation on investments (25,500,213)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (3,022,271)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,181,433
================================================================================
See Notes to Financial Statements.
- ------
12
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
DECREASE IN NET ASSETS 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 6,203,704 $ 16,535,939
- ---------------------------------------------
Net realized gain 22,477,942 86,358,348
- ---------------------------------------------
Change in net unrealized appreciation (25,500,213) (6,391,055)
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 3,181,433 96,503,232
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- ---------------------------------------------
Class I (15,774,720) (11,852,776)
- ---------------------------------------------
Class II (468,807) (215,506)
- ---------------------------------------------
Class III (73,156) (31,257)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (16,316,683) (12,099,539)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital share transactions (15,541,772) (92,422,133)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (28,677,022) (8,018,440)
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 834,804,770 842,823,210
- --------------------------------------------------------------------------------
End of period $806,127,748 $834,804,770
================================================================================
Undistributed net investment income $6,177,631 $16,290,610
================================================================================
See Notes to Financial Statements.
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (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 through
investing in common stocks. Income is a secondary objective. 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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
Distributions received on securities that represent a return of capital or
capital gain are recorded as a reduction of cost of investments and/or as a
realized gain. The fund estimates the components of distributions received that
may be considered nontaxable distributions or capital gain distributions for
income tax purposes.
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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2005 (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 or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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, 2004, the fund has accumulated net realized capital loss
carryovers for federal income tax purposes of $25,728,608 and $48,053,160
expiring in 2009 and 2010, 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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require management to make certain estimates and assumptions at the date of
the financial statements. Actual results could differ from these estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACIM, under which ACIM provides the fund with investment advisory and management
services in exchange for a single, unified management fee (the fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. For funds with a stepped fee schedule, the
rate of the fee is determined by applying a fee rate calculation formula. This
formula takes into account all of the investment advisor's assets under
management in the fund's investment strategy (strategy assets) to calculate the
appropriate fee rate for the fund. The strategy assets include the fund's assets
and the assets of other clients of the investment advisor that are not in the
American Century family of funds, but that have the same investment team and
investment strategy. The annual management fee schedule for the fund is as
follows:
- --------------------------------------------------------------------------------
CLASS I, II & III
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $10 billion 0.700%
- --------------------------------------------------------------------------------
Over $10 billion 0.650%
- --------------------------------------------------------------------------------
The effective annual management fee for each class of the fund for the six
months ended June 30, 2005 was 0.70%.
(continued)
- ------
15
Notes to Financial Statements
JUNE 30, 2005 (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 and
accrued daily based on the Class II daily net assets and paid monthly in
arrears. The distribution fee provides compensation for expenses incurred in
connection with distributing shares of Class II including, but not limited to,
payments to brokers, dealers, and financial institutions that have entered into
sales agreements with respect to shares of the fund. Fees incurred under the
plan during the six months ended June 30, 2005, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services, LLC (formerly American Century
Services Corporation).
The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended June 30, 2005, were as follows:
- --------------------------------------------------------------------------------
Purchases $307,049,995
- --------------------------------------------------------------------------------
Proceeds from sales $328,158,944
- --------------------------------------------------------------------------------
As of June 30, 2005, 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 $734,546,368
================================================================================
Gross tax appreciation of investments $106,338,529
- ------------------------------------------------------------
Gross tax depreciation of investments (33,087,184)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $ 73,251,345
================================================================================
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 return of capital dividends.
(continued)
- ------
16
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 300,000,000
================================================================================
Sold 6,521,785 $ 46,763,670
- ---------------------------------------------
Issued in reinvestment of distributions 2,163,885 15,774,720
- ---------------------------------------------
Redeemed (11,474,005) (81,928,663)
- --------------------------------------------------------------------------------
Net decrease (2,788,335) $(19,390,273)
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 300,000,000
================================================================================
Sold 18,479,488 $ 124,111,351
- ---------------------------------------------
Issued in reinvestment of distributions 1,763,806 11,852,776
- ---------------------------------------------
Redeemed (35,919,318) (238,537,648)
- --------------------------------------------------------------------------------
Net decrease (15,676,024) $(102,573,521)
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 596,309 $ 4,281,809
- ---------------------------------------------
Issued in reinvestment of distributions 64,308 468,807
- ---------------------------------------------
Redeemed (393,089) (2,825,084)
- --------------------------------------------------------------------------------
Net increase 267,528 $ 1,925,532
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 1,692,382 $11,373,186
- ---------------------------------------------
Issued in reinvestment of distributions 32,069 215,506
- ---------------------------------------------
Redeemed (462,321) (3,114,158)
- --------------------------------------------------------------------------------
Net increase 1,262,130 $ 8,474,534
================================================================================
CLASS III
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 339,751 $2,447,827
- ---------------------------------------------
Issued in reinvestment of distributions 10,035 73,156
- ---------------------------------------------
Redeemed (83,340) (598,014)
- --------------------------------------------------------------------------------
Net increase 266,446 $1,922,969
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 393,493 $ 2,646,551
- ---------------------------------------------
Issued in reinvestment of distributions 4,651 31,257
- ---------------------------------------------
Redeemed (148,744) (1,000,954)
- --------------------------------------------------------------------------------
Net increase 249,400 $ 1,676,854
================================================================================
(continued)
- ------
17
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$575,000,000 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, 2005.
- ------
18
VP Income & Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.32 $6.57 $5.16 $6.46 $7.11 $8.00
- --------------------------------------------------------------------------------------------
Income From
Investment Operations
- -------------------------
Net Investment Income 0.06(2) 0.14(2) 0.10(2) 0.08(2) 0.06 0.05
- -------------------------
Net Realized and
Unrealized Gain (Loss) (0.03) 0.71 1.38 (1.32) (0.65) (0.90)
- --------------------------------------------------------------------------------------------
Total From
Investment Operations 0.03 0.85 1.48 (1.24) (0.59) (0.85)
- --------------------------------------------------------------------------------------------
Distributions
- -------------------------
From Net
Investment Income (0.14) (0.10) (0.07) (0.06) (0.06) (0.04)
- --------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $7.21 $7.32 $6.57 $5.16 $6.46 $7.11
============================================================================================
TOTAL RETURN(3) 0.45% 12.99% 29.35% (19.37)% (8.35)% (10.62)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 0.70%(4) 0.70% 0.70% 0.70% 0.70% 0.70%
- -------------------------
Ratio of Net Investment
Income to Average
Net Assets 1.55%(4) 2.08% 1.78% 1.32% 1.05% 0.93%
- -------------------------
Portfolio Turnover Rate 38% 75% 71% 72% 56% 58%
- -------------------------
Net Assets, End of Period
(in thousands) $773,779 $805,904 $826,785 $614,424 $701,274 $648,120
- --------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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.
- ------
19
VP Income & Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2005(1) 2004 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $7.30 $6.56 $5.15 $6.22
- --------------------------------------------------------------------------------
Income From Investment Operations
- --------------------------------------
Net Investment Income(3) 0.05 0.13 0.09 0.05
- --------------------------------------
Net Realized and
Unrealized Gain (Loss) (0.02) 0.69 1.39 (1.12)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.03 0.82 1.48 (1.07)
- --------------------------------------------------------------------------------
Distributions
- --------------------------------------
From Net Investment Income (0.13) (0.08) (0.07) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $7.20 $7.30 $6.56 $5.15
================================================================================
TOTAL RETURN(4) 0.34% 12.57% 29.19% (17.20)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.95%(5) 0.95% 0.95% 0.95%(5)
- --------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.30%(5) 1.83% 1.53% 1.42%(5)
- --------------------------------------
Portfolio Turnover Rate 38% 75% 71% 72%(6)
- --------------------------------------
Net Assets, End of Period
(in thousands) $26,800 $25,218 $14,370 $1,533
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) May 1, 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.
- ------
20
VP Income & Growth - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
CLASS III
- --------------------------------------------------------------------------------
2005(1) 2004 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $7.32 $6.57 $5.16 $5.63
- --------------------------------------------------------------------------------
Income From Investment Operations
- --------------------------------------
Net Investment Income(3) 0.06 0.15 0.11 0.04
- --------------------------------------
Net Realized and
Unrealized Gain (Loss) (0.03) 0.70 1.37 (0.51)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.03 0.85 1.48 (0.47)
- --------------------------------------------------------------------------------
Distributions
- --------------------------------------
From Net Investment Income (0.14) (0.10) (0.07) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $7.21 $7.32 $6.57 $5.16
================================================================================
TOTAL RETURN(4) 0.45% 12.99% 29.35% (8.35)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.70%(5) 0.70% 0.70% 0.70%(5)
- --------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.55%(5) 2.08% 1.75% 1.63%(5)
- --------------------------------------
Portfolio Turnover Rate 38% 75% 71% 72%(6)
- --------------------------------------
Net Assets, End of Period
(in thousands) $5,549 $3,683 $1,669 $376
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) June 26, 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.
- ------
21
Approval of Management Agreement for VP Income & Growth
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process--referred to as the "15(c) Process"--involves at
least two board meetings spanning a 30 to 60 day period each year. In addition
to this annual review, the board of directors and its committees oversee and
evaluate at quarterly meetings the nature and quality of significant services
the advisor performs on behalf of the fund. At these meetings the board reviews
fund performance, shareholder services and feedback, audit and compliance
information, and a variety of other reports from the advisor concerning fund
operations. The board, or committees of the board, also hold special meetings,
as needed.
Under a new Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for its board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the half-year period, the
Directors requested and received extensive data and information compiled by the
advisor and certain independent providers of evaluative data (the "Independent
15(c) Providers") concerning VP Income & Growth (the "fund") and the services
provided to the fund under the management agreement. The information included,
but was not limited to:
* the nature, extent and quality of investment management, shareholder services
and other services provided to the fund under the management agreement;
* reports on the advisor's activities relating to the wide range of programs and
services the advisor provides to the fund and its shareholders on a routine
and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning similar
funds;
* data comparing the fund's performance to appropriate benchmarks and/or a peer
group of other mutual funds with similar investment objectives and strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and two special meetings to review and discuss the
information provided by the advisor and the Independent 15(c) Providers and to
complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory fee. In
addition, the independent directors met on several occasions in private session
to review and discuss the information provided and evaluate the
(continued)
- ------
22
Approval of Management Agreement for VP Income & Growth
advisor's performance as manager of the fund.
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
Independent 15(c) Providers, and its independent counsel and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES--GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including, but not limited to:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objective and approved strategies. In
providing these services, the advisor utilizes teams of investment professionals
(portfolio managers, analysts, research assistants, and securities traders) who
require extensive information technology, research, training, compliance and
other systems to conduct their business. At each quarterly meeting the Directors
review investment performance information for the fund, together with
comparative information for appropriate benchmarks
(continued)
- ------
23
Approval of Management Agreement for VP Income & Growth
and a peer group of funds managed similarly to the fund. If performance concerns
are identified, the Directors discuss with the advisor and its portfolio
managers the reasons for such results (e.g., market conditions, security
selection) and any efforts being undertaken to improve performance. Annually,
the Directors review detailed performance information, as provided by the
Independent 15(c) Providers, comparing the fund's performance with that of
similar funds not managed by the advisor. During the past year, VP Income &
Growth's performance was above its benchmark for both the one and three year
period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at its regular
quarterly meetings, including the annual meeting concerning contract review.
These reports include, but are not limited to, information regarding the
operational efficiency and accuracy of the shareholder and transfer agency
services provided, staffing levels, shareholder satisfaction (as measured by
external as well as internal sources), technology support, new products and
services offered to fund shareholders, securities trading activities, portfolio
valuation services, auditing services, and legal and operational compliance
activities. Certain aspects of shareholder and transfer agency service level
efficiency and the quality of securities trading activities are measured by
independent third party providers and are presented in comparison to other fund
groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally considered the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices and that the advisor was not implicated in the
industry scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure with precision, particularly on a fund-by-fund
basis. This analysis is further complicated by the fact that the advisor is
required to make a continuing reinvestment in the business to provide additional
content and services for fund shareholders. Accordingly, the Directors also seek
to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
(continued)
- ------
24
Approval of Management Agreement for VP Income & Growth
its management of the fund specifically, the expenses incurred by the advisor in
providing various services to the fund, and the breakpoint fees of competitive
funds not managed by the advisor. The Directors believe the advisor is
appropriately sharing any economies of scale through a competitive fee
structure, through breakpoints that reduce fees as the fund increases in size,
and through reinvestment in its business to provide shareholders additional
content and services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other fund groups are charged a variety of
fees, including an investment advisory fee, a transfer agency fee, an
administrative fee, distribution charges and other expenses. Other than their
investment advisory fees and Rule 12b-1 distribution fees, all other components
of the total fees charged by these other fund groups may be increased without
shareholder approval. The board believes the unified fee structure is a benefit
to fund shareholders because it clearly discloses to shareholders the cost of
owning fund shares, and, since the unified fee cannot be increased without a
vote of fund shareholders, it shifts to the advisor the increased costs of
operating the funds and the risk of administrative inefficiencies. Part of the
Directors' analysis of fee levels involves comparing the fund's unified fee to
the total expense ratio of other funds in the fund's peer group. The unified fee
charged to shareholders of the fund was below the median of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker dealers that execute
fund portfolio transactions
(continued)
- ------
25
Approval of Management Agreement for VP Income & Growth
and concluded that this research is likely to benefit fund shareholders. The
Directors also determined that the advisor is able to provide investment
management services to clients other than the fund, at least in part, due to its
existing infrastructure built to serve the fund complex. The Directors
concluded, however, that the assets of those other clients are modest in
comparison to the funds and that, in any event, the addition of such other
assets to the assets of the funds that use substantially the same investment
management team and strategy to determine whether breakpoints have been achieved
captures for the shareholders a portion of any benefit that exists by
accelerating fee reductions as breakpoints are reached at lower fund asset
levels.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel independent of the advisor, taking into account all of the
factors discussed above and the information provided by the advisor and the
Independent 15(c) Providers, negotiated changes to the breakpoint schedule used
to calculate the management fee. These changes were proposed by the Directors
based on their review of the competitive changes in the mutual fund marketplace
and their review of financial information provided by the advisor. The new
schedule, effective July 29, 2005, will accelerate management fee reductions at
lower asset levels than under the existing structure. Following these
negotiations with the advisor, the independent directors concluded that the
investment management agreement between the fund and the advisor, amended as
described above, is fair and reasonable in light of the services provided and
should be renewed.
- ------
26
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 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 fund and generally
have the same rights and preferences.
- ------
27
Additional Information
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 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.
The S&P 500/BARRA VALUE AND GROWTH INDICES are market value-weighted indices
consisting of stocks in the S&P 500 Index. S&P 500/BARRA VALUE consists of those
stocks with lower price-to-book ratios that are slower growing or undervalued,
and S&P 500/BARRA GROWTH consists of those stocks with higher price-to-book
ratios that are faster growing.
The S&P MIDCAP 400 INDEX, a capitalization-weighted index consisting of 400
domestic stocks, measures the performance of the mid-size company segment of the
U.S. market.
The S&P SMALLCAP 600 INDEX, a capitalization-weighted index consisting of 600
domestic stocks, measures the small company segment of the U.S. market.
The NASDAQ COMPOSITE INDEX is a market value-weighted index of all domestic and
international common stocks listed on the Nasdaq stock market.
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
28
[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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
0508 (c)2005 American Century Proprietary Holdings, Inc.
SH-SAN-44735 All rights reserved.
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP International Fund
[american century investments logo and text logo]
Table of Contents
VP INTERNATIONAL
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 5
Investments by Country . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .12
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .14
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
OTHER INFORMATION
Approval of Management Agreement for VP International . . . . . . . . . . .24
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . .29
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . .30
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, 2005
--------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 11.04% -6.73% 6.58% 5.76% 5/1/94
- --------------------------------------------------------------------------------
MSCI EAFE INDEX 13.65% -0.55% 5.22% 4.90%(1) --
- --------------------------------------------------------------------------------
MSCI EAFE GROWTH INDEX 11.38% -4.78% 2.61% 2.52%(1) --
- --------------------------------------------------------------------------------
Class II 10.88% -- -- 0.82% 8/15/01
- --------------------------------------------------------------------------------
Class III 11.04% -- -- 4.44% 5/2/02
- --------------------------------------------------------------------------------
Class IV 10.90% -- -- 10.36% 5/3/04
- --------------------------------------------------------------------------------
(1) Since 4/30/94, 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 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. International
investing involves special risks, such as political instability and currency
fluctuations.
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.
(continued)
- ------
2
VP International - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made June 30, 1995
ONE-YEAR RETURNS OVER 10 YEARS
Periods ended June 30
- ---------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
- ---------------------------------------------------------------------------------------------------
Class I 15.77% 26.67% 25.12% 1.74% 43.62% -29.33% -15.28% -12.51% 21.31% 11.04%
- ---------------------------------------------------------------------------------------------------
MSCI EAFE Index 13.28% 12.84% 6.10% 7.62% 17.16% -23.60% -9.49% -6.46% 32.37% 13.65%
- ---------------------------------------------------------------------------------------------------
MSCI EAFE
Growth Index 11.74% 10.57% 5.27% 5.59% 20.42% -33.28% -9.44% -8.01% 26.42% 11.38%
- ---------------------------------------------------------------------------------------------------
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. International
investing involves special risks, such as political instability and currency
fluctuations.
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.
- ------
3
VP International - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE VP INTERNATIONAL INVESTMENT TEAM: KEITH CREVELING AND
MICHAEL PERELSTEIN.
VP International declined 1.20%* during the six months ended June 30, 2005,
while its benchmark, the Morgan Stanley Capital International (MSCI) EAFE Index,
fell 1.17%.
Many of the world's equity markets were restrained during the period as they
struggled to overcome concern that rising commodity prices--particularly oil's
spike above $60 a barrel--posed a threat to global economic growth and corporate
profits.
ENERGY BOOSTS VP INTERNATIONAL
Against that backdrop, the energy sector contributed most to VP International's
return. The gains were led by the portfolio's oil and gas companies, including
France's Total and the United Kingdom's BP, both top-10 positions. Total
announced during the period that first-quarter profit increased 53% to $4.16
billion, compared with the same period a year earlier. BP, Europe's largest oil
company, reported first-quarter profit rose 29% to $5.49 billion from a year
ago.
INDUSTRIALS ADVANCE, OUTPERFORM
The industrial sector made the second-largest contribution to our return, led by
construction and engineering companies in France and Spain. The portfolio
benefited most from Vinci SA, a French construction company with global reach.
Vinci reported during the period that profit increased to $633 million during
the second half of 2004, a 39% increase from the same period the previous year.
The company benefited from concessions that manage parking lots, toll-road
operations, and numerous construction projects in France and elsewhere. Another
holding in the industry, Grupo Ferrovial SA, one of Spain's largest construction
companies, made the fifth-largest contribution to the portfolio during the
period. VP International's stake in the industrial sector also outperformed the
EAFE Index, making the largest contribution to the portfolio's relative
performance.
SOME SECTORS DETRACT
Several sectors, however, detracted from VP International's return. The
information technology sector detracted most from our absolute return, partly
due to
TOP TEN HOLDINGS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Total SA 2.9% 2.8%
- --------------------------------------------------------------------------------
BP plc 2.8% 2.5%
- --------------------------------------------------------------------------------
GlaxoSmithKline plc 2.7% --
- --------------------------------------------------------------------------------
Novartis AG 2.2% 2.1%
- --------------------------------------------------------------------------------
Nestle SA 1.8% --
- --------------------------------------------------------------------------------
Vodafone Group plc 1.7% 1.9%
- --------------------------------------------------------------------------------
AstraZeneca plc 1.6% --
- --------------------------------------------------------------------------------
Tesco plc 1.5% 2.0%
- --------------------------------------------------------------------------------
Diageo plc 1.5% --
- --------------------------------------------------------------------------------
Reckitt Benckiser plc 1.5% 1.7%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Class I shares.
Returns for periods less than one year are not annualized. (continued)
- ------
4
VP International - Portfolio Commentary
weakness among our holdings in the software industry. The technology sector also
lagged the EAFE Index.
The telecommunications services sector also detracted from return as the share
price of Vodafone Group, the world's largest mobile-phone company, declined. The
company retreated after warning in May that profitability in the year ahead
might be worse than expected due to increasing competition. Vodafone detracted
more from the portfolio's return during the period than any other security.
Despite that, VP International's stake in telecommunication services
outperformed the EAFE Index by avoiding exposure to a number of other companies
that declined.
On a relative basis, the health care sector detracted most from VP
International's performance. Our holdings in the pharmaceutical industry led the
retreat, with several overweight positions among drugmakers declining.
FINANCIALS BEAT INDEX
Our complement of financial holdings, the portfolio's largest sector stake on
average during the period, detracted from VP International's return, but
outperformed the EAFE Index. The relative outperformance was mostly attributable
to strength among insurance companies, including Axa SA, Europe's second-largest
insurer. Axa benefited from increased sales of life and saving plans in Belgium,
France and Southern Europe. Commercial banks, which represented the portfolio's
heaviest average industry weighting, also delivered outperformance. The
Commonwealth Bank of Australia led contributors among banks.
OUR COMMITMENT
We remain committed to looking for stock of growing foreign companies.
Management of the fund is based on the belief that, over the long-term, stock
price movements follow growth in earnings, revenue and/or cash flow.
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Common Stocks 95.0% 98.4%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 4.0% 1.6%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities* 1.0% --
- --------------------------------------------------------------------------------
*Includes collateral received for securities lending and other assets and
liabilities.
INVESTMENTS BY COUNTRY
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
United Kingdom 24.2% 16.7%
- --------------------------------------------------------------------------------
Japan 15.7% 17.4%
- --------------------------------------------------------------------------------
France 14.3% 14.0%
- --------------------------------------------------------------------------------
Switzerland 7.0% 7.2%
- --------------------------------------------------------------------------------
Germany 5.3% 8.3%
- --------------------------------------------------------------------------------
Australia 5.3% 5.5%
- --------------------------------------------------------------------------------
Spain 3.8% 3.7%
- --------------------------------------------------------------------------------
Ireland 3.1% 2.2%
- --------------------------------------------------------------------------------
Netherlands 2.5% 2.9%
- --------------------------------------------------------------------------------
Italy 2.5% 2.4%
- --------------------------------------------------------------------------------
Greece 2.3% 1.6%
- --------------------------------------------------------------------------------
Other Countries 9.0% 16.5%
- --------------------------------------------------------------------------------
Cash and equivalents(+) 5.0% 1.6%
- --------------------------------------------------------------------------------
(+)Includes temporary cash investments, collateral received for securities
lending, and other assets and liabilities.
- ------
5
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
(continued)
- ------
6
Shareholder Fee Example (Unaudited)
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 -- EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
- --------------------------------------------------------------------------------
VP INTERNATIONAL SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Class I $1,000 $988.00 $6.06 1.23%
- --------------------------------------------------------------------------------
Class II $1,000 $988.00 $6.80 1.38%
- --------------------------------------------------------------------------------
Class III $1,000 $986.70 $6.06 1.23%
- --------------------------------------------------------------------------------
Class IV $1,000 $986.80 $6.80 1.38%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Class I $1,000 $1,018.70 $6.16 1.23%
- --------------------------------------------------------------------------------
Class II $1,000 $1,017.95 $6.90 1.38%
- --------------------------------------------------------------------------------
Class III $1,000 $1,018.70 $6.16 1.23%
- --------------------------------------------------------------------------------
Class IV $1,000 $1,017.95 $6.90 1.38%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
7
VP International - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS* -- 95.0%
AUSTRALIA -- 5.3%
- --------------------------------------------------------------------------------
1,317,150 Amcor Limited $ 6,708,252
- --------------------------------------------------------------------------------
734,599 BHP Billiton Limited(1) 10,135,059
- --------------------------------------------------------------------------------
110,670 Commonwealth Bank
of Australia 3,192,574
- --------------------------------------------------------------------------------
2,355,560 Macquarie Infrastructure
Group 7,448,808
- --------------------------------------------------------------------------------
195,680 National Australia
Bank Ltd.(1) 4,575,432
- --------------------------------------------------------------------------------
485,110 QBE Insurance
Group Limited(1) 5,911,165
- --------------------------------------------------------------------------------
37,971,290
- --------------------------------------------------------------------------------
AUSTRIA -- 1.0%
- --------------------------------------------------------------------------------
146,408 Erste Bank der
Oesterreichischen
Sparkassen AG 7,330,059
- --------------------------------------------------------------------------------
BELGIUM -- 1.0%
- --------------------------------------------------------------------------------
91,340 KBC Groupe 7,218,240
- --------------------------------------------------------------------------------
CANADA -- 1.9%
- --------------------------------------------------------------------------------
211,640 Shoppers Drug Mart
Corporation 7,339,018
- --------------------------------------------------------------------------------
172,700 Thomson Corp.(1) 5,780,152
- --------------------------------------------------------------------------------
13,119,170
- --------------------------------------------------------------------------------
DENMARK -- 0.7%
- --------------------------------------------------------------------------------
94,710 Novo Nordisk AS Cl B 4,821,745
- --------------------------------------------------------------------------------
FRANCE -- 14.3%
- --------------------------------------------------------------------------------
137,680 Accor SA 6,459,870
- --------------------------------------------------------------------------------
272,375 Axa SA(1) 6,813,415
- --------------------------------------------------------------------------------
94,980 Essilor International SA
Cie Generale D'Optique(1) 6,494,381
- --------------------------------------------------------------------------------
177,600 France Telecom SA(1) 5,192,746
- --------------------------------------------------------------------------------
55,820 Groupe Danone(1) 4,911,130
- --------------------------------------------------------------------------------
70,820 Lafarge SA(1) 6,457,975
- --------------------------------------------------------------------------------
31,480 Pernod-Ricard SA(1) 5,028,817
- --------------------------------------------------------------------------------
34,150 Pinault-Printemps-Redoute(1) 3,525,307
- --------------------------------------------------------------------------------
60,930 Sanofi-Aventis(1) 5,006,775
- --------------------------------------------------------------------------------
66,230 Schneider Electric SA(1) 4,997,449
- --------------------------------------------------------------------------------
94,290 Societe Generale Cl A(1) 9,602,336
- --------------------------------------------------------------------------------
88,670 Total SA 20,850,120
- --------------------------------------------------------------------------------
19,150 Veolia Environnement(2) 720,058
- --------------------------------------------------------------------------------
100,550 Vinci SA(1) 8,371,970
- --------------------------------------------------------------------------------
232,840 Vivendi Universal SA 7,343,264
- --------------------------------------------------------------------------------
101,775,613
- --------------------------------------------------------------------------------
GERMANY -- 5.3%
- --------------------------------------------------------------------------------
20,890 Adidas-Salomon AG 3,501,682
- --------------------------------------------------------------------------------
59,410 BASF AG 3,954,389
- --------------------------------------------------------------------------------
94,210 Continental AG 6,794,031
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
476,380 Deutsche Telekom(1) $ 8,820,680
- --------------------------------------------------------------------------------
62,160 E.On AG 5,542,654
- --------------------------------------------------------------------------------
69,921 Fresenius Medical Care AG(1) 5,979,982
- --------------------------------------------------------------------------------
70,760 Metro AG(1) 3,511,840
- --------------------------------------------------------------------------------
38,105,258
- --------------------------------------------------------------------------------
GREECE -- 2.3%
- --------------------------------------------------------------------------------
193,100 Greek Organization
of Football Prognostics SA 5,589,856
- --------------------------------------------------------------------------------
111,810 Hellenic Telecommunications
Organization SA(2) 2,170,412
- --------------------------------------------------------------------------------
262,690 National Bank of Greece SA 8,926,841
- --------------------------------------------------------------------------------
16,687,109
- --------------------------------------------------------------------------------
HONG KONG -- 0.9%
- --------------------------------------------------------------------------------
1,164,500 CLP Holdings Ltd. 6,683,314
- --------------------------------------------------------------------------------
INDIA -- 0.3%
- --------------------------------------------------------------------------------
62,770 Tata Consultancy Services Ltd. 1,951,898
- --------------------------------------------------------------------------------
IRELAND -- 3.1%
- --------------------------------------------------------------------------------
671,240 Anglo Irish Bank Corporation 8,326,429
- --------------------------------------------------------------------------------
463,190 Bank of Ireland 7,466,560
- --------------------------------------------------------------------------------
144,489 Ryanair Holdings plc ADR(1)(2) 6,478,887
- --------------------------------------------------------------------------------
22,271,876
- --------------------------------------------------------------------------------
ITALY -- 2.5%
- --------------------------------------------------------------------------------
377,060 Banco Popolare di Verona
e Novara Scrl 6,424,958
- --------------------------------------------------------------------------------
275,390 ENI SpA(1) 7,102,132
- --------------------------------------------------------------------------------
333,810 Saipem SpA 4,500,302
- --------------------------------------------------------------------------------
18,027,392
- --------------------------------------------------------------------------------
JAPAN -- 15.7%
- --------------------------------------------------------------------------------
433,000 Ajinomoto Co. Inc. 4,825,438
- --------------------------------------------------------------------------------
236,600 Astellas Pharma Inc. 8,091,626
- --------------------------------------------------------------------------------
541,000 Bank of Yokohama Ltd. (The) 3,129,227
- --------------------------------------------------------------------------------
245,600 Daikin Industries Ltd.(1) 6,149,973
- --------------------------------------------------------------------------------
1,310 East Japan Railway Company 6,737,953
- --------------------------------------------------------------------------------
156,700 Eisai Co. Ltd.(1) 5,274,238
- --------------------------------------------------------------------------------
204,600 Fuji Photo Film Co. Ltd.(1) 6,591,067
- --------------------------------------------------------------------------------
109,700 Honda Motor Co., Ltd. 5,414,718
- --------------------------------------------------------------------------------
28,700 Hoya Corp. 3,314,925
- --------------------------------------------------------------------------------
124,000 Kao Corp. 2,926,006
- --------------------------------------------------------------------------------
840 KDDI Corp. 3,888,468
- --------------------------------------------------------------------------------
278,000 Komatsu Ltd.(1) 2,159,881
- --------------------------------------------------------------------------------
493,000 Matsushita Electric
Industrial Co., Ltd.(1) 7,487,087
- --------------------------------------------------------------------------------
210 Mitsubishi Tokyo
Financial Group, Inc. 1,783,162
- --------------------------------------------------------------------------------
192,800 Omron Corp. 4,253,709
- --------------------------------------------------------------------------------
50,400 ORIX Corporation 7,567,731
- --------------------------------------------------------------------------------
2,169,000 Osaka Gas Co. Ltd. 6,830,726
- --------------------------------------------------------------------------------
74,600 Shin-Etsu Chemical Co., Ltd. 2,834,019
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
VP International - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
1,404,000 Taisei Corp. $ 4,738,278
- --------------------------------------------------------------------------------
68,300 Takefuji Corp. 4,622,361
- --------------------------------------------------------------------------------
697,000 Toray Industries Inc. 3,308,266
- --------------------------------------------------------------------------------
76,300 Toyota Motor Corp. 2,733,360
- --------------------------------------------------------------------------------
122,300 Yamada Denki Co Ltd.(1) 7,040,913
- --------------------------------------------------------------------------------
111,703,132
- --------------------------------------------------------------------------------
MEXICO -- 0.6%
- --------------------------------------------------------------------------------
66,360 America Movil SA
de CV Series L ADR 3,955,720
- --------------------------------------------------------------------------------
MULTI-NATIONAL -- 1.0%
- --------------------------------------------------------------------------------
130,000 iShares MSCI EAFE
Index Fund(1) 6,800,300
- --------------------------------------------------------------------------------
NETHERLANDS -- 2.5%
- --------------------------------------------------------------------------------
219,130 Aegon N.V. 2,840,197
- --------------------------------------------------------------------------------
247,510 ING Groep N.V. 7,000,170
- --------------------------------------------------------------------------------
205,200 Royal Numico N.V.(2) 8,214,857
- --------------------------------------------------------------------------------
18,055,224
- --------------------------------------------------------------------------------
NORWAY -- 1.6%
- --------------------------------------------------------------------------------
688,960 DnB NOR ASA 7,194,125
- --------------------------------------------------------------------------------
533,430 Telenor ASA 4,264,273
- --------------------------------------------------------------------------------
11,458,398
- --------------------------------------------------------------------------------
SPAIN -- 3.8%
- --------------------------------------------------------------------------------
645,050 Banco Popular Espanol SA 7,798,589
- --------------------------------------------------------------------------------
334,957 Cintra Concesiones
de Infraestructuras
de Transporte SA 3,936,094
- --------------------------------------------------------------------------------
118,579 Grupo Ferrovial SA 7,648,780
- --------------------------------------------------------------------------------
465,620 Telefonica SA(1) 7,629,700
- --------------------------------------------------------------------------------
27,013,163
- --------------------------------------------------------------------------------
SWITZERLAND -- 7.0%
- --------------------------------------------------------------------------------
149,280 Compagnie Financiere
Richemont AG A Shares 5,020,458
- --------------------------------------------------------------------------------
49,550 Nestle SA 12,681,830
- --------------------------------------------------------------------------------
330,790 Novartis AG(1) 15,758,050
- --------------------------------------------------------------------------------
68,976 Roche Holding AG 8,729,981
- --------------------------------------------------------------------------------
102,186 UBS AG 7,973,625
- --------------------------------------------------------------------------------
50,163,944
- --------------------------------------------------------------------------------
UNITED KINGDOM -- 24.2%
- --------------------------------------------------------------------------------
270,150 AstraZeneca plc 11,178,702
- --------------------------------------------------------------------------------
642,920 BAA plc 7,137,319
- --------------------------------------------------------------------------------
632,740 BG Group plc 5,200,252
- --------------------------------------------------------------------------------
1,934,970 BP plc 20,129,678
- --------------------------------------------------------------------------------
73,030 British American Tobacco plc 1,407,019
- --------------------------------------------------------------------------------
735,740 Diageo plc 10,842,031
- --------------------------------------------------------------------------------
793,050 GlaxoSmithKline plc 19,184,142
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
48,150 HSBC Holdings plc $ 767,313
- --------------------------------------------------------------------------------
2,345,650 Legal & General Group plc 4,830,004
- --------------------------------------------------------------------------------
172,250 Man Group plc 4,462,870
- --------------------------------------------------------------------------------
725,290 National Grid Transco plc 7,025,793
- --------------------------------------------------------------------------------
232,150 Next plc 6,272,553
- --------------------------------------------------------------------------------
365,182 Reckitt Benckiser plc 10,756,271
- --------------------------------------------------------------------------------
936,000 Reed Elsevier plc 8,957,978
- --------------------------------------------------------------------------------
341,129 Royal Bank of Scotland
Group plc 10,298,232
- --------------------------------------------------------------------------------
732,000 Smith & Nephew plc 7,221,861
- --------------------------------------------------------------------------------
1,908,590 Tesco plc 10,893,045
- --------------------------------------------------------------------------------
959,360 Unilever plc 9,250,256
- --------------------------------------------------------------------------------
4,839,640 Vodafone Group plc 11,785,239
- --------------------------------------------------------------------------------
222,660 Wolseley plc 4,680,549
- --------------------------------------------------------------------------------
172,281,107
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $587,125,659) 677,393,952
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 4.0%
$28,400,000 FHLMC Discount Notes,
2.60%, 7/1/05(3)
(Cost $28,400,000) 28,400,000
- --------------------------------------------------------------------------------
COLLATERAL RECEIVED
FOR SECURITIES LENDING(4) -- 15.9%
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreement, Barclays Bank plc,
(collateralized by various U.S. Government
Agency obligations in a pooled account
at the lending agent), 3.35%,
dated 6/30/05, due 7/1/05
(Delivery value $3,554,344) 3,554,013
- --------------------------------------------------------------------------------
Repurchase Agreement, UBS AG,
(collateralized by various U.S. Government
Agency obligations in a pooled account
at the lending agent), 3.44%,
dated 6/30/05, due 7/1/05
(Delivery value $110,010,511) 110,000,000
- --------------------------------------------------------------------------------
TOTAL COLLATERAL RECEIVED
FOR SECURITIES LENDING
(Cost $113,554,013) 113,554,013
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 114.9%
(Cost $729,079,672) 819,347,965
- --------------------------------------------------------------------------------
OTHER ASSETS
AND LIABILITIES -- (14.9)% (106,147,735)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $ 713,200,230
================================================================================
See Notes to Financial Statements. (continued)
- ------
9
VP International - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
MARKET SECTOR DIVERSIFICATION
(AS A % OF NET ASSETS)
- --------------------------------------------------------------------------------
Financials 20.8%
- --------------------------------------------------------------------------------
Health Care 13.7%
- --------------------------------------------------------------------------------
Consumer Staples 13.0%
- --------------------------------------------------------------------------------
Consumer Discretionary 12.4%
- --------------------------------------------------------------------------------
Industrials 9.9%
- --------------------------------------------------------------------------------
Energy 8.1%
- --------------------------------------------------------------------------------
Telecommunication Services 6.7%
- --------------------------------------------------------------------------------
Materials 4.7%
- --------------------------------------------------------------------------------
Utilities 3.7%
- --------------------------------------------------------------------------------
Information Technology 1.1%
- --------------------------------------------------------------------------------
Diversified 0.9%
- --------------------------------------------------------------------------------
Cash and Equivalents(+) 5.0%
- --------------------------------------------------------------------------------
(+)Includes temporary cash investments, collateral for securities lending and
other assets and liabilities.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
EAFE = Europe, Australasia, and Far East
FHLMC = Federal Home Loan Mortgage Corporation
MSCI = Morgan Stanley Capital International
*The securities are listed under their country of incorporation, which may
differ from the country where they have their greatest economic exposure.
(1) Security, or a portion thereof, was on loan as of June 30, 2005.
(2) Non-income producing.
(3) The rate indicated is yield to maturity at purchase.
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions. (See Note 5 in
Notes to Financial Statements.)
See Notes to Financial Statements.
- ------
10
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value
(cost of $615,525,659) -
including $108,747,654
of securities on loan $705,793,952
- ---------------------------------------------------------------
Investments made with cash collateral
received for securities on loan,
at value (cost of $113,554,013) 113,554,013
- --------------------------------------------------------------------------------
Total investment securities,
at value (cost of $729,079,672) 819,347,965
- ---------------------------------------------------------------
Cash 7,922,037
- ---------------------------------------------------------------
Foreign currency holdings,
at value (cost of $682,518) 683,756
- ---------------------------------------------------------------
Receivable for investments sold 7,325,701
- ---------------------------------------------------------------
Dividends and interest receivable 2,328,656
- --------------------------------------------------------------------------------
837,608,115
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for collateral received
for securities on loan 113,554,013
- ---------------------------------------------------------------
Payable for investments purchased 10,131,103
- ---------------------------------------------------------------
Accrued management fees 701,525
- ---------------------------------------------------------------
Distribution fees payable 21,244
- --------------------------------------------------------------------------------
124,407,885
- --------------------------------------------------------------------------------
NET ASSETS $713,200,230
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $798,292,065
- ---------------------------------------------------------------
Undistributed net investment income 2,619,401
- ---------------------------------------------------------------
Accumulated net realized loss
on investment and foreign
currency transactions (177,968,724)
- ---------------------------------------------------------------
Net unrealized appreciation
on investments and translation
of assets and liabilities
in foreign currencies 90,257,488
- --------------------------------------------------------------------------------
$713,200,230
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $511,550,756
- ---------------------------------------------------------------
Shares outstanding 71,210,668
- ---------------------------------------------------------------
Net asset value per share $7.18
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $96,384,352
- ---------------------------------------------------------------
Shares outstanding 13,431,134
- ---------------------------------------------------------------
Net asset value per share $7.18
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $96,265,878
- ---------------------------------------------------------------
Shares outstanding 13,400,085
- ---------------------------------------------------------------
Net asset value per share $7.18
- --------------------------------------------------------------------------------
CLASS IV, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $8,999,244
- ---------------------------------------------------------------
Shares outstanding 1,253,360
- ---------------------------------------------------------------
Net asset value per share $7.18
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
11
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ---------------------------------------------------------------
Dividends (net of foreign taxes
withheld of $1,116,594) $ 10,480,227
- ---------------------------------------------------------------
Securities lending income 364,101
- ---------------------------------------------------------------
Interest 306,964
- --------------------------------------------------------------------------------
11,151,292
- --------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------
Management fees 4,275,988
- ---------------------------------------------------------------
Distribution fees:
- ---------------------------------------------------------------
Class II 109,153
- ---------------------------------------------------------------
Class IV 9,454
- ---------------------------------------------------------------
Directors' fees and expenses 5,700
- ---------------------------------------------------------------
Other expenses 2,508
- --------------------------------------------------------------------------------
4,402,803
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,748,489
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON:
- ---------------------------------------------------------------
Investment transactions 43,545,967
- ---------------------------------------------------------------
Foreign currency transactions 10,819,651
- --------------------------------------------------------------------------------
54,365,618
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- ---------------------------------------------------------------
Investments (7,052,568)
- ---------------------------------------------------------------
Translation of assets and
liabilities in foreign currencies (63,185,520)
- --------------------------------------------------------------------------------
(70,238,088)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (15,872,470)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (9,123,981)
================================================================================
See Notes to Financial Statements.
- ------
12
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 6,748,489 $ 3,778,308
- -----------------------------------------------
Net realized gain 54,365,618 56,028,511
- -----------------------------------------------
Change in net unrealized appreciation (70,238,088) 34,511,128
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (9,123,981) 94,317,947
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- -----------------------------------------------
Class I (6,233,902) (2,808,477)
- -----------------------------------------------
Class II (885,426) (206,183)
- -----------------------------------------------
Class III (1,114,017) (507,997)
- -----------------------------------------------
Class IV (73,373) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (8,306,718) (3,522,657)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets from capital
share transactions 8,225,318 (8,892,676)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (9,205,381) 81,902,614
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 722,405,611 640,502,997
- --------------------------------------------------------------------------------
End of period $713,200,230 $722,405,611
================================================================================
Undistributed net investment income $2,619,401 $4,177,630
================================================================================
See Notes to Financial Statements.
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (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 management believes will 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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
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. Realized
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 American Century Investment Management, Inc. (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 or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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, 2004, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $109,692,685, $120,156,269, 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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
- ------
15
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACGIM (the investment advisor), under which ACGIM provides the fund with
investment advisory and management services in exchange for a single, unified
management fee (the fee) per class. The Agreement provides that all expenses of
the fund, except brokerage commissions, taxes, interest, fees and expenses of
those directors who are not considered "interested persons" as defined in the
1940 Act (including counsel fees) and extraordinary expenses, will be paid by
ACGIM. The fee is computed and accrued daily based on the daily net assets of
the specific class of shares of the fund and paid monthly in arrears. For funds
with a stepped fee schedule, the rate of the fee is determined by applying a fee
rate calculation formula. This formula takes into account all of the investment
advisor's assets under management in the fund's investment strategy (strategy
assets) to calculate the appropriate fee rate for the fund. The strategy assets
include the fund's assets and the assets of other clients of the investment
advisor that are not in the American Century family of funds, but that have the
same investment team and investment strategy.
The annual management fee schedule for each class of the fund is as follows:
CLASS I & III CLASS II & IV
- --------------------------------------------------------------------------------
STRATEGY 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 each class of the fund for the six
months ended June 30, 2005 was 1.23%, 1.13%, 1.23%, and 1.13% for Class I, Class
II, Class III and Class IV, respectively.
ACGIM has entered into a Subadvisory Agreement with ACIM (the investment
subadvisor) on behalf of the fund. The subadvisor makes investment decisions for
the cash portion of the fund in accordance with the fund's investments
objectives, policies and restrictions under the supervision of ACGIM and the
Board of Directors. ACGIM pays all costs associated with retaining ACIM as the
subadvisor of the fund.
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 and accrued daily based on each class's daily net assets and paid
monthly in arrears. 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, 2005, are detailed
in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACGIM, the corporation's subadvisor, ACIM, the distributor of the
corporation, ACIS, and the corporation's transfer agent, American Century
Services, LLC (formerly American Century Services Corporation).
The fund has a bank line of credit agreement and securities lending agreement
with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly
owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in
ACC.
(continued)
- ------
16
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2005, were $366,396,826 and $384,100,661,
respectively.
As of June 30, 2005, 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 $730,800,297
================================================================================
Gross tax appreciation of investments $ 98,709,014
- -------------------------------------------------------------
Gross tax depreciation of investments (10,161,346)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $ 88,547,668
================================================================================
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
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 300,000,000
================================================================================
Sold 6,101,281 $ 44,179,358
- --------------------------------------------
Issued in reinvestment of distributions 832,297 6,233,902
- --------------------------------------------
Redeemed (8,870,036) (63,744,581)
- --------------------------------------------------------------------------------
Net decrease (1,936,458) $(13,331,321)
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 300,000,000
================================================================================
Sold 12,710,007 $ 83,853,061
- --------------------------------------------
Issued in reinvestment of distributions 419,176 2,808,477
- --------------------------------------------
Redeemed (19,755,697) (130,404,844)
- --------------------------------------------------------------------------------
Net decrease (6,626,514) $ (43,743,306)
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 2,393,992 $17,208,471
- --------------------------------------------
Issued in reinvestment of distributions 118,214 885,426
- --------------------------------------------
Redeemed (218,882) (1,567,604)
- --------------------------------------------------------------------------------
Net increase 2,293,324 $16,526,293
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 6,289,131 $ 41,603,464
- --------------------------------------------
Issued in reinvestment of distributions 30,820 206,183
- --------------------------------------------
Redeemed (2,125,494) (14,115,645)
- --------------------------------------------------------------------------------
Net increase 4,194,457 $ 27,694,002
================================================================================
(continued)
- ------
17
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS III
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 1,215,322 $ 8,705,453
- --------------------------------------------
Issued in reinvestment of distributions 148,734 1,114,017
- --------------------------------------------
Redeemed (1,064,774) (7,659,604)(1)
- --------------------------------------------------------------------------------
Net increase 299,282 $ 2,159,866
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 2,815,957 $ 18,801,606
- --------------------------------------------
Issued in reinvestment of distributions 75,820 507,997
- --------------------------------------------
Redeemed (2,722,794) (17,762,000)(2)
- --------------------------------------------------------------------------------
Net increase 168,983 $ 1,547,603
================================================================================
CLASS IV
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 458,005 $3,305,483
- --------------------------------------------
Issued in reinvestment of distributions 9,796 73,373
- --------------------------------------------
Redeemed (71,034) (508,376)(3)
- --------------------------------------------------------------------------------
Net increase 396,767 $2,870,480
================================================================================
PERIOD ENDED DECEMBER 31, 2004(4)
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 883,482 $5,790,617
- --------------------------------------------
Redeemed (26,889) (181,592)(5)
- --------------------------------------------------------------------------------
Net increase 856,593 $5,609,025
================================================================================
(1) Net of redemption fees of $8,378.
(2) Net of redemption fees of $67,941.
(3) Net of redemption fees of $399.
(4) May 3, 2004 (commencement of sale) through December 31, 2004.
(5) Net of redemption fees of $176.
(continued)
- ------
18
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
5. SECURITIES LENDING
As of June 30, 2005, securities in the fund valued at $108,747,654, 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 or ACGIM. 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
$113,554,013. 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.
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$575,000,000 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, 2005.
7. RISK FACTORS
There are certain risks involved in investing in foreign securities. These risks
include those resulting from future adverse political, social, and economic
developments, fluctuations in currency exchange rates, the possible imposition
of exchange controls, and other foreign laws or restrictions. Investing in
emerging markets may accentuate these risks.
- ------
19
VP International - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- ----------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------
PER-SHARE DATA
- ----------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.35 $6.43 $5.21 $6.59 $10.23 $12.50
- ----------------------------------------------------------------------------------------------
Income From
Investment Operations
- --------------------------
Net Investment
Income (Loss) 0.07(2) 0.04(2) 0.04(2) 0.05(2) 0.02(2) (0.02)
- --------------------------
Net Realized and
Unrealized Gain (Loss) (0.15) 0.92 1.22 (1.38) (2.82) (2.02)
- ----------------------------------------------------------------------------------------------
Total From
Investment Operations (0.08) 0.96 1.26 (1.33) (2.80) (2.04)
- ----------------------------------------------------------------------------------------------
Distributions
- --------------------------
From Net
Investment Income (0.09) (0.04) (0.04) (0.05) (0.01) (0.01)
- --------------------------
From Net Realized Gains -- -- -- -- (0.83) (0.22)
- ----------------------------------------------------------------------------------------------
Total Distributions (0.09) (0.04) (0.04) (0.05) (0.84) (0.23)
- ----------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $7.18 $7.35 $6.43 $5.21 $6.59 $10.23
==============================================================================================
TOTAL RETURN(3) (1.20)% 14.92% 24.51% (20.37)% (29.17)% (16.83)%
- ----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.23%(4) 1.27% 1.34% 1.31% 1.26% 1.23%
- --------------------------
Ratio of Net
Investment Income (Loss)
to Average Net Assets 1.93%(4) 0.59% 0.67% 0.77% 0.33% (0.14)%
- --------------------------
Portfolio Turnover Rate 54% 120% 185% 247% 210% 128%
- --------------------------
Net Assets, End of Period
(in thousands) $511,551 $537,982 $512,814 $449,026 $688,639 $924,789
- ----------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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 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.
(4) Annualized.
See Notes to Financial Statements.
- ------
20
VP International - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.34 $6.42 $5.20 $6.59 $7.15
- --------------------------------------------------------------------------------
Income From
Investment Operations
- -----------------------
Net Investment
Income (Loss)(3) 0.07 0.02 0.01 0.03 (0.02)
- -----------------------
Net Realized and
Unrealized
Gain (Loss) (0.16) 0.93 1.24 (1.38) (0.54)
- --------------------------------------------------------------------------------
Total From
Investment
Operations (0.09) 0.95 1.25 (1.35) (0.56)
- --------------------------------------------------------------------------------
Distributions
- -----------------------
From Net
Investment Income (0.07) (0.03) (0.03) (0.04) --
- --------------------------------------------------------------------------------
Net Asset Value,
End of Period $7.18 $7.34 $6.42 $5.20 $6.59
================================================================================
TOTAL RETURN(4) (1.20)% 14.77% 24.36% (20.57)% (7.83)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating
Expenses to Average
Net Assets 1.38%(5) 1.42% 1.49% 1.47% 1.44%(5)
- -----------------------
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.78%(5) 0.44% 0.52% 0.61% (0.82)%(5)
- -----------------------
Portfolio
Turnover Rate 54% 120% 185% 247% 210%(6)
- -----------------------
Net Assets,
End of Period
(in thousands) $96,384 $81,773 $44,556 $16,711 $3,868
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) August 15, 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.
- ------
21
VP International - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
CLASS III
- --------------------------------------------------------------------------------
2005(1) 2004 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $7.36 $6.43 $5.21 $6.42
- --------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------------
Net Investment Income(3) 0.07 0.04 0.04 0.01
- ---------------------------------
Net Realized and
Unrealized Gain (Loss) (0.16) 0.93 1.22 (1.22)
- --------------------------------------------------------------------------------
Total From
Investment Operations (0.09) 0.97 1.26 (1.21)
- --------------------------------------------------------------------------------
Distributions
- ---------------------------------
From Net Investment Income (0.09) (0.04) (0.04) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $7.18 $7.36 $6.43 $5.21
================================================================================
TOTAL RETURN(4) (1.33)% 15.08% 24.51% (18.85)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.23%(5) 1.27% 1.34% 1.33%(5)
- ---------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.93%(5) 0.59% 0.67% 0.22%(5)
- ---------------------------------
Portfolio Turnover Rate 54% 120% 185% 247%(6)
- ---------------------------------
Net Assets, End of Period
(in thousands) $96,266 $96,358 $83,133 $52,498
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) May 2, 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.
- ------
22
VP International - Financial Highlights
For a Share Outstanding Throughout the Periods Indicated
- --------------------------------------------------------------------------------
CLASS IV
- --------------------------------------------------------------------------------
2005(1) 2004(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $7.35 $6.47
- --------------------------------------------------------------------------------
Income From Investment Operations
- ---------------------------------------------------
Net Investment Income (Loss)(3) 0.07 --(4)
- ---------------------------------------------------
Net Realized and Unrealized Gain (Loss) (0.16) 0.88
- --------------------------------------------------------------------------------
Total From Investment Operations (0.09) 0.88
- --------------------------------------------------------------------------------
Distributions
- ---------------------------------------------------
From Net Investment Income (0.08) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $7.18 $7.35
================================================================================
TOTAL RETURN(5) (1.32)% 13.60%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.38%(6) 1.42%(6)
- ---------------------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets 1.78%(6) (0.01)%(6)
- ---------------------------------------------------
Portfolio Turnover Rate 54% 120%(7)
- ---------------------------------------------------
Net Assets, End of Period (in thousands) $8,999 $6,294
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) May 3, 2004 (commencement of sale) through December 31, 2004.
(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, 2004.
See Notes to Financial Statements.
- ------
23
Approval of Management Agreement for VP International
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process -- referred to as the "15(c) Process" -- involves
at least two board meetings spanning a 30 to 60 day period each year. In
addition to this annual review, the board of directors and its committees
oversee and evaluate at quarterly meetings the nature and quality of significant
services the advisor performs on behalf of the fund. At these meetings the board
reviews fund performance, shareholder services and feedback, audit and
compliance information, and a variety of other reports from the advisor
concerning fund operations. The board, or committees of the board, also hold
special meetings, as needed.
Under a new Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for its board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the half-year period, the
Directors requested and received extensive data and information compiled by the
advisor and certain independent providers of evaluative data (the "Independent
15(c) Providers") concerning VP International Fund (the "fund") and the services
provided to the fund under the management agreement. The information included,
but was not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of
programs and services the advisor provides to the fund and its shareholders
on a routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning
similar funds;
* data comparing the fund's performance to appropriate benchmarks
and/or a peer group of other mutual funds with similar investment
objectives and strategies;
* financial data showing the profitability of the fund to the advisor
and the overall profitability of the advisor; and
* data comparing services provided and charges to other investment
management clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and two special meetings to review and discuss the
information provided by the advisor and the Independent 15(c) Providers and to
complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory fee. In
addition, the independent directors met on several occasions in private session
to review and discuss the information provided and evaluate the advisor's
performance as manager of the fund.
(continued)
- ------
24
Approval of Management Agreement for VP International
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
Independent 15(c) Providers, and its independent counsel and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including, but not limited to:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objective and approved strategies. In
providing these services, the advisor utilizes teams of investment professionals
(portfolio managers, analysts, research assistants, and securities traders) who
require extensive information technology, research, training, compliance and
other systems to conduct their business. At each quarterly meeting the Directors
review investment performance information for the fund, together with
comparative information for appropriate benchmarks and a peer group of funds
managed similarly to the fund. If performance concerns are identified, the
Directors discuss with the advisor and its portfolio managers the reasons for
such results (e.g., market conditions, security selection) and any efforts being
undertaken to improve performance.
(continued)
- ------
25
Approval of Management Agreement for VP International
Annually, the Directors review detailed performance information, as provided by
the Independent 15(c) Providers, comparing the fund's performance with that of
similar funds not managed by the advisor. The fund's performance fell below the
median of its peer group for both one and three year periods during the past
year. The board discussed the fund's performance with the advisor and recognized
the efforts being undertaken by the advisor. The board will continue to monitor
those efforts and the performance of the fund.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at its regular
quarterly meetings, including the annual meeting concerning contract review.
These reports include, but are not limited to, information regarding the
operational efficiency and accuracy of the shareholder and transfer agency
services provided, staffing levels, shareholder satisfaction (as measured by
external as well as internal sources), technology support, new products and
services offered to fund shareholders, securities trading activities, portfolio
valuation services, auditing services, and legal and operational compliance
activities. Certain aspects of shareholder and transfer agency service level
efficiency and the quality of securities trading activities are measured by
independent third party providers and are presented in comparison to other fund
groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally considered the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices and that the advisor was not implicated in the
industry scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure with precision, particularly on a fund-by-fund
basis. This analysis is further complicated by the fact that the advisor is
required to make a continuing reinvestment in the business to provide additional
content and services for fund shareholders. Accordingly, the Directors also seek
to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of its
management of the fund specifically, the expenses incurred by the advisor in
providing various services to the fund,
(continued)
- ------
26
Approval of Management Agreement for VP International
and the breakpoint fees of competitive funds not managed by the advisor. The
Directors believe the advisor is appropriately sharing any economies of scale
through a competitive fee structure, through breakpoints that reduce fees as the
fund increases in size, and through reinvestment in its business to provide
shareholders additional content and services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other fund groups are charged a variety of
fees, including an investment advisory fee, a transfer agency fee, an
administrative fee, distribution charges and other expenses. Other than their
investment advisory fees and Rule 12b-1 distribution fees, all other components
of the total fees charged by these other fund groups may be increased without
shareholder approval. The board believes the unified fee structure is a benefit
to fund shareholders because it clearly discloses to shareholders the cost of
owning fund shares, and, since the unified fee cannot be increased without a
vote of fund shareholders, it shifts to the advisor the increased costs of
operating the funds and the risk of administrative inefficiencies. Part of the
Directors' analysis of fee levels involves comparing the fund's unified fee to
the total expense ratio of other funds in the fund's peer group. The unified fee
charged to shareholders of the fund was below the median of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker dealers that execute
fund portfolio transactions and concluded that this research is likely to
benefit fund shareholders. The Directors also determined that the advisor is
able to provide investment management services to
(continued)
- ------
27
Approval of Management Agreement for VP International
clients other than the fund, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are modest in comparison to the
funds and that, in any event, the addition of such other assets to the assets of
the funds that use substantially the same investment management team and
strategy to determine whether breakpoints have been achieved captures for the
shareholders a portion of any benefit that exists by accelerating fee reductions
as breakpoints are reached at lower fund asset levels.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel that is independent of the advisor, taking into account all of
the factors discussed above and the information provided by the advisor and the
Independent 15(c) Providers, concluded that the investment management agreement
between the fund and the advisor is fair and reasonable in light of the services
provided and should be renewed.
- ------
28
Share Class Information
Four classes of shares are authorized for sale by the fund: 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 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 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.
- ------
29
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.
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.
The MSCI EAFE GROWTH INDEX is a capitalization-weighted index that monitors the
performance of growth stocks from Europe, Australasia, and the Far East.
PROXY VOTING GUIDELINES
American Century Global Investment Management, Inc., the fund's investment
advisor, is responsible for exercising the voting rights associated with the
securities purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available on
American Century's Web site at americancentury.com and on the Securities and
Exchange Commission's Web site at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
30
Notes
- ------
31
Notes
- ------
32
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 ADVISOR:
American Century Global Investment Management, Inc.
New York, New York
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 Investments logo, American Century
and American Century Investments are service marks
of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
(c)2005 American Century Proprietary Holdings, Inc. All rights reserved.
0508
SH-SAN-44737
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP Large Company Value Fund
[american century investments logo and text logo]
[blank page]
Table of Contents
VP LARGE COMPANY VALUE
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 4
Shareholder Fee Example. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 7
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. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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 Large Company Value - Performance
TOTAL RETURNS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION(1) DATE
- -------------------------------------------------------------------------------
CLASS II 8.13% 10/29/04
- -------------------------------------------------------------------------------
RUSSELL 1000 VALUE INDEX(2) 10.49% --
- -------------------------------------------------------------------------------
S&P 500 INDEX(2) 6.72% --
- -------------------------------------------------------------------------------
Class I 2.02% 12/1/04
- -------------------------------------------------------------------------------
(1) Returns for less than one year are not annualized.
(2) (c) 2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be
reliable. Although carefully verified, data on compilations is not
guaranteed by Lipper Inc. -- A Reuters Company and may be incomplete.
No offer or solicitations to buy or sell any of the securities herein
is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity or
variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company separate
account prospectus for a discussion of the charges related to insurance
contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-6488.
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 Large Company Value - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE VP LARGE COMPANY VALUE INVESTMENT TEAM: BRENDAN HEALY,
CHUCK RITTER, AND MARK MALLON.
For the six months ended June 30, 2005, VP Large Company Value returned -0.26%*,
trailing the 1.76% return of its benchmark, the Russell 1000 Value Index, but
better than the broad market, as measured by the -0.81% decline of the S&P 500
Index.
A MUTED FINISH FOR STOCKS
Investors endured a choppy first half of 2005. Growing concern about the effects
of climbing interest rates and soaring oil prices on the economy and corporate
profit growth generated volatility that characterized much of the period. Amid
the uncertainty, the three major stock market indices -- the Dow Jones
Industrial Average, the S&P 500 Index and the Nasdaq Composite Index --
alternately advanced only to surrender gains and fall back into troughs.
And while sentiment briefly improved in May, sparking a technology-led rally,
resurgent oil prices, which spiked above $60 a barrel in June, contributed to a
subsequent decline, and stocks registered a tepid finish for the period. Even in
that difficult environment, VP Large Company Value still received contributions
from several of its sector positions and outperformed the broad market.
ENERGY, UTILITIES LEND STRENGTH
VP Large Company Value's presence in the energy sector made the greatest
contribution to absolute performance during the period, as record-high oil
prices underpinned gains for companies across the sector. We devoted our entire
stake to major, integrated oil and gas companies, and every holding advanced,
including Exxon Mobil, ConocoPhillips and Royal Dutch Petroleum, the portfolio's
top-three contributors.
However, many companies in this sector did not merit inclusion in the portfolio
based on our value criteria, including energy equipment and services firms,
which rallied strongly. Consequently, both the lack of broad-based exposure and
a smaller sector weight contributed to our underperformance versus our
benchmark.
TOP TEN HOLDINGS
AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Citigroup Inc. 4.5% 4.5%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 4.2% 4.1%
- --------------------------------------------------------------------------------
Standard & Poor's 500
Depositary Receipt 3.9% 2.0%
- --------------------------------------------------------------------------------
Freddie Mac 3.4% 3.7%
- --------------------------------------------------------------------------------
Bank of America Corp. 3.3% 3.3%
- --------------------------------------------------------------------------------
Royal Dutch Petroleum
Co. New York Shares 2.8% 2.6%
- --------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 2.2% 1.8%
- --------------------------------------------------------------------------------
Wells Fargo & Co. 2.1% 2.1%
- --------------------------------------------------------------------------------
Chevron Corp. 1.9% 1.7%
- --------------------------------------------------------------------------------
ConocoPhillips 1.8% 1.5%
- --------------------------------------------------------------------------------
* All fund returns referenced in this commentary
are for Class I shares. Returns for periods
less than one year are not annualized. (continued)
- ------
3
VP Large Company Value - Portfolio Commentary
Our interest in the utility sector also helped absolute returns, but slowed
relative performance. We remained selective and held only a few names -- all
contributed, including Exelon, the Chicago-based utility-service company with
extensive electric generation facilities. However, because many utility stocks
are richly valued by our standards, we remained underweight.
HEALTH CARE AUGMENTS RESULTS
Health care companies made significant strides and provided considerable lift.
Health care providers and services companies emerged as clear market leaders,
and two holdings, hospital giant HCA Inc. and health insurer CIGNA Corp. ranked
among the portfolio's top stocks. Major pharmaceutical companies also bolstered
returns, including Johnson & Johnson, a standout performer that was not
represented in the benchmark.
THE TOP DETRACTORS
VP Large Company Value's investments in the financials sector accounted for a
sizeable portion of our performance shortfall on both absolute and relative
bases. Our stake in thrifts and mortgage firms hurt the most and produced the
period's top-detracting stock, Freddie Mac, which struggled following calls for
increased regulation of government-sponsored housing firms.
Lack of exposure to the real estate industry -- in particular, real estate
investment trusts, or REITs -- also was a liability at a time when many of these
firms advanced but generally did not meet our valuation criteria.
Elsewhere in the portfolio, we suffered some individual setbacks. Lear
Corporation, a leading automotive interior systems supplier, stumbled. On March
1, the company lowered its earnings forecast, and then, on April 22, reported a
steep drop in first-quarter profit, citing diminished production for light
trucks and SUVs and higher raw-materials costs, news that sent the stock sharply
lower each time.
OUR COMMITMENT
We remain committed to following our strategy of searching for larger,
fundamentally sound businesses that, because of transitory issues, are selling
at prices we believe are below fair market value.
TOP FIVE INDUSTRIES
AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Oil, Gas &
Consumable Fuels 10.7% 9.9%
- --------------------------------------------------------------------------------
Commerical Banks 9.8% 10.6%
- --------------------------------------------------------------------------------
Diversified
Financial Services 6.6% 6.2%
- --------------------------------------------------------------------------------
Insurance 6.0% 6.1%
- --------------------------------------------------------------------------------
Thrifts &
Mortgage Finance 5.3% 5.6%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Common Stocks 96.4% 95.2%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities 3.6% 4.8%
- --------------------------------------------------------------------------------
- ------
4
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
(continued)
- ------
5
Shareholder Fee Example (Unaudited)
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
- --------------------------------------------------------------------------------
VP LARGE COMPANY VALUE SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL:
- --------------------------------------------------------------------------------
Class I $1,000 $997.40 $4.61 0.93%
- --------------------------------------------------------------------------------
Class II $1,000 $996.40 $5.35 1.08%
- --------------------------------------------------------------------------------
HYPOTHETICAL:
- --------------------------------------------------------------------------------
Class I $1,000 $1,020.18 $4.66 0.93%
- --------------------------------------------------------------------------------
Class II $1,000 $1,019.44 $5.41 1.08%
- --------------------------------------------------------------------------------
* Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365,
to reflect the one-half year period.
- ------
6
VP Large Company Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.4%
AEROSPACE & DEFENSE -- 0.6%
- --------------------------------------------------------------------------------
230 Northrop Grumman Corp. $ 12,708
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.4%
- --------------------------------------------------------------------------------
250 Lear Corporation 9,095
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.3%
- --------------------------------------------------------------------------------
320 General Motors Corp. 10,880
- --------------------------------------------------------------------------------
210 Toyota Motor Corp. ADR 15,013
- --------------------------------------------------------------------------------
25,893
- --------------------------------------------------------------------------------
BEVERAGES -- 2.2%
- --------------------------------------------------------------------------------
420 Coca-Cola Company (The) 17,535
- --------------------------------------------------------------------------------
190 Molson Coors Brewing Co. 11,780
- --------------------------------------------------------------------------------
550 Pepsi Bottling Group Inc. 15,736
- --------------------------------------------------------------------------------
45,051
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 3.6%
- --------------------------------------------------------------------------------
560 Bank of New York Co., Inc. (The) 16,117
- --------------------------------------------------------------------------------
520 Merrill Lynch & Co., Inc. 28,605
- --------------------------------------------------------------------------------
560 Morgan Stanley 29,383
- --------------------------------------------------------------------------------
74,105
- --------------------------------------------------------------------------------
CHEMICALS -- 1.1%
- --------------------------------------------------------------------------------
360 PPG Industries, Inc. 22,594
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 9.8%
- --------------------------------------------------------------------------------
1,490 Bank of America Corp. 67,958
- --------------------------------------------------------------------------------
280 National City Corp. 9,554
- --------------------------------------------------------------------------------
370 PNC Financial Services Group 20,150
- --------------------------------------------------------------------------------
960 U.S. Bancorp 28,032
- --------------------------------------------------------------------------------
640 Wachovia Corp. 31,744
- --------------------------------------------------------------------------------
720 Wells Fargo & Co. 44,338
- --------------------------------------------------------------------------------
201,776
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.3%
- --------------------------------------------------------------------------------
400 R.R. Donnelley & Sons Company 13,804
- --------------------------------------------------------------------------------
470 Waste Management, Inc. 13,320
- --------------------------------------------------------------------------------
27,124
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 0.2%
- --------------------------------------------------------------------------------
540 Avaya Inc.(1) 4,493
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 3.0%
- --------------------------------------------------------------------------------
1,530 Hewlett-Packard Co. 35,970
- --------------------------------------------------------------------------------
340 International Business
Machines Corp. 25,228
- --------------------------------------------------------------------------------
61,198
- --------------------------------------------------------------------------------
DIVERSIFIED -- 3.9%
- --------------------------------------------------------------------------------
680 Standard and Poor's 500
Depositary Receipt 81,002
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 6.6%
- --------------------------------------------------------------------------------
1,990 Citigroup Inc. 91,997
- --------------------------------------------------------------------------------
1,280 J.P. Morgan Chase & Co. 45,210
- --------------------------------------------------------------------------------
137,207
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 4.9%
- --------------------------------------------------------------------------------
240 ALLTEL Corp. $ 14,947
- --------------------------------------------------------------------------------
210 AT&T Corp. 3,998
- --------------------------------------------------------------------------------
850 BellSouth Corp. 22,585
- --------------------------------------------------------------------------------
1,110 SBC Communications Inc. 26,362
- --------------------------------------------------------------------------------
680 Sprint Corp. 17,061
- --------------------------------------------------------------------------------
470 Verizon Communications 16,239
- --------------------------------------------------------------------------------
101,192
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 2.8%
- --------------------------------------------------------------------------------
630 Exelon Corporation 32,338
- --------------------------------------------------------------------------------
430 PPL Corporation 25,533
- --------------------------------------------------------------------------------
57,871
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 2.2%
- --------------------------------------------------------------------------------
500 CVS Corp. 14,535
- --------------------------------------------------------------------------------
1,040 Kroger Co. (The)(1) 19,791
- --------------------------------------------------------------------------------
230 Wal-Mart Stores, Inc. 11,086
- --------------------------------------------------------------------------------
45,412
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.2%
- --------------------------------------------------------------------------------
440 H.J. Heinz Company 15,585
- --------------------------------------------------------------------------------
580 Sara Lee Corp. 11,490
- --------------------------------------------------------------------------------
280 Unilever N.V. New York Shares 18,152
- --------------------------------------------------------------------------------
45,227
- --------------------------------------------------------------------------------
GAS UTILITIES -- 0.7%
- --------------------------------------------------------------------------------
590 NiSource Inc. 14,591
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7%
- --------------------------------------------------------------------------------
400 Baxter International, Inc. 14,840
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 0.4%
- --------------------------------------------------------------------------------
140 HCA Inc. 7,934
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.3%
- --------------------------------------------------------------------------------
950 McDonald's Corporation 26,363
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.3%
- --------------------------------------------------------------------------------
610 Newell Rubbermaid Inc. 14,542
- --------------------------------------------------------------------------------
180 Whirlpool Corp. 12,620
- --------------------------------------------------------------------------------
27,162
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.2%
- --------------------------------------------------------------------------------
680 General Electric Co. 23,562
- --------------------------------------------------------------------------------
740 Tyco International Ltd. 21,608
- --------------------------------------------------------------------------------
45,170
- --------------------------------------------------------------------------------
INSURANCE -- 6.0%
- --------------------------------------------------------------------------------
500 Allstate Corp. 29,875
- --------------------------------------------------------------------------------
440 American International Group, Inc. 25,564
- --------------------------------------------------------------------------------
330 Hartford Financial Services
Group Inc. (The) 24,677
- --------------------------------------------------------------------------------
260 Loews Corp. 20,150
- --------------------------------------------------------------------------------
320 Marsh & McLennan Companies, Inc. 8,864
- --------------------------------------------------------------------------------
280 Torchmark Corp. 14,616
- --------------------------------------------------------------------------------
123,746
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
VP Large Company Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
IT SERVICES -- 1.4%
- --------------------------------------------------------------------------------
370 Computer Sciences Corp.(1) $ 16,169
- --------------------------------------------------------------------------------
320 Fiserv, Inc.(1) 13,744
- --------------------------------------------------------------------------------
29,913
- --------------------------------------------------------------------------------
MACHINERY -- 2.8%
- --------------------------------------------------------------------------------
200 Deere & Co. 13,098
- --------------------------------------------------------------------------------
380 Dover Corp. 13,824
- --------------------------------------------------------------------------------
230 Ingersoll-Rand Company 16,411
- --------------------------------------------------------------------------------
230 Parker-Hannifin Corp. 14,262
- --------------------------------------------------------------------------------
57,595
- --------------------------------------------------------------------------------
MEDIA -- 2.7%
- --------------------------------------------------------------------------------
330 Gannett Co., Inc. 23,473
- --------------------------------------------------------------------------------
1,940 Time Warner Inc.(1) 32,417
- --------------------------------------------------------------------------------
55,890
- --------------------------------------------------------------------------------
METALS & MINING -- 1.0%
- --------------------------------------------------------------------------------
570 Alcoa Inc. 14,894
- --------------------------------------------------------------------------------
110 Nucor Corp. 5,018
- --------------------------------------------------------------------------------
19,912
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 0.6%
- --------------------------------------------------------------------------------
590 Dollar General Corp. 12,012
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.7%
- --------------------------------------------------------------------------------
1,030 Xerox Corp.(1) 14,204
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 10.7%
- --------------------------------------------------------------------------------
690 Chevron Corp. 38,585
- --------------------------------------------------------------------------------
660 ConocoPhillips 37,943
- --------------------------------------------------------------------------------
1,520 Exxon Mobil Corp. 87,355
- --------------------------------------------------------------------------------
880 Royal Dutch Petroleum Co.
New York Shares 57,112
- --------------------------------------------------------------------------------
220,995
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.3%
- --------------------------------------------------------------------------------
430 Weyerhaeuser Co. 27,370
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.2%
- --------------------------------------------------------------------------------
510 Abbott Laboratories 24,995
- --------------------------------------------------------------------------------
510 Bristol-Myers Squibb Co. 12,740
- --------------------------------------------------------------------------------
360 Johnson & Johnson 23,400
- --------------------------------------------------------------------------------
310 Merck & Co., Inc. 9,548
- --------------------------------------------------------------------------------
370 Wyeth 16,465
- --------------------------------------------------------------------------------
87,148
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ROAD & RAIL -- 0.5%
- --------------------------------------------------------------------------------
340 Norfolk Southern Corp. $ 10,526
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 0.8%
- --------------------------------------------------------------------------------
620 Intel Corp. 16,157
- --------------------------------------------------------------------------------
SOFTWARE -- 1.6%
- --------------------------------------------------------------------------------
1,330 Microsoft Corporation 33,037
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.0%
- --------------------------------------------------------------------------------
140 Advance Auto Parts, Inc.(1) 9,037
- --------------------------------------------------------------------------------
600 Gap, Inc. (The) 11,850
- --------------------------------------------------------------------------------
20,887
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.8%
- --------------------------------------------------------------------------------
320 Liz Claiborne, Inc. 12,723
- --------------------------------------------------------------------------------
260 Reebok International Ltd. 10,876
- --------------------------------------------------------------------------------
240 VF Corp. 13,733
- --------------------------------------------------------------------------------
37,332
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 5.3%
- --------------------------------------------------------------------------------
1,070 Freddie Mac 69,797
- --------------------------------------------------------------------------------
170 MGIC Investment Corp. 11,087
- --------------------------------------------------------------------------------
680 Washington Mutual, Inc. 27,669
- --------------------------------------------------------------------------------
108,553
- --------------------------------------------------------------------------------
TOBACCO -- 1.3%
- --------------------------------------------------------------------------------
420 Altria Group Inc. 27,157
- --------------------------------------------------------------------------------
TOTAL INVESTMENT
SECURITIES -- 96.4%
(Cost $1,939,513) 1,990,442
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES -- 3.6% 73,571
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $2,064,013
================================================================================
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, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $1,939,513) $1,990,442
- ------------------------------------------------------------
Cash 76,653
- ------------------------------------------------------------
Receivable for investments sold 4,285
- ------------------------------------------------------------
Dividends and interest receivable 2,787
- --------------------------------------------------------------------------------
2,074,167
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 8,477
- ------------------------------------------------------------
Accrued management fees 1,437
- ------------------------------------------------------------
Distribution fees payable 240
- --------------------------------------------------------------------------------
10,154
- --------------------------------------------------------------------------------
NET ASSETS $2,064,013
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $1,985,923
- ------------------------------------------------------------
Undistributed net investment income 12,166
- ------------------------------------------------------------
Undistributed net realized gain on investment transactions 14,995
- ------------------------------------------------------------
Net unrealized appreciation on investments 50,929
- --------------------------------------------------------------------------------
$2,064,013
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $1,049,558
- ------------------------------------------------------------
Shares outstanding 97,627
- ------------------------------------------------------------
Net asset value per share $10.75
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $1,014,455
- ------------------------------------------------------------
Shares outstanding 94,448
- ------------------------------------------------------------
Net asset value per share $10.74
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
9
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Dividends $ 20,959
- ------------------------------------------------------------
Interest 411
- --------------------------------------------------------------------------------
21,370
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 7,388
- ------------------------------------------------------------
Distribution fees -- Class II 1,392
- ------------------------------------------------------------
Trustees' fees and expenses 20
- ------------------------------------------------------------
Other expenses 404
- --------------------------------------------------------------------------------
9,204
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 12,166
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions 15,304
- ------------------------------------------------------------
Change in net unrealized appreciation on investments (28,606)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (13,302)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,136)
================================================================================
See Notes to Financial Statements.
- ------
10
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND PERIOD ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2005 2004(1)
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 12,166 $ 4,480
- -----------------------------------------
Net realized gain 15,304 3,321
- -----------------------------------------
Change in net unrealized appreciation (28,606) 79,535
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,136) 87,336
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- -----------------------------------------
Class I -- (159)
- -----------------------------------------
Class II -- (6,071)
- -----------------------------------------
From net realized gains:
- -----------------------------------------
Class I (661) --
- -----------------------------------------
Class II (1,219) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (1,880) (6,230)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions 581,998 1,403,925
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 578,982 1,485,031
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 1,485,031 --
- --------------------------------------------------------------------------------
End of period $2,064,013 $1,485,031
================================================================================
Undistributed net investment income $12,166 --
================================================================================
(1) October 29, 2004 (fund inception) through December 31, 2004.
See Notes to Financial Statements.
- ------
11
Notes to Financial Statements
JUNE 30, 2005 (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 Large Company 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. The
production of income is a secondary objective. The fund pursues its objective
through investing in common stocks of companies believed 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 and Class II. 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. The fund
incepted on October 29, 2004 with the commencement of sale of Class II. Sale of
Class I commenced on December 1, 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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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)
- ------
12
Notes to Financial Statements
JUNE 30, 2005 (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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require management to make certain estimates and assumptions at the date of
the financial statements. Actual results could differ from these estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACIM, under which ACIM provides the fund with investment advisory and management
services in exchange for a single, unified management fee (the fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. For funds with a stepped fee schedule, the
rate of the fee is determined by applying a fee rate calculation formula. This
formula takes into account all of the investment advisor's assets under
management in the fund's investment strategy (strategy assets) to calculate the
appropriate fee rate for the fund. The strategy assets include the fund's assets
and the assets of other clients of the investment advisor that are not in the
American Century family of funds, but that have the same investment team and
investment strategy.
CLASS I CLASS II
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $1 billion 0.90% 0.80%
- --------------------------------------------------------------------------------
Next $4 billion 0.80% 0.70%
- --------------------------------------------------------------------------------
Over $5 billion 0.70% 0.60%
- --------------------------------------------------------------------------------
For the six months ended June 30, 2005, the effective annual management fee was
0.90% and 0.80% for Class I and Class II, respectively.
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (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 and
accrued daily based on the Class II daily net assets and paid monthly in
arrears. The distribution fee provides compensation for expenses incurred in
connection with distributing shares of Class II including, but not limited to,
payments to brokers, dealers, and financial institutions that have entered into
sales agreements with respect to shares of the fund. Fees incurred under the
plan during the six months ended June 30, 2005, are detailed in the Statement of
Operations.
OTHER EXPENSES -- A portion of other expenses was due to nonrecurring expenses
paid by the fund. The impact of total other expenses to the annualized ratio of
operating expenses to average net assets was 0.03%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services, LLC (formerly American Century
Services Corporation).
The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2005, were $780,274 and $190,605,
respectively.
As of June 30, 2005, 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 $1,941,677
================================================================================
Gross tax appreciation of investments $ 99,821
- ----------------------------------------------------------
Gross tax depreciation of investments (51,056)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $ 48,765
================================================================================
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, 2005 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 200,000,000
================================================================================
Sold 64,259 $688,976
- ----------------------------------------------
Issued in reinvestment of distributions 61 661
- ----------------------------------------------
Redeemed (3,724) (39,744)
- --------------------------------------------------------------------------------
Net increase 60,596 $649,893
================================================================================
PERIOD ENDED DECEMBER 31, 2004(1)
SHARES AUTHORIZED 200,000,000
================================================================================
Sold 37,100 $398,394
- ----------------------------------------------
Issued in reinvestment of distributions 15 159
- ----------------------------------------------
Redeemed (84) (902)
- --------------------------------------------------------------------------------
Net increase 37,031 $397,651
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 34,342 $ 366,108
- ----------------------------------------------
Issued in reinvestment of distributions 111 1,219
- ----------------------------------------------
Redeemed (40,585) (435,222)
- --------------------------------------------------------------------------------
Net decrease (6,132) $ (67,895)
================================================================================
PERIOD ENDED DECEMBER 31, 2004(2)
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 100,009 $1,000,203
- ----------------------------------------------
Issued in reinvestment of distributions 571 6,071
- --------------------------------------------------------------------------------
Net increase 100,580 $1,006,274
================================================================================
(1) December 1, 2004 (commencement of sale) through December 31, 2004.
(2) October 29, 2004 (fund inception) through December 31, 2004.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$575,000,000 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, 2005.
- ------
15
VP Large Company Value - Financial Highlights
For a Share Outstanding Throughout the Periods Indicated
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
2005(1) 2004(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.79 $10.61
- --------------------------------------------------------------------------------
Income From Investment Operations
- ------------------------------------------------------
Net Investment Income(3) 0.08 0.01
- ------------------------------------------------------
Net Realized and Unrealized Gain (Loss) (0.11) 0.23
- --------------------------------------------------------------------------------
Total From Investment Operations (0.03) 0.24
- --------------------------------------------------------------------------------
Distributions
- ------------------------------------------------------
From Net Investment Income -- (0.06)
- ------------------------------------------------------
From Net Realized Gains (0.01) --
- --------------------------------------------------------------------------------
Total Distributions (0.01) (0.06)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $10.75 $10.79
================================================================================
TOTAL RETURN(4) (0.26)% 2.29%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.93%(5) 0.90%(5)
- ------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.49%(5) 0.64%(5)
- ------------------------------------------------------
Portfolio Turnover Rate 11% 3%(6)
- ------------------------------------------------------
Net Assets, End of Period (in thousands) $1,050 $400
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) December 1, 2004 (commencement of sale) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of net
asset values to two decimal places is made in accordance with SEC
guidelines and does not result in any gain or loss of value between
one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the period October 29, 2004 (fund inception) through
December 31, 2004.
See Notes to Financial Statements.
- ------
16
VP Large Company Value - Financial Highlights
For a Share Outstanding Throughout the Periods Indicated
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2005(1) 2004(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.79 $10.00
- --------------------------------------------------------------------------------
Income From Investment Operations
- ------------------------------------------------------
Net Investment Income(3) 0.07 0.04
- ------------------------------------------------------
Net Realized and Unrealized Gain (Loss) (0.11) 0.81
- --------------------------------------------------------------------------------
Total From Investment Operations (0.04) 0.85
- --------------------------------------------------------------------------------
Distributions
- ------------------------------------------------------
From Net Investment Income -- (0.06)
- ------------------------------------------------------
From Net Realized Gains (0.01) --
- --------------------------------------------------------------------------------
Total Distributions (0.01) (0.06)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $10.74 $10.79
================================================================================
TOTAL RETURN(4) (0.36)% 8.52%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.08%(5) 1.05%(5)
- ------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.34%(5) 2.44%(5)
- ------------------------------------------------------
Portfolio Turnover Rate 11% 3%
- ------------------------------------------------------
Net Assets, End of Period (in thousands) $1,014 $1,085
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) October 29, 2004 (fund inception) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would
more closely reflect the class expense differences. The calculation of
net asset values to two decimal places is made in accordance with SEC
guidelines and does not result in any gain or loss of value between
one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
17
Share Class Information
Two classes of shares are authorized for sale by the fund: Class I and Class II.
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 Class I shares.
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.
- ------
18
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 NASDAQ COMPOSITE INDEX is a market value-weighted index of all domestic and
international common stocks listed on the Nasdaq stock market.
The RUSSELL 1000 VALUE INDEX measures the performance of those Russell 1000
companies (the 1,000 largest 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.
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 investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
19
Notes
- ------
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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century
and American Century Investments are service marks of
American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
0508
SH-SAN-44742 (c)2005 American Century Proprietary Holdings, Inc.
All rights reserved.
[front cover]
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP Mid Cap Value Fund
[american century investments logo and text logo]
Table of Contents
VP MID CAP VALUE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 4
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .10
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .11
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .12
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .13
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
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 Mid Cap Value - Performance
TOTAL RETURNS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION(1) DATE
- --------------------------------------------------------------------------------
CLASS II 15.99% 10/29/04
- --------------------------------------------------------------------------------
RUSSELL MIDCAP VALUE INDEX(2) 17.01%(3) --
- --------------------------------------------------------------------------------
Class I 7.50% 12/1/04
- --------------------------------------------------------------------------------
(1) Returns for periods less than one year are not annualized.
(2) (c) 2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by
Lipper Inc. -- A Reuters Company and may be incomplete. No offer or
solicitations to buy or sell any of the securities herein is being made
by Lipper.
(3) Since 10/31/04, the date nearest Class II'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 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 II shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the prospectus.
Data assumes reinvestment of dividends and capital gains, and none of the charts
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
2
VP Mid Cap Value - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE VP MID CAP VALUE INVESTMENT TEAM: MICHAEL LISS, PHIL
DAVIDSON AND SCOTT MOORE.
VP Mid Cap Value gained 3.29%* during the six months ended June 30, 2005,
compared to its benchmark, the Russell Midcap Value Index, which was up 5.51%.
A CHOPPY PERIOD
Investors endured a choppy first half of 2005 as oil, interest rates and
inflation concerns, weighed on investor sentiment, leading to flat returns for
the broad stock market, with the S&P 500 Index down 0.81% and the Russell 3000
Index down 0.01%. Mid-sized companies fared well over the period, with the
Russell Midcap Index up almost 4%. Against this backdrop, energy companies,
utilities and health care businesses contributed the most to VP Mid Cap Value's
absolute results.
ENERGY LED PORTFOLIO
Energy stocks proved to be the portfolio's largest contributors to absolute
performance, with Unocal Corp. emerging as the portfolio's top-contributing
security. Unocal, which reported record first-quarter earnings, also received
merger proposals from Chevron Corp. and CNOOC Limited, an affiliate of China
National Offshore Oil Co. We were also rewarded for our investments in
ConocoPhillips and natural gas producer Burlington Resources Inc. Both companies
delivered strong operating results and ConocoPhillips increased its dividend
over the period.
UTILITIES UP
Utility stocks also proved successful. On the electric side, IDACORP, Inc. led
our investments. This utility holding company operates Idaho Power, which serves
southern Idaho and eastern Oregon. Its shares gained on improved outlooks for
its utility and communications businesses. Our gas utilities were led by WGL
Holdings, Inc., the parent company of Washington Gas Light Co., which serves
metropolitan Washington, D.C. and surrounding regions in Virginia and Maryland.
TOP TEN HOLDINGS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Bemis Co. 3.6% 1.0%
- --------------------------------------------------------------------------------
Hunter Douglas N.V. ORD 3.2% 1.7%
- --------------------------------------------------------------------------------
International Flavors
& Fragrances Inc. 2.6% --
- --------------------------------------------------------------------------------
Speedway
Motorsports Inc. 2.1% 0.8%
- --------------------------------------------------------------------------------
SunTrust Banks, Inc. 2.0% 2.1%
- --------------------------------------------------------------------------------
Kraft Foods Inc. Cl A 1.9% 1.1%
- --------------------------------------------------------------------------------
Unocal Corp. 1.8% 1.3%
- --------------------------------------------------------------------------------
Union Pacific Corp. 1.8% 2.2%
- --------------------------------------------------------------------------------
Marsh & McLennan
Companies Inc. 1.8% 1.8%
- --------------------------------------------------------------------------------
National Dentex Corp. 1.7% 1.3%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for
Class I shares. Returns for periods less than one year
are not annualized. (continued)
- ------
3
VP Mid Cap Value - Portfolio Commentary
HEALTH CARE ADDS VALUE
Health care holdings represented another bright spot, with health care providers
Universal Health Services, Inc. (UHS) and HCA Inc. both strong contributors.
UHS, one of the country's largest hospital management companies, reported
higher-than-expected first-quarter earnings as margins improved significantly.
UHS also announced a share repurchase program in June. Meanwhile, improved bad
debt trends, increased volumes and expense management enabled HCA, the operator
of the largest U.S. hospital chain, to exceed its first-quarter guidance. In the
health care equipment industry, Symmetry Medical Inc., a provider of orthopedic
implants and instruments, was also a strong contributor.
CONSUMER DISCRETIONARY STOCKS DETRACT
Consumer discretionary businesses--companies involved in pursuits such as media
and publishing, specialty retail, apparel, auto components, and leisure
products--dampened our absolute results the most. Within media, one of our
largest detractors was The New York Times Co. The nation's third-largest
newspaper publisher said revenue from national advertisers fell as technology
and financial companies reduced spending on newspaper ads. In apparel, Kellwood
Co., a marketer of women's and men's sportswear, reported a drop in
first-quarter earnings and lowered its guidance for the year as a result of
worsening trends in womenswear. Cooper Tire and Rubber Co. was another detractor
from the sector, due to lost sales associated with a strike at one of its
plants. In all three cases, we believe the issues affecting these companies are
manageable and have maintained our positions.
LOOKING AHEAD
We will continue to adhere to our discipline of seeking well-managed companies
that appear to be temporarily undervalued for reasons unrelated to their
fundamental or financial health.
TOP FIVE INDUSTRIES AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Food Products 6.7% 4.5%
- --------------------------------------------------------------------------------
Chemicals 5.5% 1.9%
- --------------------------------------------------------------------------------
Insurance 4.6% 7.6%
- --------------------------------------------------------------------------------
Containers & Packaging 4.4% 1.0%
- --------------------------------------------------------------------------------
Household Durables 4.2% 3.7%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Common Stocks 94.6% 95.9%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 8.4% --
- --------------------------------------------------------------------------------
Other Assets
and Liabilities (3.0)% 4.1%
- --------------------------------------------------------------------------------
- ------
4
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
(continued)
- ------
5
Shareholder Fee Example (Unaudited)
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
- --------------------------------------------------------------------------------
VP MID CAP VALUE SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Class I $1,000 $1,032.90 $5.24 1.04%
- --------------------------------------------------------------------------------
Class II $1,000 $1,032.00 $6.00 1.19%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Class I $1,000 $1,019.64 $5.21 1.04%
- --------------------------------------------------------------------------------
Class II $1,000 $1,018.89 $5.96 1.19%
- --------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
6
VP Mid Cap Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 94.6%
AEROSPACE & DEFENSE -- 2.3%
- --------------------------------------------------------------------------------
822 Honeywell International Inc. $ 30,110
- --------------------------------------------------------------------------------
448 Northrop Grumman Corp. 24,752
- --------------------------------------------------------------------------------
54,862
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.9%
- --------------------------------------------------------------------------------
1,114 Cooper Tire & Rubber 20,687
- --------------------------------------------------------------------------------
BEVERAGES -- 2.2%
- --------------------------------------------------------------------------------
550 Anheuser-Busch Companies, Inc. 25,163
- --------------------------------------------------------------------------------
927 Coca-Cola Enterprises 20,403
- --------------------------------------------------------------------------------
215 Pepsi Bottling Group Inc. 6,151
- --------------------------------------------------------------------------------
51,717
- --------------------------------------------------------------------------------
BUILDING PRODUCTS -- 1.4%
- --------------------------------------------------------------------------------
795 Builders FirstSource, Inc.(1) 12,879
- --------------------------------------------------------------------------------
672 Masco Corp. 21,343
- --------------------------------------------------------------------------------
34,222
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 1.2%
- --------------------------------------------------------------------------------
509 Merrill Lynch & Co., Inc. 28,000
- --------------------------------------------------------------------------------
CHEMICALS -- 5.5%
- --------------------------------------------------------------------------------
802 Ecolab Inc. 25,953
- --------------------------------------------------------------------------------
665 Ferro Corp. 13,207
- --------------------------------------------------------------------------------
1,684 International Flavors
& Fragrances Inc. 60,993
- --------------------------------------------------------------------------------
548 Minerals Technologies Inc. 33,757
- --------------------------------------------------------------------------------
133,910
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 3.5%
- --------------------------------------------------------------------------------
285 BancorpSouth Inc. 6,726
- --------------------------------------------------------------------------------
279 Chemical Financial Corp. 9,238
- --------------------------------------------------------------------------------
357 Commerce Bancshares, Inc. 17,996
- --------------------------------------------------------------------------------
666 SunTrust Banks, Inc. 48,112
- --------------------------------------------------------------------------------
82,072
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 3.4%
- --------------------------------------------------------------------------------
950 Aramark Corp. Cl B 25,080
- --------------------------------------------------------------------------------
995 Republic Services, Inc. Cl A 35,830
- --------------------------------------------------------------------------------
736 Waste Management, Inc. 20,858
- --------------------------------------------------------------------------------
81,768
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 0.8%
- --------------------------------------------------------------------------------
416 Diebold, Inc. 18,766
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 4.4%
- --------------------------------------------------------------------------------
418 AptarGroup, Inc. 21,234
- --------------------------------------------------------------------------------
3,259 Bemis Co. 86,494
- --------------------------------------------------------------------------------
107,728
- --------------------------------------------------------------------------------
DIVERSIFIED -- 1.6%
- --------------------------------------------------------------------------------
537 iShares S&P MidCap
400 Index Fund 36,811
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES -- 0.6%
- --------------------------------------------------------------------------------
677 Lincoln Educational
Services Corp.(1) $ 13,709
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.3%
- --------------------------------------------------------------------------------
304 Commonwealth
Telephone Enterprise Inc. 12,741
- --------------------------------------------------------------------------------
908 Iowa Telecommunications
Services Inc. 17,025
- --------------------------------------------------------------------------------
29,766
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 1.3%
- --------------------------------------------------------------------------------
576 IDACORP, Inc. 17,643
- --------------------------------------------------------------------------------
538 Westar Energy Inc. 12,928
- --------------------------------------------------------------------------------
30,571
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.9%
- --------------------------------------------------------------------------------
482 Emerson Electric Co. 30,188
- --------------------------------------------------------------------------------
312 Hubbell Inc. Cl B 13,759
- --------------------------------------------------------------------------------
43,947
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.7%
- --------------------------------------------------------------------------------
810 AVX Corporation 9,817
- --------------------------------------------------------------------------------
923 Littelfuse, Inc.(1) 25,706
- --------------------------------------------------------------------------------
369 Vishay Intertechnology, Inc.(1) 4,380
- --------------------------------------------------------------------------------
39,903
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 6.7%
- --------------------------------------------------------------------------------
1,086 ConAgra Foods, Inc. 25,152
- --------------------------------------------------------------------------------
290 General Mills, Inc. 13,569
- --------------------------------------------------------------------------------
936 H.J. Heinz Company 33,153
- --------------------------------------------------------------------------------
370 Kellogg Co. 16,443
- --------------------------------------------------------------------------------
1,412 Kraft Foods Inc. Cl A 44,915
- --------------------------------------------------------------------------------
439 Unilever N.V. New York Shares 28,460
- --------------------------------------------------------------------------------
161,692
- --------------------------------------------------------------------------------
GAS UTILITIES -- 2.4%
- --------------------------------------------------------------------------------
888 Cascade Natural Gas Corp. 18,204
- --------------------------------------------------------------------------------
370 Equitable Resources Inc. 25,160
- --------------------------------------------------------------------------------
373 WGL Holdings Inc. 12,548
- --------------------------------------------------------------------------------
55,912
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.8%
- --------------------------------------------------------------------------------
260 Beckman Coulter Inc. 16,528
- --------------------------------------------------------------------------------
2,203 National Dentex Corp.(1) 40,557
- --------------------------------------------------------------------------------
363 Steris Corp. 9,355
- --------------------------------------------------------------------------------
66,440
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 1.7%
- --------------------------------------------------------------------------------
2,228 LHC Group, Inc.(1) 40,505
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 3.1%
- --------------------------------------------------------------------------------
187 Brinker International, Inc.(1) 7,489
- --------------------------------------------------------------------------------
362 Outback Steakhouse, Inc. 16,377
- --------------------------------------------------------------------------------
1,349 Speedway Motorsports Inc. 49,320
- --------------------------------------------------------------------------------
73,186
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
7
VP Mid Cap Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 4.2%
- --------------------------------------------------------------------------------
1,503 Hunter Douglas N.V. ORD(1) $ 75,176
- --------------------------------------------------------------------------------
362 Snap-on Incorporated 12,417
- --------------------------------------------------------------------------------
223 Whirlpool Corp. 15,635
- --------------------------------------------------------------------------------
103,228
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.9%
- --------------------------------------------------------------------------------
556 Colgate-Palmolive Co. 27,750
- --------------------------------------------------------------------------------
641 Kimberly-Clark Corp. 40,120
- --------------------------------------------------------------------------------
67,870
- --------------------------------------------------------------------------------
INSURANCE -- 4.6%
- --------------------------------------------------------------------------------
103 Chubb Corp. 8,818
- --------------------------------------------------------------------------------
601 CNA Surety Corp.(1) 8,925
- --------------------------------------------------------------------------------
359 Horace Mann Educators Corp. 6,756
- --------------------------------------------------------------------------------
416 Jefferson-Pilot Corp. 20,975
- --------------------------------------------------------------------------------
1,530 Marsh & McLennan
Companies, Inc. 42,380
- --------------------------------------------------------------------------------
711 Platinum Underwriters Holdings 22,624
- --------------------------------------------------------------------------------
110,478
- --------------------------------------------------------------------------------
IT SERVICES -- 3.0%
- --------------------------------------------------------------------------------
1,440 Accenture Ltd. Cl A(1) 32,645
- --------------------------------------------------------------------------------
807 DST Systems, Inc.(1) 37,767
- --------------------------------------------------------------------------------
70,412
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.7%
- --------------------------------------------------------------------------------
800 Arctic Cat Inc. 16,424
- --------------------------------------------------------------------------------
MACHINERY -- 1.4%
- --------------------------------------------------------------------------------
904 Dover Corp. 32,888
- --------------------------------------------------------------------------------
MEDIA -- 3.7%
- --------------------------------------------------------------------------------
423 ADVO, Inc. 13,473
- --------------------------------------------------------------------------------
603 Dow Jones & Co. Inc. 21,376
- --------------------------------------------------------------------------------
936 Journal Communications Inc. 15,725
- --------------------------------------------------------------------------------
641 New York Times Co. (The) Cl A 19,967
- --------------------------------------------------------------------------------
804 Westwood One, Inc. 16,426
- --------------------------------------------------------------------------------
86,967
- --------------------------------------------------------------------------------
METALS & MINING -- 0.6%
- --------------------------------------------------------------------------------
337 Newmont Mining Corporation 13,153
- --------------------------------------------------------------------------------
MULTI-UTILITIES -- 0.7%
- --------------------------------------------------------------------------------
423 Wisconsin Energy Corp. 16,497
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 2.1%
- --------------------------------------------------------------------------------
825 Dollar General Corp. 16,797
- --------------------------------------------------------------------------------
1,230 Family Dollar Stores, Inc. 32,103
- --------------------------------------------------------------------------------
48,900
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 3.1%
- --------------------------------------------------------------------------------
531 Burlington Resources, Inc. 29,332
- --------------------------------------------------------------------------------
665 Unocal Corp. 43,259
- --------------------------------------------------------------------------------
72,591
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.1%
- --------------------------------------------------------------------------------
482 MeadWestvaco Corp. $ 13,516
- --------------------------------------------------------------------------------
417 Neenah Paper Inc. 12,914
- --------------------------------------------------------------------------------
26,430
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 3.2%
- --------------------------------------------------------------------------------
1,600 Mylan Laboratories Inc. 30,784
- --------------------------------------------------------------------------------
710 Schering-Plough Corp. 13,533
- --------------------------------------------------------------------------------
1,032 Watson Pharmaceuticals, Inc.(1) 30,506
- --------------------------------------------------------------------------------
74,823
- --------------------------------------------------------------------------------
REAL ESTATE -- 1.6%
- --------------------------------------------------------------------------------
722 Education Realty Trust, Inc. 13,213
- --------------------------------------------------------------------------------
526 KKR Financial Corp.(1) 13,150
- --------------------------------------------------------------------------------
334 Sun Communities, Inc. 12,421
- --------------------------------------------------------------------------------
38,784
- --------------------------------------------------------------------------------
ROAD & RAIL -- 2.1%
- --------------------------------------------------------------------------------
357 Heartland Express, Inc. 6,937
- --------------------------------------------------------------------------------
667 Union Pacific Corp. 43,221
- --------------------------------------------------------------------------------
50,158
- --------------------------------------------------------------------------------
SEMICONDUCTORS
& SEMICONDUCTOR EQUIPMENT -- 0.9%
- --------------------------------------------------------------------------------
823 Applied Materials, Inc. 13,317
- --------------------------------------------------------------------------------
751 Teradyne, Inc.(1) 8,989
- --------------------------------------------------------------------------------
22,306
- --------------------------------------------------------------------------------
SOFTWARE -- 1.7%
- --------------------------------------------------------------------------------
492 Reynolds & Reynolds Co. Cl A 13,299
- --------------------------------------------------------------------------------
1,627 Synopsys, Inc.(1) 27,122
- --------------------------------------------------------------------------------
40,421
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.4%
- --------------------------------------------------------------------------------
691 Foot Locker, Inc. 18,809
- --------------------------------------------------------------------------------
704 Gap, Inc. (The) 13,904
- --------------------------------------------------------------------------------
32,713
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.4%
- --------------------------------------------------------------------------------
208 Jones Apparel Group, Inc. 6,456
- --------------------------------------------------------------------------------
725 Kellwood Co. 19,502
- --------------------------------------------------------------------------------
164 Liz Claiborne, Inc. 6,521
- --------------------------------------------------------------------------------
32,479
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 2.4%
- --------------------------------------------------------------------------------
501 Freddie Mac 32,680
- --------------------------------------------------------------------------------
381 MGIC Investment Corp. 24,849
- --------------------------------------------------------------------------------
57,529
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 1.1%
- --------------------------------------------------------------------------------
457 Grainger (W.W.), Inc. 25,039
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $2,201,951) 2,246,264
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
VP Mid Cap Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 8.4%
$200,000 FHLMC Discount
Notes, 2.60%, 7/1/05(2)
(Cost $200,000) $ 200,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 103.0%
(Cost $2,401,951) 2,446,264
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (3.0)% (72,135)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $2,374,129
================================================================================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
10,757 Euro for USD 7/29/05 $13,029 $ (21)
- --------------------------------------------------------------------------------
29,210 Euro for USD 7/29/05 35,379 (63)
- --------------------------------------------------------------------------------
23,358 Euro for USD 7/29/05 28,291 (31)
- --------------------------------------------------------------------------------
$76,699 $(115)
=======================================
(Value on Settlement Date $76,584)
*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
FHLMC = Federal Home Loan Mortgage Corporation
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
(2) The rate indicated is the yield to maturity at purchase.
A fair valued security is one which has not been valued utilizing an independent
quote, but has been valued pursuant to guidelines established by the Board of
Directors. The aggregate value of fair valued securities at June 30, 2005, was
$75,176, which represented 3.2% of net assets.
See Notes to Financial Statements.
- ------
9
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $2,401,951) $2,446,264
- ------------------------------------------------------------
Cash 81,980
- ------------------------------------------------------------
Receivable for investments sold 73,500
- ------------------------------------------------------------
Dividends and interest receivable 2,169
- --------------------------------------------------------------------------------
2,603,913
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 228,087
- ------------------------------------------------------------
Payable for forward foreign currency exchange contracts 115
- ------------------------------------------------------------
Accrued management fees 1,386
- ------------------------------------------------------------
Distribution fees payable 196
- --------------------------------------------------------------------------------
229,784
- --------------------------------------------------------------------------------
NET ASSETS 2,374,129
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $2,271,816
- ------------------------------------------------------------
Undistributed net investment income 18,135
- ------------------------------------------------------------
Undistributed net realized gain on investment transactions 39,961
- ------------------------------------------------------------
Net unrealized appreciation on investments 44,217
- --------------------------------------------------------------------------------
$2,374,129
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $940,933
- ------------------------------------------------------------
Shares outstanding 82,593
- ------------------------------------------------------------
Net asset value per share $11.39
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $1,433,196
- ------------------------------------------------------------
Shares outstanding 125,914
- ------------------------------------------------------------
Net asset value per share $11.38
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
10
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- --------------------------------------------------------------
Dividends (net of foreign taxes withheld of $51) $25,015
- --------------------------------------------------------------
Interest 265
- --------------------------------------------------------------------------------
25,280
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------
Management fees 5,936
- --------------------------------------------------------------
Distribution fees - Class II 811
- --------------------------------------------------------------
Trustees' fees and expenses 12
- --------------------------------------------------------------
Other expenses 402
- --------------------------------------------------------------------------------
7,161
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 18,119
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON:
- --------------------------------------------------------------
Investment transactions 37,006
- --------------------------------------------------------------
Foreign currency transactions 3,102
- --------------------------------------------------------------------------------
40,108
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- --------------------------------------------------------------
Investments (258)
- --------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (95)
- --------------------------------------------------------------------------------
(353)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN 39,755
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $57,874
================================================================================
See Notes to Financial Statements.
- ------
11
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND PERIOD ENDED DECEMBER 31, 2004(1)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 18,119 $ 907
- -------------------------------------------
Net realized gain 40,108 20,260
- -------------------------------------------
Change in net unrealized appreciation (353) 44,570
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 57,874 65,737
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- -------------------------------------------
Class I -- (80)
- -------------------------------------------
Class II -- (1,440)
- -------------------------------------------
From net realized gains:
- -------------------------------------------
Class I (10,024) --
- -------------------------------------------
Class II (9,754) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (19,778) (1,520)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 1,481,669 790,147
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 1,519,765 854,364
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 854,364 --
- --------------------------------------------------------------------------------
End of period $2,374,129 $854,364
================================================================================
Undistributed net investment income $18,135 $16
================================================================================
(1) October 29, 2004 (fund inception) through December 31, 2004.
See Notes to Financial Statements.
- ------
12
Notes to Financial Statements
JUNE 30, 2005 (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 Mid Cap 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 to seek long-term capital growth.
The production of income is a secondary objective. The fund pursues its
objective by investing in stocks of mid-sized market capitalization companies
that the investment advisor 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 and Class II. 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. The fund
incepted on October 29, 2004 with the commencement of Class II shares. Class I
commenced on December 1, 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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
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 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.
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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 $290 of net foreign currency losses incurred in
the two-month period ended December 31, 2004, as having been incurred in the
following fiscal year for federal income tax purposes.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
- ------
14
Notes to Financial Statements
JUNE 30, 2005 (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 fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. The effective annual management fee for
the fund for the six months ended June 30, 2005 was 1.00% and 0.90% for Class I
and Class II, 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 and
accrued daily based on the Class II daily net assets and paid monthly in
arrears. The distribution fee provides compensation for expenses incurred in
connection with distributing shares of Class II including, but not limited to,
payments to brokers, dealers, and financial institutions that have entered into
sales agreements with respect to shares of the fund. Fees incurred under the
plan during the six months ended June 30, 2005, are detailed in the Statement of
Operations.
OTHER EXPENSES -- A portion of other expenses was due to nonrecurring expenses
paid by the fund. The impact of total other expenses to the annualized ratio of
operating expenses to average net assets was 0.04%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services, LLC (formerly American Century
Services Corporation).
The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended June 30, 2005, were as follows:
- --------------------------------------------------------------------------------
Purchases $2,770,231
- --------------------------------------------------------------------------------
Proceeds from sales $1,380,013
- --------------------------------------------------------------------------------
As of June 30, 2005, 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 $2,420,908
================================================================================
Gross tax appreciation of investments $63,329
- ----------------------------------------------------------------
Gross tax depreciation of investments (37,973)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $25,356
================================================================================
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)
- ------
15
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 64,609 $716,122
- -----------------------------------------------
Issued in reinvestment of distributions 900 10,024
- -----------------------------------------------
Redeemed (8,305) (91,825)
- -----------------------------------------------
Net increase 57,204 $634,321
================================================================================
PERIOD ENDED DECEMBER 31, 2004(1)
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 25,437 $281,153
- -----------------------------------------------
Issued in reinvestment of distributions 7 80
- -----------------------------------------------
Redeemed (55) (618)
- --------------------------------------------------------------------------------
Net increase 25,389 $280,615
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 74,492 $841,121
- -----------------------------------------------
Issued in reinvestment of distributions 876 9,754
- -----------------------------------------------
Redeemed (310) (3,527)
- --------------------------------------------------------------------------------
Net increase 75,058 $847,348
================================================================================
PERIOD ENDED DECEMBER 31, 2004(2)
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 50,725 $508,092
- -----------------------------------------------
Issued in reinvestment of distributions 131 1,440
- --------------------------------------------------------------------------------
Net increase 50,856 $509,532
================================================================================
(1) December 1, 2004 (commencement of sale) through December 31, 2004.
(2) October 29, 2004 (fund inception) through December 31, 2004.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$575,000,000 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, 2005.
(continued)
- ------
16
VP Mid Cap Value - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
2005(1) 2004(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.21 $10.80
- --------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------------
Net Investment Income(3) 0.16 --(4)
- -------------------------------------------
Net Realized and Unrealized Gain 0.20 0.44
- --------------------------------------------------------------------------------
Total From Investment Operations 0.36 0.44
- --------------------------------------------------------------------------------
Distributions
- -------------------------------------------
From Net Investment Income -- (0.03)
- -------------------------------------------
From Net Realized Gains (0.18) --
- --------------------------------------------------------------------------------
Total Distributions (0.18) (0.03)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $11.39 $11.21
================================================================================
TOTAL RETURN(5) 3.29% 4.08%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.04%(6) 1.00%(6)
- -------------------------------------------
Ratio of Net Investment Income
to Average Net Assets 3.01%(6) 0.47%(6)
- -------------------------------------------
Portfolio Turnover Rate 112% 46%(7)
- -------------------------------------------
Net Assets, End of Period
(in thousands) $941 $285
- --------------------------------------------------------------------------------
(1) For the six months ended June 30, 2005 (unaudited).
(2) December 1, 2004 (commencement of sale) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount is 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 period October 29, 2004 (fund inception) through
December 31, 2004.
See Notes to Financial Statements.
- ------
17
VP Mid Cap Value - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2005(1) 2004(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.21 $10.00
- --------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------------
Net Investment Income(3) 0.15 0.02
- -----------------------------------------
Net Realized and Unrealized Gain 0.20 1.22
- --------------------------------------------------------------------------------
Total From Investment Operations 0.35 1.24
- --------------------------------------------------------------------------------
Distributions
- -----------------------------------------
From Net Investment Income -- (0.03)
- -----------------------------------------
From Net Realized Gains (0.18) --
- --------------------------------------------------------------------------------
Total Distributions (0.18) (0.03)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $11.38 $11.21
================================================================================
TOTAL RETURN(4) 3.20% 12.39%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.19%(5) 1.15%(5)
- -----------------------------------------
Ratio of Net Investment Income
to Average Net Assets 2.86%(5) 0.95%(5)
- -----------------------------------------
Portfolio Turnover Rate 112% 46%
- -----------------------------------------
Net Assets, End of Period
(in thousands) $1,433 $570
- --------------------------------------------------------------------------------
(1) For the six months ended June 30, 2005 (unaudited).
(2) October 29, 2004 (fund inception) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year
are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating
the net asset values to two decimal places. If net asset values were
calculated to three decimal places, the total return differences would more
closely reflect the class expense differences. The calculation of net asset
values to two decimal places is made in accordance with SEC guidelines and
does not result in any gain or loss of value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
18
Share Class Information
Two classes of shares are authorized for sale by the fund: Class I and Class II.
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 Class I shares.
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 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 RUSSELL 3000(reg.sm) 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 MIDCAP INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP VALUE INDEX measures the performance of those Russell Midcap
companies 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 investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Proprietary Holdings, Inc.
0508
SH-SAN-44743
American Century Investment Services, Inc., Distributor
(c)2005 American Century Proprietary Holdings, Inc. All rights reserved.
[front cover]
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP Ultra(reg.sm) Fund
[american century investments 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
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .12
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .14
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
OTHER INFORMATION
Approval of Management Agreement for VP Ultra . . . . . . . . . . . . . . .22
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . .27
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . .28
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, 2005
--------------
AVERAGE ANNUAL
RETURNS
- --------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------
CLASS I 1.14% -0.55% 5/1/01
- --------------------------------------------------------------------------
RUSSELL 1000 GROWTH INDEX(1) 1.68% -3.21%(2) --
- --------------------------------------------------------------------------
S&P 500 INDEX(1) 6.32% 0.54%(2) --
- --------------------------------------------------------------------------
Class II 1.04% 1.92% 5/1/02
- --------------------------------------------------------------------------
Class III 1.25% 2.36% 5/13/02
- --------------------------------------------------------------------------
(1) (c) 2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by
Lipper Inc. -- A Reuters Company and may be incomplete. No offer or
solicitations to buy or sell any of the securities herein is being made
by Lipper.
(2) 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 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.
(continued)
- ------
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 2005
- --------------------------------------------------------------------------------
Class I 1.20% -17.36% -1.74% 17.56% 1.14%
- --------------------------------------------------------------------------------
Russell 1000 Growth Index -3.75% -26.49% 2.94% 17.88% 1.68%
- --------------------------------------------------------------------------------
S&P 500 Index -1.78% -17.99% 0.25% 19.11% 6.32%
- --------------------------------------------------------------------------------
*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 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.
- ------
3
VP Ultra - Portfolio Commentary
[photo of investment team]
PORTFOLIO MANAGERS ON THE VP ULTRA INVESTMENT TEAM: BRUCE WIMBERLY, JERRY
SULLIVAN, AND WADE SLOME.
VP Ultra declined 4.04%* during the six months ended June 30, 2005,
underperforming the Russell 1000 Growth Index, which fell 1.72%. The S&P 500
Index fell 0.81%.
Announced late last year, Jim Stowers III succeeded his father as chairman of
American Century Companies, Inc. In order to give his full attention to the new
corporate responsibilities, Stowers relinquished portfolio management
responsibilities in February and is no longer serving as CIO for U.S. Growth
Equity. Portfolio managers Bruce Wimberly, Wade Slome and Jerry Sullivan
continue to manage VP Ultra. Wimberly has been on the portfolio since 1994, the
past nine years as manager.
STOCK MARKET STRUGGLES
Investor optimism waned in the early months of 2005 as concern grew about the
effects of rising commodity and oil prices and interest rates on the economy and
corporate profit growth. After bottoming out in April, however, stocks managed
to regain their footing by the end of the first half of 2005. For instance, the
Russell 1000 Growth Index, a barometer for the large-cap growth stocks VP Ultra
generally invests in, lost 7.24% from the beginning of the period through April
20, 2005, then gained 5.94% through June 30, 2005.
INTERNET STOCKS UNDERPERFORM
VP Ultra was slowed most by investments in the consumer discretionary sector,
particularly in the Internet and catalog retailers industry. eBay was the
portfolio's top detractor during the period. The world's dominant online auction
site slightly increased its 2005 outlook at the end of the first quarter.
However, it came up against skepticism about its growth prospects. Amazon.com
faced similar headwinds and was another detractor.
International Game Technology also weighed on VP Ultra's returns after the slot
machine maker reported lower revenue and profit for its fiscal second quarter in
large part due to charges for obsolete technology and severance.
TOP TEN HOLDINGS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 3.1% 2.1%
- --------------------------------------------------------------------------------
Berkshire
Hathaway Inc. Cl B 2.9% 1.9%
- --------------------------------------------------------------------------------
Dell Inc. 2.6% 2.4%
- --------------------------------------------------------------------------------
First Data Corp. 2.6% 1.5%
- --------------------------------------------------------------------------------
Medtronic, Inc. 2.4% 1.9%
- --------------------------------------------------------------------------------
Apollo Group Inc. Cl A 2.4% 1.5%
- --------------------------------------------------------------------------------
eBay Inc. 2.2% 1.8%
- --------------------------------------------------------------------------------
UnitedHealth Group
Incorporated 2.1% 2.1%
- --------------------------------------------------------------------------------
International Game
Technology 2.0% 1.5%
- --------------------------------------------------------------------------------
SLM Corporation 2.0% 1.8%
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary
are for Class I shares. Returns for periods less
than one year are not annualized. (continued)
- ------
4
VP Ultra - Portfolio Commentary
Industrial conglomerate Tyco International was another detractor in the
portfolio. The stock fell after the company reduced its profit forecast for the
year because of higher commodity costs and weakness in electronic sales.
The portfolio also was hurt by the slide in the share price of Harley-Davidson.
Shares of the motorcycle manufacturer fell to a 52-week low on April 18 after
the company cut its motorcycle shipment and earnings growth-rate targets for
2005. By June 30, the stock had regained roughly 7%.
Outside of the consumer discretionary sector, VP Ultra's information technology
stake underperformed. The portfolio's holdings in the software and Internet
software and services industries were among the detractors.
ENERGY PROVIDES BIGGEST LIFT
VP Ultra's strongest performance during the period came from investments in the
energy sector. High oil prices boosted the fortunes of energy companies. Among
the beneficiaries was independent exploration and production concern Apache
Corp., which reported in April record first-quarter earnings.
A number of positions in the portfolio that performed well came from the health
care sector. Biotechnology company Genentech was a top contributor, lifted by
positive news from clinical trials of its breast-cancer drugs Avastin and
Herceptin.
UnitedHealth Group, one of the nation's largest health insurers, was another
strong performer during the period. It benefited from improving productivity,
enhancing customer service, controlling costs and increasing membership across
its businesses.
VP Ultra's investments in the financial sector lifted performance. The biggest
lift came from Chicago Mercantile Exchange Holdings, which reported strong
earnings. The stock received an additional boost at the end of the period on
speculation about a merger with the Chicago Board of Trade.
OUR COMMITMENT
The VP Ultra management team remains committed to seeking long-term capital
growth by investing in stocks of companies they believe can increase in value
over time, an investment approach based on the belief that securities prices
follow growth in earnings, revenues and/or cash flow.
TOP FIVE INDUSTRIES AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Health Care Equipment
& Supplies 7.4% 7.0%
- --------------------------------------------------------------------------------
Pharmaceuticals 7.1% 4.8%
- --------------------------------------------------------------------------------
IT Services 6.4% 5.0%
- --------------------------------------------------------------------------------
Insurance 6.0% 4.6%
- --------------------------------------------------------------------------------
Food & Staples Retailing 5.8% 3.7%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Common Stocks 99.0% 98.7%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 1.6% 1.7%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities (0.6)% (0.4)%
- --------------------------------------------------------------------------------
- ------
5
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
(continued)
- ------
6
Shareholder Fee Example (Unaudited)
- --------------------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
- --------------------------------------------------------------------------------------------
VP ULTRA SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------------------
Class I $1,000 $959.60 $4.86 1.00%
- --------------------------------------------------------------------------------------------
Class II $1,000 $959.50 $5.59 1.15%
- --------------------------------------------------------------------------------------------
Class III $1,000 $960.60 $4.86 1.00%
- --------------------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------------------
Class I $1,000 $1,019.84 $5.01 1.00%
- --------------------------------------------------------------------------------------------
Class II $1,000 $1,019.09 $5.76 1.15%
- --------------------------------------------------------------------------------------------
Class III $1,000 $1,019.84 $5.01 1.00%
- --------------------------------------------------------------------------------------------
*Expenses are equal to the class's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
181, the number of days in the most recent fiscal half-year, divided by 365, to
reflect the one-half year period.
- ------
7
VP Ultra - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.0%
AEROSPACE & DEFENSE -- 0.9%
- --------------------------------------------------------------------------------
8,708 General Dynamics Corp. $ 953,874
- --------------------------------------------------------------------------------
22,320 United Technologies Corp. 1,146,132
- --------------------------------------------------------------------------------
2,100,006
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 2.3%
- --------------------------------------------------------------------------------
8,368 C.H. Robinson Worldwide, Inc. 487,018
- --------------------------------------------------------------------------------
20,313 Expeditors International
of Washington, Inc. 1,011,791
- --------------------------------------------------------------------------------
15,547 FedEx Corporation 1,259,462
- --------------------------------------------------------------------------------
39,932 United Parcel
Service, Inc. Cl B 2,761,697
- --------------------------------------------------------------------------------
5,519,968
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.1%
- --------------------------------------------------------------------------------
52,251 Harley-Davidson, Inc. 2,591,650
- --------------------------------------------------------------------------------
BEVERAGES -- 3.0%
- --------------------------------------------------------------------------------
44,761 Anheuser-Busch
Companies, Inc. 2,047,816
- --------------------------------------------------------------------------------
45,062 Coca-Cola Company (The) 1,881,339
- --------------------------------------------------------------------------------
58,865 PepsiCo, Inc. 3,174,589
- --------------------------------------------------------------------------------
7,103,744
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.9%
- --------------------------------------------------------------------------------
38,947 Amgen Inc.(1) 2,354,736
- --------------------------------------------------------------------------------
27,526 Genentech, Inc.(1) 2,209,787
- --------------------------------------------------------------------------------
4,564,523
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 2.5%
- --------------------------------------------------------------------------------
23,852 Goldman Sachs
Group, Inc. (The) 2,433,381
- --------------------------------------------------------------------------------
14,119 Legg Mason, Inc. 1,469,929
- --------------------------------------------------------------------------------
30,842 T. Rowe Price Group Inc. 1,930,709
- --------------------------------------------------------------------------------
5,834,019
- --------------------------------------------------------------------------------
CHEMICALS -- 0.1%
- --------------------------------------------------------------------------------
5,390 Monsanto Co. 338,869
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 0.9%
- --------------------------------------------------------------------------------
35,892 Wells Fargo & Co. 2,210,229
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.6%
- --------------------------------------------------------------------------------
141,934 Cisco Systems Inc.(1) 2,712,359
- --------------------------------------------------------------------------------
101,006 QUALCOMM Inc. 3,334,208
- --------------------------------------------------------------------------------
6,046,567
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.6%
- --------------------------------------------------------------------------------
157,583 Dell Inc.(1) 6,226,104
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 2.6%
- --------------------------------------------------------------------------------
28,817 American Express Co. 1,533,929
- --------------------------------------------------------------------------------
92,340 SLM Corporation 4,690,872
- --------------------------------------------------------------------------------
6,224,801
- --------------------------------------------------------------------------------
DIVERSIFIED -- 1.2%
- --------------------------------------------------------------------------------
23,570 Standard and Poor's 500
Depositary Receipt 2,807,658
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES -- 3.1%
- --------------------------------------------------------------------------------
71,528 Apollo Group Inc. Cl A(1) $ 5,594,921
- --------------------------------------------------------------------------------
32,045 Weight Watchers
International, Inc.(1) 1,653,842
- --------------------------------------------------------------------------------
7,248,763
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 3.9%
- --------------------------------------------------------------------------------
9,720 Chicago Mercantile
Exchange Holdings Inc. 2,872,260
- --------------------------------------------------------------------------------
59,692 Citigroup Inc. 2,759,561
- --------------------------------------------------------------------------------
46,162 McGraw-Hill
Companies, Inc. (The) 2,042,669
- --------------------------------------------------------------------------------
35,796 Moody's Corp. 1,609,388
- --------------------------------------------------------------------------------
9,283,878
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 5.8%
- --------------------------------------------------------------------------------
18,720 Costco Wholesale Corporation 839,030
- --------------------------------------------------------------------------------
58,960 Sysco Corp. 2,133,762
- --------------------------------------------------------------------------------
150,639 Wal-Mart Stores, Inc. 7,260,801
- --------------------------------------------------------------------------------
49,152 Walgreen Co. 2,260,500
- --------------------------------------------------------------------------------
10,160 Whole Foods Market, Inc. 1,201,928
- --------------------------------------------------------------------------------
13,696,021
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.5%
- --------------------------------------------------------------------------------
15,460 Wrigley (Wm.) Jr. Company 1,064,266
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 7.4%
- --------------------------------------------------------------------------------
22,413 Biomet Inc. 776,386
- --------------------------------------------------------------------------------
148,573 Boston Scientific Corp.(1) 4,011,472
- --------------------------------------------------------------------------------
108,255 Medtronic, Inc. 5,606,527
- --------------------------------------------------------------------------------
28,462 St. Jude Medical, Inc.(1) 1,241,228
- --------------------------------------------------------------------------------
40,730 Stryker Corp. 1,937,119
- --------------------------------------------------------------------------------
44,662 Varian Medical
Systems, Inc.(1) 1,667,232
- --------------------------------------------------------------------------------
27,875 Zimmer Holdings Inc.(1) 2,123,239
- --------------------------------------------------------------------------------
17,363,203
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 2.1%
- --------------------------------------------------------------------------------
93,934 UnitedHealth
Group Incorporated 4,897,719
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 5.0%
- --------------------------------------------------------------------------------
75,129 Carnival Corporation 4,098,287
- --------------------------------------------------------------------------------
20,910 Cheesecake Factory Inc.(1) 726,204
- --------------------------------------------------------------------------------
168,011 International
Game Technology 4,729,509
- --------------------------------------------------------------------------------
8,369 PF Chang's China
Bistro, Inc.(1) 493,604
- --------------------------------------------------------------------------------
32,422 Starbucks Corporation(1) 1,674,921
- --------------------------------------------------------------------------------
11,722,525
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.7%
- --------------------------------------------------------------------------------
9,245 Colgate-Palmolive Co. 461,418
- --------------------------------------------------------------------------------
67,390 Procter & Gamble Co. (The) 3,554,822
- --------------------------------------------------------------------------------
4,016,240
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
VP Ultra - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.1%
- --------------------------------------------------------------------------------
16,100 3M Co. $ 1,164,030
- --------------------------------------------------------------------------------
22,903 General Electric Co. 793,589
- --------------------------------------------------------------------------------
102,370 Tyco International Ltd. 2,989,204
- --------------------------------------------------------------------------------
4,946,823
- --------------------------------------------------------------------------------
INSURANCE -- 6.0%
- --------------------------------------------------------------------------------
48,189 Aflac Inc. 2,085,620
- --------------------------------------------------------------------------------
17,106 Ambac Financial Group, Inc. 1,193,315
- --------------------------------------------------------------------------------
45,495 American International
Group, Inc. 2,643,260
- --------------------------------------------------------------------------------
2,430 Berkshire
Hathaway Inc. Cl B(1) 6,763,904
- --------------------------------------------------------------------------------
14,360 Progressive Corp. 1,418,912
- --------------------------------------------------------------------------------
14,105,011
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 3.9%
- --------------------------------------------------------------------------------
126,449 Amazon.com, Inc.(1) 4,182,933
- --------------------------------------------------------------------------------
154,808 eBay Inc.(1) 5,110,212
- --------------------------------------------------------------------------------
9,293,145
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.9%
- --------------------------------------------------------------------------------
3,510 Google Inc. Cl A(1) 1,032,467
- --------------------------------------------------------------------------------
97,210 Yahoo! Inc.(1) 3,368,326
- --------------------------------------------------------------------------------
4,400,793
- --------------------------------------------------------------------------------
IT SERVICES -- 6.4%
- --------------------------------------------------------------------------------
146,101 Accenture Ltd. Cl A(1) 3,312,110
- --------------------------------------------------------------------------------
65,652 Checkfree Corp.(1) 2,236,107
- --------------------------------------------------------------------------------
151,710 First Data Corp. 6,089,639
- --------------------------------------------------------------------------------
108,982 Paychex, Inc. 3,546,274
- --------------------------------------------------------------------------------
15,184,130
- --------------------------------------------------------------------------------
MACHINERY -- 0.4%
- --------------------------------------------------------------------------------
15,860 Danaher Corp. 830,112
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.3%
- --------------------------------------------------------------------------------
11,373 Kohl's Corp.(1) 635,864
- --------------------------------------------------------------------------------
45,194 Target Corporation 2,459,006
- --------------------------------------------------------------------------------
3,094,870
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.4%
- --------------------------------------------------------------------------------
19,710 Zebra Technologies
Corp. Cl A(1) 863,101
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 2.2%
- --------------------------------------------------------------------------------
20,326 Apache Corp. 1,313,060
- --------------------------------------------------------------------------------
52,130 Exxon Mobil Corp. 2,995,911
- --------------------------------------------------------------------------------
9,620 Kinder Morgan, Inc. 800,384
- --------------------------------------------------------------------------------
5,109,355
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 1.3%
- --------------------------------------------------------------------------------
12,999 Alberto-Culver
Company Cl B 563,247
- --------------------------------------------------------------------------------
67,558 Avon Products, Inc. 2,557,070
- --------------------------------------------------------------------------------
3,120,317
- --------------------------------------------------------------------------------
Shares/Principal Amount Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 7.1%
- --------------------------------------------------------------------------------
18,555 American Pharmaceutical
Partners Inc.(1) $ 765,394
- --------------------------------------------------------------------------------
24,946 Eli Lilly and Company 1,389,742
- --------------------------------------------------------------------------------
54,336 Johnson & Johnson 3,531,840
- --------------------------------------------------------------------------------
38,690 Novartis AG ORD 1,843,100
- --------------------------------------------------------------------------------
162,854 Pfizer, Inc. 4,491,513
- --------------------------------------------------------------------------------
150,074 Teva Pharmaceutical
Industries Ltd. ADR 4,673,304
- --------------------------------------------------------------------------------
16,694,893
- --------------------------------------------------------------------------------
SEMICONDUCTORS
& SEMICONDUCTOR EQUIPMENT -- 3.7%
- --------------------------------------------------------------------------------
424,710 ARM Holdings plc ORD 861,226
- --------------------------------------------------------------------------------
126,460 Intel Corp. 3,295,547
- --------------------------------------------------------------------------------
18,584 KLA-Tencor Corp. 812,121
- --------------------------------------------------------------------------------
53,399 Maxim Integrated
Products, Inc. 2,040,376
- --------------------------------------------------------------------------------
54,021 Microchip Technology Inc. 1,600,102
- --------------------------------------------------------------------------------
8,609,372
- --------------------------------------------------------------------------------
SOFTWARE -- 5.5%
- --------------------------------------------------------------------------------
78,188 Electronic Arts Inc.(1) 4,426,222
- --------------------------------------------------------------------------------
30,144 Intuit Inc.(1) 1,359,796
- --------------------------------------------------------------------------------
153,765 Microsoft Corporation 3,819,522
- --------------------------------------------------------------------------------
17,015 NAVTEQ Corp.(1) 632,618
- --------------------------------------------------------------------------------
96,835 Oracle Corp.(1) 1,278,222
- --------------------------------------------------------------------------------
67,886 Symantec Corp.(1) 1,475,842
- --------------------------------------------------------------------------------
12,992,222
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 4.8%
- --------------------------------------------------------------------------------
85,978 Bed Bath & Beyond Inc.(1) 3,592,161
- --------------------------------------------------------------------------------
81,370 Carmax, Inc.(1) 2,168,511
- --------------------------------------------------------------------------------
67,122 Lowe's Companies, Inc. 3,907,842
- --------------------------------------------------------------------------------
56,835 PETsMART, Inc. 1,724,942
- --------------------------------------------------------------------------------
11,393,456
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 0.8%
- --------------------------------------------------------------------------------
30,360 Golden West Financial Corp. 1,954,577
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $212,280,440) 233,452,930
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 1.6%
$3,800,000 FHLMC Discount Notes,
2.60%, 7/1/05(2)
(Cost $3,800,000) 3,800,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.6%
(Cost $216,080,440) 237,252,930
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.6)% (1,410,206)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $235,842,724
================================================================================
See Notes to Financial Statements. (continued)
- ------
9
VP Ultra - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
1,171,339 CHF for USD 7/29/2005 $915,636 $2,514
===================================
(Value on Settlement Date $918,150)
*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
CHF = Swiss Franc
FHLMC = Federal Home Loan Mortgage Corporation
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
(2) The rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
10
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $216,080,440) $237,252,930
- ----------------------------------------------------------
Receivable for investments sold 1,369,506
- ----------------------------------------------------------
Receivable for forward foreign currency contracts 2,514
- ----------------------------------------------------------
Dividends and interest receivable 86,224
- --------------------------------------------------------------------------------
238,711,174
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash 441,992
- ----------------------------------------------------------
Payable for investments purchased 2,218,425
- ----------------------------------------------------------
Accrued management fees 181,252
- ----------------------------------------------------------
Distribution fees payable 26,781
- --------------------------------------------------------------------------------
2,868,450
- --------------------------------------------------------------------------------
NET ASSETS $235,842,724
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $225,770,817
- ----------------------------------------------------------
Accumulated net investment loss (136,590)
- ----------------------------------------------------------
Accumulated net realized loss on investment transactions (10,966,507)
- ----------------------------------------------------------
Net unrealized appreciation on investments
and translation of assets and
liabilities in foreign currencies 21,175,004
- --------------------------------------------------------------------------------
$235,842,724
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $100,419,535
- ----------------------------------------------------------
Shares outstanding 10,294,368
- ----------------------------------------------------------
Net asset value per share $9.75
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $134,273,886
- ----------------------------------------------------------
Shares outstanding 13,816,838
- ----------------------------------------------------------
Net asset value per share $9.72
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $1,149,303
- ----------------------------------------------------------
Shares outstanding 117,918
- ----------------------------------------------------------
Net asset value per share $9.75
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
11
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT LOSS
- --------------------------------------------------------------------------------
INCOME:
- ------------------------------------------------------------
Dividends (net of foreign taxes withheld of $2,945) $ 859,281
- ------------------------------------------------------------
Interest 57,469
- --------------------------------------------------------------------------------
916,750
- --------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------
Management fees 915,289
- ------------------------------------------------------------
Distribution fees - Class II 133,968
- ------------------------------------------------------------
Directors' fees and expenses 2,043
- ------------------------------------------------------------
Other expenses 2,040
- --------------------------------------------------------------------------------
1,053,340
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (136,590)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON:
- ------------------------------------------------------------
Investments 3,931,965
- ------------------------------------------------------------
Foreign currency transactions 70,930
- --------------------------------------------------------------------------------
4,002,895
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- ------------------------------------------------------------
Investments (10,635,880)
- ------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 2,514
- --------------------------------------------------------------------------------
(10,633,366)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (6,630,471)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (6,767,061)
================================================================================
See Notes to Financial Statements.
- ------
12
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment loss $ (136,590) $ (18,529)
- ---------------------------------------------
Net realized gain (loss) 4,002,895 (2,876,285)
- ---------------------------------------------
Change in net unrealized appreciation (10,633,366) 17,043,422
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (6,767,061) 14,148,608
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions 70,170,018 67,757,147
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 63,402,957 81,905,75
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 172,439,767 90,534,012
- --------------------------------------------------------------------------------
End of period $235,842,724 $172,439,767
================================================================================
Accumulated net investment loss $(136,590) --
================================================================================
See Notes to Financial Statements.
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
Distributions received on securities that represent a return of capital or
capital gain are recorded as a reduction of cost of investments and/or as a
realized gain. The fund estimates the components of distributions received that
may be considered nontaxable distributions or capital gain distributions for
income tax purposes.
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
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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, 2004, the fund has accumulated net realized capital loss
carryovers for federal income tax purposes of $11,917,717, which may be used to
offset future taxable gains. Capital loss carryovers of $536,838, $6,291,207,
$2,696,809, and $2,392,863 expire in 2009, 2010, 2011, and 2012, respectively.
The fund has elected to treat $27,217 of net capital losses and $413 of net
foreign currency losses incurred in the two-month period ended December 31,
2004, 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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
- ------
15
Notes to Financial Statements
JUNE 30, 2005 (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 fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. For funds with a stepped fee schedule, the
rate of the fee is determined by applying a fee rate calculation formula. This
formula takes into account all of the investment advisor's assets under
management in the fund's investment strategy (strategy assets) to calculate the
appropriate fee rate for the fund. The strategy assets include the fund's assets
and the assets of other clients of the investment advisor that are not in the
American Century family of funds, but that have the same investment team and
investment strategy. The annual management fee schedule for the fund is as
follows:
- --------------------------------------------------------------------------------
CLASSES I & III CLASS II
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $20 billion 1.000% 0.900%
- --------------------------------------------------------------------------------
Next $10 billion 0.950% 0.850%
- --------------------------------------------------------------------------------
Next $10 billion 0.925% 0.825%
- --------------------------------------------------------------------------------
Next $10 billion 0.900% 0.800%
- --------------------------------------------------------------------------------
Over $50 billion 0.875% 0.775%
- --------------------------------------------------------------------------------
The effective annual management fee for Class I, Class II, and Class III for the
six months ended June 30, 2005 was 1.00%, 0.90%, and 1.00%, 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 and
accrued daily based on the Class II daily net assets and paid monthly in
arrears. The distribution fee provides compensation for expenses incurred in
connection with distributing shares of Class II including, but not limited to,
payments to brokers, dealers, and financial institutions that have entered into
sales agreements with respect to shares of the fund. Fees incurred under the
plan during the six months ended June 30, 2005, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services, LLC (formerly American Century
Services Corporation).
The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC.
(continued)
- ------
16
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended June 30, 2005, were as follows:
- --------------------------------------------------------------------------------
Purchases $151,102,919
- --------------------------------------------------------------------------------
Proceeds from sales $ 81,046,902
- --------------------------------------------------------------------------------
As of June 30, 2005, 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 $219,590,136
================================================================================
Gross tax appreciation of investments $21,999,345
- --------------------------------------------------------
Gross tax depreciation of investments (4,336,551)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $17,662,794
================================================================================
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, 2005
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 3,755,800 $36,592,052
- ---------------------------------------
Redeemed (1,288,312) (12,495,910)
- --------------------------------------------------------------------------------
Net increase 2,467,488 $24,096,142
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 100,000,000
================================================================================
Sold 3,735,540 $35,341,701
- ---------------------------------------
Redeemed (2,811,906) (26,216,746)
- --------------------------------------------------------------------------------
Net increase 923,634 $ 9,124,955
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 5,295,572 $51,503,495
- ---------------------------------------
Redeemed (563,359) (5,449,307)
- --------------------------------------------------------------------------------
Net increase 4,732,213 $46,054,188
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 6,958,666 $65,484,970
- ---------------------------------------
Redeemed (801,662) (7,401,195)
- --------------------------------------------------------------------------------
Net increase 6,157,004 $58,083,775
================================================================================
(continued)
- ------
17
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS III
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 1,442,567 $ 13,391,001
- ---------------------------------------
Redeemed (1,419,864) (13,371,313)(1)
- --------------------------------------------------------------------------------
Net increase 22,703 $ 19,688
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 126,524 $ 1,178,538
- ---------------------------------------
Redeemed (68,242) (630,121)(2)
- --------------------------------------------------------------------------------
Net increase 58,282 $ 548,417
================================================================================
(1) Net of redemption fees of $134,200.
(2) Net of redemption fees of $1,361.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$575,000,000 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, 2005.
- ------
18
VP Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- ---------------------------------------------------------------------------------------------------
CLASS I
- ---------------------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001(2)
- ---------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.16 $9.18 $7.35 $9.53 $10.00
- ---------------------------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------------
Net Investment Income (Loss)(3) --(4) --(4) (0.01) 0.02 --(4)
- -------------------------------------------
Net Realized and Unrealized Gain (Loss) (0.42) 0.98 1.84 (2.18) (0.47)
- ---------------------------------------------------------------------------------------------------
Total From Investment Operations (0.42) 0.98 1.83 (2.16) (0.47)
- ---------------------------------------------------------------------------------------------------
Distributions
- -------------------------------------------
From Net Investment Income -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------
Redemption Fee(5) 0.01 --(4) -- -- --
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.75 $10.16 $9.18 $7.35 $9.53
===================================================================================================
TOTAL RETURN(6) (4.04)% 10.68% 24.90% (22.71)% (4.70)%
- ---------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.00%(7) 1.00% 1.01% 1.00% 1.00%(7)
- -------------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.05)%(7) 0.05% (0.15%) 0.19% 0.16%(7)
- -------------------------------------------
Portfolio Turnover Rate 42% 45% 111% 168% 48%
- -------------------------------------------
Net Assets, End of Period
(in thousands) $100,420 $79,489 $63,364 $31,621 $30,801
- ---------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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) Effective January 1, 2004, the fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires the
disclosure of the per-share effect of redemption fees. Periods prior to
January 1, 2004, have not been restated to reflect this change. Amounts
computed using average shares outstanding throughout the period.
(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.
- ------
19
See Notes to Financial Statements.
VP Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- ------------------------------------------------------------------------------------
CLASS II
- ------------------------------------------------------------------------------------
2005(1) 2004 2003 2002(2)
- ------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.13 $9.16 $7.34 $9.16
- ------------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------
Net Investment Income (Loss)(3) (0.01) --(4) (0.03) --(4)
- -------------------------------------
Net Realized and
Unrealized Gain (Loss) (0.41) 0.97 1.85 (1.81)
- ------------------------------------------------------------------------------------
Total From Investment Operations (0.42) 0.97 1.82 (1.81)
- ------------------------------------------------------------------------------------
Distributions
- -------------------------------------
From Net Investment Income -- -- -- (0.01)
- ------------------------------------------------------------------------------------
Redemption Fee(5) 0.01 --(4) -- --
- ------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.72 $10.13 $9.16 $7.34
====================================================================================
TOTAL RETURN(6) (4.05)% 10.59% 24.80% (19.80)%
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.15%(7) 1.15% 1.16% 1.15%(7)
- -------------------------------------
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.20)%(7) (0.10)% (0.30)% 0.07%(7)
- -------------------------------------
Portfolio Turnover Rate 42% 45% 111% 168%(8)
- -------------------------------------
Net Assets, End of Period
(in thousands) $134,274 $91,984 $26,831 $2,635
- ------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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) Effective January 1, 2004, the fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires the
disclosure of the per-share effect of redemption fees. Periods prior to
January 1, 2004, have not been restated to reflect this change. Amounts
computed using average shares outstanding throughout the period.
(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.
- ------
20
VP Ultra - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- ---------------------------------------------------------------------------------
CLASS III
- ---------------------------------------------------------------------------------
2005(1) 2004 2003 2002(2)
- ---------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------
Net Asset Value, Beginning of Period $10.15 $9.17 $7.34 $9.08
- ------------------------------------
Income From Investment Operations
- ------------------------------------
Net Investment Income (Loss)(3) 0.01 0.01 (0.02) 0.01
- ------------------------------------
Net Realized and
Unrealized Gain (Loss) (0.42) 0.97 1.85 (1.74)
- ---------------------------------------------------------------------------------
Total From Investment Operations (0.41) 0.98 1.83 (1.73)
- ---------------------------------------------------------------------------------
Distributions
- ------------------------------------
From Net Investment Income -- -- -- (0.01)
- ---------------------------------------------------------------------------------
Redemption Fee(4) 0.01 --(5) -- --
- ---------------------------------------------------------------------------------
Net Asset Value, End of Period $9.75 $10.15 $9.17 $7.34
=================================================================================
TOTAL RETURN(6) (3.94)% 10.69% 24.93% (19.02)%
- ---------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.00%(7) 1.00% 1.01% 1.00%(7)
- ------------------------------------
Ratio of Net
Investment Income (Loss)
to Average Net Assets (0.05)%(7) 0.05% (0.15)% 0.14%(7)
- ------------------------------------
Portfolio Turnover Rate 42% 45% 111% 168%(8)
- ------------------------------------
Net Assets, End of Period
(in thousands) $1,149 $966 $339 $257
- ---------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) May 13, 2002 (commencement of sale) through December 31, 2002.
(3) Computed using average shares outstanding throughout the period.
(4) Effective January 1, 2004, the fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires the
disclosure of the per-share effect of redemption fees. Periods prior to
January 1, 2004, have not been restated to reflect this change. Amounts
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.
- ------
21
Approval of Management Agreement for VP Ultra
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process--referred to as the "15(c) Process"--involves at
least two board meetings spanning a 30 to 60 day period each year. In addition
to this annual review, the board of directors and its committees oversee and
evaluate at quarterly meetings the nature and quality of significant services
the advisor performs on behalf of the fund. At these meetings the board reviews
fund performance, shareholder services and feedback, audit and compliance
information, and a variety of other reports from the advisor concerning fund
operations. The board, or committees of the board, also hold special meetings,
as needed.
Under a new Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for its board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the half-year period, the
Directors requested and received extensive data and information compiled by the
advisor and certain independent providers of evaluative data (the "Independent
15(c) Providers") concerning VP Ultra (the "fund") and the services provided to
the fund under the management agreement. The information included, but was not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of
programs and services the advisor provides to the fund and its shareholders
on a routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning
similar funds;
* data comparing the fund's performance to appropriate benchmarks
and/or a peer group of other mutual funds with similar investment
objectives and strategies;
* financial data showing the profitability of the fund to the advisor
and the overall profitability of the advisor; and
* data comparing services provided and charges to other investment
management clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and two special meetings to review and discuss the
information provided by the advisor and the Independent 15(c) Providers and to
complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory fee. In
addition, the independent directors met on several occasions in private session
to review and discuss the information provided and evaluate the advisor's
performance as manager of the fund.
(continued)
- ------
22
Approval of Management Agreement for VP Ultra
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
Independent 15(c) Providers, and its independent counsel and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including, but not limited to:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objective and approved strategies. In
providing these services, the advisor utilizes teams of investment professionals
(portfolio managers, analysts, research assistants, and securities traders) who
require extensive information technology, research, training, compliance and
other systems to conduct their business. At each quarterly meeting the Directors
review investment performance information for the fund, together with
comparative information for appropriate benchmarks and a peer group of funds
managed similarly to the fund. If performance concerns are identified, the
Directors discuss with the advisor and its portfolio managers the reasons for
such results (e.g., market conditions, security selection) and any efforts being
undertaken to improve performance. Annually, the Directors review
(continued)
- ------
23
Approval of Management Agreement for VP Ultra
detailed performance information, as provided by the Independent 15(c)
Providers, comparing the fund's performance with that of similar funds not
managed by the advisor. During the past year, VP Ultra's performance was above
the median performance of its peer group.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at its regular
quarterly meetings, including the annual meeting concerning contract review.
These reports include, but are not limited to, information regarding the
operational efficiency and accuracy of the shareholder and transfer agency
services provided, staffing levels, shareholder satisfaction (as measured by
external as well as internal sources), technology support, new products and
services offered to fund shareholders, securities trading activities, portfolio
valuation services, auditing services, and legal and operational compliance
activities. Certain aspects of shareholder and transfer agency service level
efficiency and the quality of securities trading activities are measured by
independent third party providers and are presented in comparison to other fund
groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally considered the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices and that the advisor was not implicated in the
industry scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure with precision, particularly on a fund-by-fund
basis. This analysis is further complicated by the fact that the advisor is
required to make a continuing reinvestment in the business to provide additional
content and services for fund shareholders. Accordingly, the Directors also seek
to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of its
management of the fund specifically, the expenses incurred by the advisor in
providing various services to the fund, and the breakpoint fees of competitive
funds not managed by the advisor. The Directors believe the advisor is
appropriately sharing any economies of scale through a competitive fee
structure, through breakpoints that reduce fees as the fund increases in size,
and through reinvestment in its business to provide shareholders additional
content and services.
(continued)
- ------
24
Approval of Management Agreement for VP Ultra
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other fund groups are charged a variety of
fees, including an investment advisory fee, a transfer agency fee, an
administrative fee, distribution charges and other expenses. Other than their
investment advisory fees and Rule 12b-1 distribution fees, all other components
of the total fees charged by these other fund groups may be increased without
shareholder approval. The board believes the unified fee structure is a benefit
to fund shareholders because it clearly discloses to shareholders the cost of
owning fund shares, and, since the unified fee cannot be increased without a
vote of fund shareholders, it shifts to the advisor the increased costs of
operating the funds and the risk of administrative inefficiencies. Part of the
Directors' analysis of fee levels involves comparing the fund's unified fee to
the total expense ratio of other funds in the fund's peer group. The unified fee
charged to shareholders of the fund was near the median of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker dealers that execute
fund portfolio transactions and concluded that this research is likely to
benefit fund shareholders. The Directors also determined that the advisor is
able to provide investment management services to clients other than the fund,
at least in part, due to its existing infrastructure built to serve the fund
complex. The Directors concluded, however, that the assets of those other
clients are modest in comparison to the funds and that, in any event, the
addition of such other assets to the assets of the funds that
(continued)
- ------
25
Approval of Management Agreement for VP Ultra
use substantially the same investment management team and strategy to determine
whether breakpoints have been achieved captures for the shareholders a portion
of any benefit that exists by accelerating fee reductions as breakpoints are
reached at lower fund asset levels.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel independent of the advisor, taking into account all of the
factors discussed above and the information provided by the advisor and the
Independent 15(c) Providers, negotiated changes to the breakpoint schedule used
to calculate the management fee. These changes were proposed by the Directors
based on their review of the competitive changes in the mutual fund marketplace
and their review of financial information provided by the advisor. The new
schedule, effective July 29, 2005, will accelerate management fee reductions at
lower asset levels than under the existing structure. Following these
negotiations with the advisor, the independent directors concluded that the
investment management agreement between the fund and the advisor, amended as
described above, is fair and reasonable in light of the services provided and
should be renewed.
- ------
26
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 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 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.
- ------
27
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 RUSSELL 1000 GROWTH INDEX measures the performance of those Russell 1000
companies (the 1,000 largest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth rates.
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 investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
28
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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Proprietary Holdings, Inc.
0508
SH-SAN-44739
American Century Investment Services, Inc., Distributor
(c)2005 American Century Proprietary Holdings, Inc. All rights reserved.
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
JUNE 30, 2005
VP Value Fund
[american century investments logo and text logo]
[blank page]
Table of Contents
VP VALUE
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . . . 5
Shareholder Fee Example. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . 11
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
OTHER INFORMATION
Approval of Management Agreement for VP Value. . . . . . . . . . . . . . . 23
Share Class Information. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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, 2005
------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 8.08% 12.42% 10.69% 5/1/96
- --------------------------------------------------------------------------------
RUSSELL 3000 VALUE INDEX(1) 14.09% 7.23% 10.77% --
- --------------------------------------------------------------------------------
S&P 500 INDEX(1) 6.32% -2.37% 8.47% --
- --------------------------------------------------------------------------------
LIPPER MULTI-CAP VALUE INDEX(1) 10.95% 7.28% 9.36% --
- --------------------------------------------------------------------------------
Class II 7.90% -- 7.67% 8/14/01
- --------------------------------------------------------------------------------
Class III 8.08% -- 8.93% 5/6/02
- --------------------------------------------------------------------------------
(1) (c) 2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be
reliable. Although carefully verified, data on compilations is not
guaranteed by Lipper Inc -- A Reuters Company and may be incomplete.
No offer or solicitations to buy or sell any of the securities herein is
being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity or
variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company separate
account prospectus for a discussion of the charges related to insurance
contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the performance
shown. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. To obtain performance data current
to the most recent month end, please call 1-800-345-6488.
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.
(continued)
- ------
2
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 2005
- ---------------------------------------------------------------------------------------------------
Class I 2.75% 23.86% 17.80% 11.98% -15.88% 31.94% 1.12% -0.49% 25.20% 8.08%
- ---------------------------------------------------------------------------------------------------
Russell 3000
Value Index 1.24% 32.66% 27.95% 14.39% -8.38% 11.64% -7.75% -1.23% 22.14% 14.09%
- ---------------------------------------------------------------------------------------------------
S&P 500 Index 2.89% 34.70% 30.16% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32%
- ---------------------------------------------------------------------------------------------------
Lipper Multi-Cap
Value Index 0.73% 28.73% 20.39% 9.61% -6.66% 15.14% -10.89% 2.13% 22.22% 10.95%
- ---------------------------------------------------------------------------------------------------
* 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.
- ------
3
VP Value - Portfolio Commentary
PORTFOLIO MANAGERS ON THE VP VALUE INVESTMENT TEAM: MICHAEL LISS, PHIL DAVIDSON
AND SCOTT MOORE.
VP Value gained 0.42%* during the six months ended June 30, 2005, trailing the
Lipper Multi-Cap Value Index, which was up 0.99%.
Looking longer term, from the fund's inception on May 1, 1996, VP Value has
produced an average annualized return of 10.69%, well ahead of the 9.36% figure
posted by the Lipper Multi-Cap Value Index.
CHOPPY PERIOD FOR INVESTORS
Investors endured a choppy first half of 2005. Stock market optimism waned
during the first quarter as investors worried about the dampening effects of
rising energy and commodity prices, higher interest rates and inflation. Against
this backdrop, the three major stock market indices were down for the first
three months of the year.
The second quarter was somewhat brighter, with the S&P 500 Index and Nasdaq
Composite both up for the three months (though not enough to offset their
first-quarter losses). Inflation remained contained and the economy remained
relatively strong as an improving labor market and rising incomes enabled
consumers to weather the effect of rising oil prices. Toward the end of June,
however, some of the optimism appeared to fade as oil prices broke the
$60-per-barrel barrier and the Federal Reserve raised its target interest rate
for the ninth time in the past 12 months.
ENERGY LED PORTFOLIO
Energy stocks proved to be VP Value's largest contributors to absolute
performance, with Unocal Corp. emerging as the portfolio's top-contributing
security. Unocal, which reported record first-quarter earnings, also received
merger proposals from Chevron Corp. and CNOOC Limited, an affiliate of China
National Offshore Oil Co. We concentrated on large, integrated oil companies,
and were rewarded for our investments in Exxon Mobil Corp., Royal Dutch
Petroleum Co., ConocoPhillips and BP plc. In general, they benefited from rising
oil and gas prices, and widening margins in refining and petrochemicals. Each of
these companies delivered strong operating results and several increased their
dividends.
TOP TEN HOLDINGS
AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
American International
Group, Inc. 4.9% 3.7%
- --------------------------------------------------------------------------------
Kraft Foods Inc. Cl A 3.4% 2.1%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 2.4% 2.2%
- --------------------------------------------------------------------------------
SunTrust Banks, Inc. 2.3% 2.7%
- --------------------------------------------------------------------------------
Republic Services, Inc. Cl A 2.2% 2.4%
- --------------------------------------------------------------------------------
Marsh & McLennan
Companies Inc. 2.0% 2.1%
- --------------------------------------------------------------------------------
Unilever N.V. New York Shares 1.9% 2.2%
- --------------------------------------------------------------------------------
BP plc ADR 1.9% 1.2%
- --------------------------------------------------------------------------------
Bank of America Corp. 1.9% 1.8%
- --------------------------------------------------------------------------------
Kimberly-Clark Corp. 1.8% 2.3%
- --------------------------------------------------------------------------------
* All fund returns referenced in this commentary are for
Class I shares. Returns for periods less than one year
are not annualized. (continued)
- ------
4
VP Value - Portfolio Commentary
HEALTH CARE ADDS VALUE
Health care holdings represented another bright spot, with health care providers
Universal Health Services, Inc. (UHS) and HCA Inc. both strong contributors.
UHS, one of the country's largest hospital management companies, reported
higher-than-expected first-quarter earnings as margins improved significantly.
UHS also announced a share repurchase program in June. Meanwhile, improved bad
debt trends, increased volumes and expense management enabled HCA, the operator
of the largest U.S. hospital chain, to exceed its first-quarter guidance.
UTILITIES UP
Utility stocks also proved successful. On the electric side, FPL Group Inc. led
our investments. This public utility holding company's main subsidiary is
Florida Power and Light Co. The company increased its dividend twice in 2004 and
once in 2005 for a total increase of 18.3% -- a sign of its strong position and
of the importance of dividends to its total return. Our gas utilities were led
by WGL Holdings, Inc., the parent company of Washington Gas Light Co., which
serves metropolitan Washington, D.C. and surrounding regions in Virginia and
Maryland.
FINANCIALS DETRACT
Financial companies slowed our progress the most. Insurance giant American
International Group Inc. was hurt by investigations of whether its use of
non-traditional or "finite" insurance enabled clients to mask losses. Marsh &
McLennan Cos., the world's largest insurance broker, saw first-quarter profits
fall considerably after reaching a settlement with the New York State Attorney
General following accusations of bid-rigging and steering work to a select group
of insurers. In both cases, we believe the issues affecting these industry
leaders are manageable and we have maintained our positions.
Our largest detractor in absolute terms was The New York Times Co. The nation's
third-largest newspaper publisher said revenue from national advertisers fell as
technology and financial companies reduced spending on newspaper ads. We
continue to own the position.
LOOKING AHEAD
We will continue to adhere to our discipline of seeking well-managed companies
that appear to be temporarily undervalued for reasons unrelated to the firms'
fundamental or financial health.
TOP FIVE INDUSTRIES
AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Insurance 10.0% 10.9%
- --------------------------------------------------------------------------------
Food Products 7.7% 5.7%
- --------------------------------------------------------------------------------
Oil, Gas, &
Consumable Fuels 7.2% 6.4%
- --------------------------------------------------------------------------------
Commercial Banks 6.1% 6.6%
- --------------------------------------------------------------------------------
Commercial Services
& Supplies 4.6% 4.1%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Common Stocks 96.8% 95.5%
- --------------------------------------------------------------------------------
Temporary Cash
Investments 3.4% 4.8%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities (0.2)% (0.3)%
- --------------------------------------------------------------------------------
- ------
5
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
(continued)
- ------
6
Shareholder Fee Example (Unaudited)
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD* ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO*
- --------------------------------------------------------------------------------
VP VALUE SHAREHOLDER FEE EXAMPLE
- --------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------
Class I $1,000 $1,004.20 $4.62 0.93%
- --------------------------------------------------------------------------------
Class II $1,000 $1,003.70 $5.37 1.08%
- --------------------------------------------------------------------------------
Class III $1,000 $1,004.20 $4.62 0.93%
- --------------------------------------------------------------------------------
HYPOTHETICAL
- --------------------------------------------------------------------------------
Class I $1,000 $1,020.18 $4.66 0.93%
- --------------------------------------------------------------------------------
Class II $1,000 $1,019.44 $5.41 1.08%
- --------------------------------------------------------------------------------
Class III $1,000 $1,020.18 $4.66 0.93%
- --------------------------------------------------------------------------------
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 181, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
- ------
7
VP Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.8%
AEROSPACE & DEFENSE -- 2.8%
- --------------------------------------------------------------------------------
1,345,600 Honeywell International Inc. $ 49,289,328
- --------------------------------------------------------------------------------
542,168 Northrop Grumman Corp. 29,954,782
- --------------------------------------------------------------------------------
79,244,110
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS -- 1.1%
- --------------------------------------------------------------------------------
438,100 United Parcel
Service, Inc. Cl B 30,298,996
- --------------------------------------------------------------------------------
AIRLINES -- 0.3%
- --------------------------------------------------------------------------------
587,300 Southwest Airlines Co. 8,181,089
- --------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.7%
- --------------------------------------------------------------------------------
1,110,645 Cooper Tire & Rubber 20,624,678
- --------------------------------------------------------------------------------
AUTOMOBILES -- 1.7%
- --------------------------------------------------------------------------------
1,350,200 Toyota Motor Corp. ORD 48,369,374
- --------------------------------------------------------------------------------
BEVERAGES -- 3.5%
- --------------------------------------------------------------------------------
1,048,400 Anheuser-Busch Companies, Inc. 47,964,300
- --------------------------------------------------------------------------------
382,000 Coca-Cola Company (The) 15,948,500
- --------------------------------------------------------------------------------
988,100 Coca-Cola Enterprises 21,748,081
- --------------------------------------------------------------------------------
283,500 PepsiCo, Inc. 15,289,155
- --------------------------------------------------------------------------------
100,950,036
- --------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.8%
- --------------------------------------------------------------------------------
702,400 Masco Corp. 22,308,224
- --------------------------------------------------------------------------------
CAPITAL MARKETS -- 2.4%
- --------------------------------------------------------------------------------
176,615 Edwards (A.G.), Inc. 7,974,167
- --------------------------------------------------------------------------------
883,700 Merrill Lynch & Co., Inc. 48,612,337
- --------------------------------------------------------------------------------
197,500 Morgan Stanley 10,362,825
- --------------------------------------------------------------------------------
66,949,329
- --------------------------------------------------------------------------------
CHEMICALS -- 3.1%
- --------------------------------------------------------------------------------
742,581 du Pont (E.I.) de
Nemours & Co. 31,938,409
- --------------------------------------------------------------------------------
900,906 Ecolab Inc. 29,153,318
- --------------------------------------------------------------------------------
422,588 Minerals Technologies Inc. 26,031,421
- --------------------------------------------------------------------------------
87,123,148
- --------------------------------------------------------------------------------
COMMERCIAL BANKS -- 6.1%
- --------------------------------------------------------------------------------
1,173,100 Bank of America Corp. 53,505,091
- --------------------------------------------------------------------------------
392,077 BB&T Corporation 15,671,318
- --------------------------------------------------------------------------------
108,492 Marshall & Ilsley Corp. 4,822,469
- --------------------------------------------------------------------------------
895,308 SunTrust Banks, Inc. 64,677,050
- --------------------------------------------------------------------------------
1,240,800 U.S. Bancorp 36,231,360
- --------------------------------------------------------------------------------
174,907,288
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES
& SUPPLIES -- 4.6%
- --------------------------------------------------------------------------------
370,431 Avery Dennison Corp. 19,618,026
- --------------------------------------------------------------------------------
1,751,826 Republic Services, Inc. Cl A 63,083,254
- --------------------------------------------------------------------------------
1,702,217 Waste Management, Inc. 48,240,830
- --------------------------------------------------------------------------------
130,942,110
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 0.2%
- --------------------------------------------------------------------------------
303,000 Nokia Oyj ADR $ 5,041,920
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 1.9%
- --------------------------------------------------------------------------------
180,200 Diebold, Inc. 8,128,822
- --------------------------------------------------------------------------------
603,100 International Business
Machines Corp. 44,750,020
- --------------------------------------------------------------------------------
52,878,842
- --------------------------------------------------------------------------------
DIVERSIFIED -- 1.8%
- --------------------------------------------------------------------------------
421,600 Standard and Poor's 500
Depositary Receipt 50,220,992
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.3%
- --------------------------------------------------------------------------------
789,200 Citigroup Inc. 36,484,716
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 2.4%
- --------------------------------------------------------------------------------
538,602 Commonwealth Telephone
Enterprise Inc. 22,572,810
- --------------------------------------------------------------------------------
666,728 SBC Communications Inc. 15,834,790
- --------------------------------------------------------------------------------
866,100 Verizon Communications 29,923,755
- --------------------------------------------------------------------------------
68,331,355
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.8%
- --------------------------------------------------------------------------------
360,387 FPL Group, Inc. 15,157,877
- --------------------------------------------------------------------------------
259,986 IDACORP, Inc. 7,963,371
- --------------------------------------------------------------------------------
23,121,248
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.6%
- --------------------------------------------------------------------------------
706,400 Emerson Electric Co. 44,241,832
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
& INSTRUMENTS -- 1.2%
- --------------------------------------------------------------------------------
2,831,310 AVX Corporation 34,315,477
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING -- 1.8%
- --------------------------------------------------------------------------------
1,072,100 Wal-Mart Stores, Inc. 51,675,220
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 7.7%
- --------------------------------------------------------------------------------
155,009 Campbell Soup Company 4,769,627
- --------------------------------------------------------------------------------
963,600 ConAgra Foods, Inc. 22,316,976
- --------------------------------------------------------------------------------
481,500 General Mills, Inc. 22,529,385
- --------------------------------------------------------------------------------
502,200 Kellogg Co. 22,317,768
- --------------------------------------------------------------------------------
3,063,005 Kraft Foods Inc. Cl A 97,434,188
- --------------------------------------------------------------------------------
832,000 Unilever N.V. New York Shares 53,938,560
- --------------------------------------------------------------------------------
223,306,504
- --------------------------------------------------------------------------------
GAS UTILITIES -- 0.8%
- --------------------------------------------------------------------------------
663,400 WGL Holdings Inc. 22,316,776
- ---------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT
& SUPPLIES -- 0.6%
- ---------------------------------------------------------------------------------
259,400 Beckman Coulter Inc. 16,490,058
- ---------------------------------------------------------------------------------
HEALTH CARE PROVIDERS
& SERVICES -- 0.1%
- ---------------------------------------------------------------------------------
55,039 Universal Health
Services, Inc. Cl B 3,422,325
- ---------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
8
VP Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 1.7%
- --------------------------------------------------------------------------------
190,043 Brinker International, Inc.(1) $ 7,611,222
- --------------------------------------------------------------------------------
427,170 Outback Steakhouse, Inc. 19,325,171
- --------------------------------------------------------------------------------
558,796 Speedway Motorsports Inc. 20,429,582
- --------------------------------------------------------------------------------
47,365,975
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.7%
- --------------------------------------------------------------------------------
265,778 Whirlpool Corp. 18,633,696
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.8%
- --------------------------------------------------------------------------------
838,700 Kimberly-Clark Corp. 52,494,233
- --------------------------------------------------------------------------------
INSURANCE -- 10.0%
- --------------------------------------------------------------------------------
2,384,223 American International
Group, Inc. 138,523,356
- --------------------------------------------------------------------------------
540 Berkshire Hathaway Inc. Cl A(1) 45,090,000
- --------------------------------------------------------------------------------
86,192 Chubb Corp. 7,378,897
- --------------------------------------------------------------------------------
815,293 Horace Mann Educators Corp. 15,343,814
- --------------------------------------------------------------------------------
480,200 Jefferson-Pilot Corp. 24,211,684
- --------------------------------------------------------------------------------
2,080,622 Marsh & McLennan
Companies, Inc. 57,633,229
- --------------------------------------------------------------------------------
288,180,980
- --------------------------------------------------------------------------------
IT SERVICES -- 2.4%
- --------------------------------------------------------------------------------
1,614,400 Accenture Ltd. Cl A(1) 36,598,448
- --------------------------------------------------------------------------------
665,472 DST Systems, Inc.(1) 31,144,090
- --------------------------------------------------------------------------------
67,742,538
- --------------------------------------------------------------------------------
MACHINERY -- 1.2%
- --------------------------------------------------------------------------------
931,010 Dover Corp. 33,870,144
- --------------------------------------------------------------------------------
MEDIA -- 2.9%
- --------------------------------------------------------------------------------
472,740 Dow Jones & Co. Inc. 16,758,633
- --------------------------------------------------------------------------------
1,518,533 New York Times Co. (The) Cl A 47,302,303
- --------------------------------------------------------------------------------
285,882 Tribune Co. 10,057,329
- --------------------------------------------------------------------------------
224,400 Valassis Communications, Inc.(1) 8,314,020
- --------------------------------------------------------------------------------
82,432,285
- --------------------------------------------------------------------------------
METALS & MINING -- 1.0%
- --------------------------------------------------------------------------------
410,400 Alcoa Inc. 10,723,752
- --------------------------------------------------------------------------------
444,000 Newmont Mining Corporation 17,329,320
- --------------------------------------------------------------------------------
28,053,072
- --------------------------------------------------------------------------------
MULTI-UTILITIES -- 0.7%
- --------------------------------------------------------------------------------
491,400 Wisconsin Energy Corp. 19,164,600
- --------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.3%
- --------------------------------------------------------------------------------
775,400 Dollar General Corp. 15,787,144
- --------------------------------------------------------------------------------
857,670 Family Dollar Stores, Inc. 22,385,187
- --------------------------------------------------------------------------------
38,172,331
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS -- 7.2%
- --------------------------------------------------------------------------------
864,378 BP plc ADR 53,919,900
- --------------------------------------------------------------------------------
1,210,200 Exxon Mobil Corp. 69,550,193
- --------------------------------------------------------------------------------
592,913 Royal Dutch Petroleum Co.
New York Shares 38,480,054
- --------------------------------------------------------------------------------
679,227 Unocal Corp. 44,183,716
- --------------------------------------------------------------------------------
206,133,863
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.6%
- --------------------------------------------------------------------------------
246,100 Weyerhaeuser Co. $ 15,664,265
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.0%
- --------------------------------------------------------------------------------
156,300 Abbott Laboratories 7,660,263
- --------------------------------------------------------------------------------
1,119,324 Bristol-Myers Squibb Co. 27,960,714
- --------------------------------------------------------------------------------
144,900 Eli Lilly and Company 8,072,379
- --------------------------------------------------------------------------------
495,783 Merck & Co., Inc. 15,270,116
- --------------------------------------------------------------------------------
269,107 Mylan Laboratories Inc. 5,177,619
- --------------------------------------------------------------------------------
809,900 Pfizer, Inc. 22,337,042
- --------------------------------------------------------------------------------
972,703 Watson Pharmaceuticals, Inc.(1) 28,753,100
- --------------------------------------------------------------------------------
115,231,233
- --------------------------------------------------------------------------------
ROAD & RAIL -- 1.8%
- --------------------------------------------------------------------------------
799,901 Union Pacific Corp. 51,833,585
- --------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT -- 0.6%
- --------------------------------------------------------------------------------
685,900 Applied Materials, Inc. 11,097,862
- --------------------------------------------------------------------------------
185,182 Intel Corp. 4,825,843
- --------------------------------------------------------------------------------
15,923,705
- --------------------------------------------------------------------------------
SOFTWARE -- 2.8%
- --------------------------------------------------------------------------------
889,600 Microsoft Corporation 22,097,664
- --------------------------------------------------------------------------------
1,121,065 Reynolds & Reynolds Co. Cl A 30,302,387
- --------------------------------------------------------------------------------
1,710,013 Synopsys, Inc.(1) 28,505,917
- --------------------------------------------------------------------------------
80,905,968
- --------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.8%
- --------------------------------------------------------------------------------
815,600 Gap, Inc. (The) 16,108,100
- --------------------------------------------------------------------------------
513,400 Home Depot, Inc. 19,971,260
- --------------------------------------------------------------------------------
304,374 Sherwin-Williams Co. 14,332,972
- --------------------------------------------------------------------------------
50,412,332
- --------------------------------------------------------------------------------
TEXTILES, APPAREL &
LUXURY GOODS -- 0.8%
- --------------------------------------------------------------------------------
691,019 Jones Apparel Group, Inc. 21,449,230
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 3.4%
- --------------------------------------------------------------------------------
497,100 Fannie Mae 29,030,640
- --------------------------------------------------------------------------------
783,067 Freddie Mac 51,079,460
- --------------------------------------------------------------------------------
241,222 MGIC Investment Corp. 15,732,499
- --------------------------------------------------------------------------------
95,842,599
- --------------------------------------------------------------------------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.8%
- --------------------------------------------------------------------------------
407,445 Grainger (W.W.), Inc. 22,323,912
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $2,565,229,149) 2,753,576,193
- --------------------------------------------------------------------------------
See Notes to Financial Statements. (continued)
- ------
9
VP Value - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 3.4%
$96,200,000 FHLMC Discount Notes,
2.60%, 7/1/05(2)
(Cost $96,200,000) $ 96,200,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 100.2%
(Cost $2,661,429,149) 2,849,776,193
- --------------------------------------------------------------------------------
OTHER ASSETS
AND LIABILITIES -- (0.2)% (4,427,750)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $2,845,348,443
================================================================================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS*
Settlement Unrealized
Contracts to Sell Date Value Gain (Loss)
- --------------------------------------------------------------------------------
11,128,498 Euro for USD 7/29/05 $ 13,478,837 $(21,478)
- --------------------------------------------------------------------------------
19,292,845 Euro for USD 7/29/05 23,367,493 (31,544)
- --------------------------------------------------------------------------------
30,217,710 Euro for USD 7/29/05 36,599,690 (64,817)
- --------------------------------------------------------------------------------
10,127,820 GBP for USD 7/29/05 18,117,475 267,760
- --------------------------------------------------------------------------------
11,697,032 GBP for USD 7/29/05 20,924,610 304,684
- --------------------------------------------------------------------------------
3,667,143,200 JPY for USD 7/29/05 33,165,926 269,309
- --------------------------------------------------------------------------------
$145,654,031 $723,914
===================================
(Value on Settlement Date $146,377,945)
* 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
FHLMC = Federal Home Loan Mortgage Corporation
GBP = British Pound
JPY = Japanese Yen
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
(2) The rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
10
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at value (cost of $2,661,429,149) $2,849,776,193
- -----------------------------------------------------------
Cash 5,477,222
- -----------------------------------------------------------
Receivable for investments sold 29,591,625
- -----------------------------------------------------------
Receivable for forward foreign currency exchange contracts 841,753
- -----------------------------------------------------------
Dividends and interest receivable 3,077,540
- --------------------------------------------------------------------------------
2,888,764,333
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for investments purchased 41,071,538
- -----------------------------------------------------------
Payable for forward foreign currency exchange contracts 117,839
- -----------------------------------------------------------
Accrued management fees 2,115,469
- -----------------------------------------------------------
Distribution fees payable 111,044
- --------------------------------------------------------------------------------
43,415,890
- --------------------------------------------------------------------------------
NET ASSETS $2,845,348,443
================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $2,570,957,036
- -----------------------------------------------------------
Undistributed net investment income 19,329,670
- -----------------------------------------------------------
Undistributed net realized gain on investment
and foreign currency transactions 65,990,779
- -----------------------------------------------------------
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies 189,070,958
- --------------------------------------------------------------------------------
$2,845,348,443
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $2,286,894,265
- -----------------------------------------------------------
Shares outstanding 291,547,260
- -----------------------------------------------------------
Net asset value per share $7.84
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $550,537,906
- -----------------------------------------------------------
Shares outstanding 70,191,090
- -----------------------------------------------------------
Net asset value per share $7.84
- --------------------------------------------------------------------------------
CLASS III, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $7,916,272
- -----------------------------------------------------------
Shares outstanding 1,009,216
- -----------------------------------------------------------
Net asset value per share $7.84
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
11
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
INCOME:
- -----------------------------------------------------------
Dividends (net of foreign taxes withheld of $509,334) $ 37,050,960
- -----------------------------------------------------------
Interest 1,165,523
- --------------------------------------------------------------------------------
38,216,483
- --------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------
Management fees 12,321,105
- -----------------------------------------------------------
Distribution fees -- Class II 598,434
- -----------------------------------------------------------
Directors' fees and expenses 22,463
- -----------------------------------------------------------
Other expenses 7,390
- --------------------------------------------------------------------------------
12,949,392
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 25,267,091
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON:
- -----------------------------------------------------------
Investment transactions 124,820,376
- -----------------------------------------------------------
Foreign currency transactions 13,756,876
- --------------------------------------------------------------------------------
138,577,252
- --------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
- -----------------------------------------------------------
Investments (154,837,547)
- -----------------------------------------------------------
Translation of assets and liabilities in foreign currencies 4,391,573
- --------------------------------------------------------------------------------
(150,445,974)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (11,868,722)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,398,369
================================================================================
See Notes to Financial Statements.
- ------
12
Statement of Changes in Net Assets
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 25,267,091 $ 26,676,920
- ----------------------------------------------
Netrealized gain 138,577,252 256,355,501
- ----------------------------------------------
Change in net unrealized appreciation (150,445,974) 43,360,126
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 13,398,369 326,392,547
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income:
- ----------------------------------------------
Class I (19,718,978) (20,153,212)
- ----------------------------------------------
Class II (3,397,167) (2,176,260)
- ----------------------------------------------
Class III (54,888) (25,471)
- ----------------------------------------------
From net realized gains:
- ----------------------------------------------
Class I (228,154,534) (15,633,098)
- ----------------------------------------------
Class II (47,630,651) (1,997,564)
- ----------------------------------------------
Class III (635,071) (19,758)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions (299,591,289) (40,005,363)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions 442,788,167 262,826,128
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 156,595,247 549,213,312
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 2,688,753,196 2,139,539,884
- --------------------------------------------------------------------------------
End of period $2,845,348,443 $2,688,753,196
================================================================================
Undistributed net investment income $19,329,670 $17,233,612
================================================================================
See Notes to Financial Statements.
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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 $5,917,156 of net foreign currency losses and
$185,183 of net capital losses incurred in the two-month period ended December
31, 2004, 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.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
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)
- ------
15
Notes to Financial Statements
JUNE 30, 2005 (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 fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. For funds with a stepped fee schedule, the
rate of the fee is determined by applying a fee rate calculation formula. This
formula takes into account all of the investment advisor's assets under
management in the fund's investment strategy (strategy assets) to calculate the
appropriate fee rate for the fund. The strategy assets include the fund's assets
and the assets of other clients of the investment advisor that are not in the
American Century family of funds, but that have the same investment team and
investment strategy.
The annual management fee schedule for each class of the fund is as follows:
CLASSES I & III CLASS II
- --------------------------------------------------------------------------------
STRATEGY ASSETS
- --------------------------------------------------------------------------------
First $500 million 1.00% 0.90%
- --------------------------------------------------------------------------------
Next $500 million 0.95% 0.85%
- --------------------------------------------------------------------------------
Over $1 billion 0.90% 0.80%
- --------------------------------------------------------------------------------
The effective annual management fee for each class of the fund for the six
months ended June 30, 2005 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 and
accrued daily based on the Class II daily net assets and paid monthly in
arrears. The distribution fee provides compensation for expenses incurred in
connection with distributing shares of Class II including, but not limited to,
payments to brokers, dealers, and financial institutions that have entered into
sales agreements with respect to shares of the fund. Fees incurred under the
plan during the six months ended June 30, 2005, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services, LLC (formerly American Century
Services Corporation).
The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC.
(continued)
- ------
16
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended June 30, 2005, were as follows:
- --------------------------------------------------------------------------------
Purchases $1,780,314,614
- --------------------------------------------------------------------------------
Proceeds from sales $1,563,630,489
- --------------------------------------------------------------------------------
As of June 30, 2005, 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 $2,745,455,043
================================================================================
Gross tax appreciation of investments $194,197,861
- -----------------------------------------------
Gross tax depreciation of investments (89,876,711)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $104,321,150
================================================================================
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)
- ------
17
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 650,000,000
================================================================================
Sold 15,250,532 $123,769,566
- ---------------------------------------------
Issued in reinvestment of distributions 31,297,161 247,873,512
- ---------------------------------------------
Redeemed (11,968,472) (96,090,957)
- --------------------------------------------------------------------------------
Net increase 34,579,221 $275,552,121
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 650,000,000
================================================================================
Sold 32,748,486 $ 263,688,761
- ---------------------------------------------
Issued in reinvestment of distributions 4,467,704 35,786,310
- ---------------------------------------------
Redeemed (26,699,973) (213,987,585)
- --------------------------------------------------------------------------------
Net increase 10,516,217 $ 85,487,486
================================================================================
CLASS II
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 150,000,000
================================================================================
Sold 15,837,696 $127,257,927
- ---------------------------------------------
Issued in reinvestment of distributions 6,434,782 51,027,818
- ---------------------------------------------
Redeemed (1,659,589) (13,229,481)
- --------------------------------------------------------------------------------
Net increase 20,612,889 $165,056,264
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 150,000,000
================================================================================
Sold 23,157,735 $186,310,782
- ---------------------------------------------
Issued in reinvestment of distributions 521,077 4,173,824
- ---------------------------------------------
Redeemed (2,136,579) (17,125,171)
- --------------------------------------------------------------------------------
Net increase 21,542,233 $173,359,435
================================================================================
CLASS III
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 401,568 $ 3,212,622
- ---------------------------------------------
Issued in reinvestment of distributions 87,116 689,959
- ---------------------------------------------
Redeemed (209,246) (1,722,799)(1)
- --------------------------------------------------------------------------------
Net increase 279,438 $ 2,179,782
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 687,131 $ 5,516,058
- ---------------------------------------------
Issued in reinvestment of distributions 5,647 45,229
- ---------------------------------------------
Redeemed (196,593) (1,582,080)(2)
- --------------------------------------------------------------------------------
Net increase 496,185 $ 3,979,207
================================================================================
(1) Net of redemption fees of $1,528.
(2) Net of redemption fees of $3,336.
(continued)
- ------
18
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$575,000,000 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, 2005.
- ------
19
VP Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- -------------------------------------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $8.75 $7.79 $6.12 $7.44 $6.67 $5.95
- -------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------
Net Investment Income 0.07(2) 0.09(2) 0.09(2) 0.08(2) 0.08(2) 0.08
- -------------------------------------
Net Realized and
Unrealized Gain (Loss) (0.02) 1.01 1.65 (0.95) 0.77 0.90
- -------------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.05 1.10 1.74 (0.87) 0.85 0.98
- -------------------------------------------------------------------------------------------------------------
Distributions
- -------------------------------------
From Net Investment Income (0.08) (0.08) (0.07) (0.06) (0.08) (0.07)
- -------------------------------------
From Net Realized Gains (0.88) (0.06) -- (0.39) -- (0.19)
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.96) (0.14) (0.07) (0.45) (0.08) (0.26)
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $7.84 $8.75 $7.79 $6.12 $7.44 $6.67
=============================================================================================================
TOTAL RETURN(3) 0.42% 14.33% 28.96% (12.62)% 12.82% 18.14%
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.93%(4) 0.93% 0.95% 0.95% 0.97% 1.00%
- -------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.89%(4) 1.16% 1.37% 1.17% 1.28% 1.81%
- -------------------------------------
Portfolio Turnover Rate 59% 139% 109% 106% 174% 159%
- -------------------------------------
Net Assets, End of Period
(in thousands) $2,286,894 $2,248,902 $1,919,580 $1,465,287 $1,424,235 $672,214
- -------------------------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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.
- ------
20
VP Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- -----------------------------------------------------------------------------------------
CLASS II
- -----------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001(2)
- ----------------------------------------------------------------------------------------
PER-SHARE DATA
- ----------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $8.74 $7.78 $6.11 $7.44 $7.19
- -----------------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------
Net Investment Income(3) 0.07 0.08 0.08 0.07 0.02
- -------------------------------------
Net Realized and Unrealized
Gain (Loss) (0.03) 1.01 1.65 (0.95) 0.23
- -----------------------------------------------------------------------------------------
Total From Investment Operations 0.04 1.09 1.73 (0.88) 0.25
- -----------------------------------------------------------------------------------------
Distributions
- -------------------------------------
From Net Investment Income (0.06) (0.07) (0.06) (0.06) --
- -------------------------------------
From Net Realized Gains (0.88) (0.06) -- (0.39) --
- -----------------------------------------------------------------------------------------
Total Distributions (0.94) (0.13) (0.06) (0.45) --
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Period $7.84 $8.74 $7.78 $6.11 $7.44
=========================================================================================
TOTAL RETURN(4) 0.37% 14.17% 28.81% (12.81)% 3.48%
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 1.08%(5) 1.08% 1.10% 1.10% 1.11%(5)
- -------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.74%(5) 1.01% 1.22% 1.02% 0.81%(5)
- -------------------------------------
Portfolio Turnover Rate 59% 139% 109% 106% 174%(6)
- -------------------------------------
Net Assets, End of Period
(in thousands) $550,538 $433,465 $218,141 $82,976 $17,145
- -----------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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.
- ------
21
VP Value - Financial Highlights
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
- --------------------------------------------------------------------------------
CLASS III
- --------------------------------------------------------------------------------
2005(1) 2004 2003 2002(2)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $8.75 $7.79 $6.12 $6.92
- --------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------
Net Investment Income(3) 0.08 0.09 0.09 0.06
- -------------------------------------
Net Realized and
Unrealized Gain (Loss) (0.03) 1.01 1.65 (0.86)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.05 1.10 1.74 (0.80)
- --------------------------------------------------------------------------------
Distributions
- -------------------------------------
From Net Investment Income (0.08) (0.08) (0.07) --
- -------------------------------------
From Net Realized Gains (0.88) (0.06) -- --
- --------------------------------------------------------------------------------
Total Distributions (0.96) (0.14) (0.07) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $7.84 $8.75 $7.79 $6.12
================================================================================
TOTAL RETURN(4) 0.42% 14.33% 28.96% (11.56)%
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.93%(5) 0.93% 0.95% 0.95%(5)
- -------------------------------------
Ratio of Net Investment Income
to Average Net Assets 1.89%(5) 1.16% 1.37% 1.50%(5)
- -------------------------------------
Portfolio Turnover Rate 59% 139% 109% 106%(6)
- -------------------------------------
Net Assets, End of Period
(in thousands) $7,916 $6,387 $1,819 $356
- --------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (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.
- ------
22
Approval of Management Agreement for VP Value
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process -- referred to as the "15(c) Process" -- involves
at least two board meetings spanning a 30 to 60 day period each year. In
addition to this annual review, the board of directors and its committees
oversee and evaluate at quarterly meetings the nature and quality of significant
services the advisor performs on behalf of the fund. At these meetings the board
reviews fund performance, shareholder services and feedback, audit and
compliance information, and a variety of other reports from the advisor
concerning fund operations. The board, or committees of the board, also hold
special meetings, as needed.
Under a new Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for its board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the half-year period, the
Directors requested and received extensive data and information compiled by the
advisor and certain independent providers of evaluative data (the "Independent
15(c) Providers") concerning VP Value (the "fund") and the services provided to
the fund under the management agreement. The information included, but was not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund under the management
agreement;
* reports on the advisor's activities relating to the wide range of
programs and services the advisor provides to the fund and its shareholders
on a routine and non-routine basis;
* data comparing the cost of owning the fund to the cost of owning
similar funds;
* data comparing the fund's performance to appropriate benchmarks
and/or a peer group of other mutual funds with similar investment
objectives and strategies;
* financial data showing the profitability of the fund to the advisor
and the overall profitability of the advisor; and
* data comparing services provided and charges to other investment
management clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and two special meetings to review and discuss the
information provided by the advisor and the Independent 15(c) Providers and to
complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory fee. In
addition, the independent directors met on several occasions in private session
to review and discuss the information provided and evaluate the advisor's
performance as manager of the fund.
(continued)
- ------
23
Approval of Management Agreement for VP Value
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
Independent 15(c) Providers, and its independent counsel and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including, but not limited to:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES.The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objective and approved strategies. In
providing these services, the advisor utilizes teams of investment professionals
(portfolio managers, analysts, research assistants, and securities traders) who
require extensive information technology, research, training, compliance and
other systems to conduct their business. At each quarterly meeting the Directors
review investment performance information for the fund, together with
comparative information for appropriate benchmarks and a peer group of funds
managed similarly to the fund. If performance concerns are identified, the
Directors discuss with the advisor and its portfolio managers the reasons for
such results (e.g., market conditions, security selection) and any efforts being
(continued)
- ------
24
Approval of Management Agreement for VP Value
undertaken to improve performance. Annually, the Directors review detailed
performance information, as provided by the Independent 15(c) Providers,
comparing the fund's performance with that of similar funds not managed by the
advisor. During the past year, VP Value's performance was above the median
performance of its peer group for the three year period and slightly below
median for the one year period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at its regular
quarterly meetings, including the annual meeting concerning contract review.
These reports include, but are not limited to, information regarding the
operational efficiency and accuracy of the shareholder and transfer agency
services provided, staffing levels, shareholder satisfaction (as measured by
external as well as internal sources), technology support, new products and
services offered to fund shareholders, securities trading activities, portfolio
valuation services, auditing services, and legal and operational compliance
activities. Certain aspects of shareholder and transfer agency service level
efficiency and the quality of securities trading activities are measured by
independent third party providers and are presented in comparison to other fund
groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally considered the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices and that the advisor was not implicated in the
industry scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure with precision, particularly on a fund-by-fund
basis. This analysis is further complicated by the fact that the advisor is
required to make a continuing reinvestment in the business to provide additional
content and services for fund shareholders. Accordingly, the Directors also seek
to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of its
management of the fund specifically, the expenses incurred by the advisor in
providing various services to the fund, and the breakpoint fees of competitive
funds not managed by the advisor. The Directors
(continued)
- ------
25
Approval of Management Agreement for VP Value
believe the advisor is appropriately sharing any economies of scale through a
competitive fee structure, through breakpoints that reduce fees as the fund
increases in size, and through reinvestment in its business to provide
shareholders additional content and services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other fund groups are charged a variety of
fees, including an investment advisory fee, a transfer agency fee, an
administrative fee, distribution charges and other expenses. Other than their
investment advisory fees and Rule 12b-1 distribution fees, all other components
of the total fees charged by these other fund groups may be increased without
shareholder approval. The board believes the unified fee structure is a benefit
to fund shareholders because it clearly discloses to shareholders the cost of
owning fund shares, and, since the unified fee cannot be increased without a
vote of fund shareholders, it shifts to the advisor the increased costs of
operating the funds and the risk of administrative inefficiencies. Part of the
Directors' analysis of fee levels involves comparing the fund's unified fee to
the total expense ratio of other funds in the fund's peer group. The unified fee
charged to shareholders of the fund was near the median of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker dealers that execute
fund portfolio transactions and concluded that this research is likely to
benefit fund shareholders. The Directors also determined that the advisor is
able to provide investment management services to clients other than the fund,
at
(continued)
- ------
26
Approval of Management Agreement for VP Value
least in part, due to its existing infrastructure built to serve the fund
complex. The Directors concluded, however, that the assets of those other
clients are modest in comparison to the funds and that, in any event, the
addition of such other assets to the assets of the funds that use substantially
the same investment management team and strategy to determine whether
breakpoints have been achieved captures for the shareholders a portion of any
benefit that exists by accelerating fee reductions as breakpoints are reached at
lower fund asset levels.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel that is independent of the advisor, taking into account all of
the factors discussed above and the information provided by the advisor and the
Independent 15(c) Providers, concluded that the investment management agreement
between the fund and the advisor is fair and reasonable in light of the services
provided and should be renewed.
- ------
27
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 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 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.
- ------
28
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 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(reg.tm) 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(reg.tm) 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 investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of
portfolio holdings for the most recent quarter of its fiscal year available on
its Web site at ipro.americancentury.com (for Investment Professionals) and,
upon request, by calling 1-800-378-9878.
- ------
29
Notes
- ------
30
Notes
- ------
31
Notes
- ------
32
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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century
and American Century Investments are service marks of
American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
0508
SH-SAN-44736
(c)2005 American Century Proprietary Holdings, Inc.
All rights reserved.
[front cover]
American Century
Variable Portfolios
SEMIANNUAL REPORT
[photo of man and woman]
June 30, 2005
VP Vista SM Fund
[american century investments logo and text logo]
Table of Contents
VP VISTA
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . . . .5
Shareholder Fee Example. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . .10
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . .11
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . 12
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .13
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
OTHER INFORMATION
Approval of Management Agreement for VP Vista. . . . . . . . . . . . . . . .19
Share Class Information. . . . . . . . . . . . . . . . . . . . . . . . . . .24
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Index Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
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, 2005
--------------
AVERAGE ANNUAL
RETURNS
- ------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------------
CLASS I 4.17% 7.80% 10/5/01
- --------------------------------------------------------------------------------
RUSSELL MIDCAP GROWTH INDEX(1) 10.86% 10.78% --
- --------------------------------------------------------------------------------
Class II -- 5.41%(2) 4/29/05
- --------------------------------------------------------------------------------
(1) (c) 2005 Reuters. All rights reserved. Any copying, republication or
redistribution of Lipper content, including by caching, framing or similar
means, is expressly prohibited without the prior written consent of Lipper.
Lipper shall not be liable for any errors or delays in the content, or for
any actions taken in reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
Inc. - A Reuters Company and may be incomplete. No offer or solicitations to
buy or sell any of the securities herein is being made by Lipper.
(2) 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 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.
(continued)
- ------
2
VP Vista - Performance
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 2005
- ---------------------------------------------------------------------------------
Class I -3.20% -0.52% 31.98% 4.17%
- ---------------------------------------------------------------------------------
Russell Midcap Growth Index -3.25% 7.35% 27.33% 10.86%
- ---------------------------------------------------------------------------------
* 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.
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 Vista - Portfolio Commentary
[photo of portfolio managers]
PORTFOLIO MANAGERS ON THE VP VISTA INVESTMENT TEAM: GLENN FOGLE AND DAVID M.
HOLLOND.
American Century VP Vista fell 1.19%* during the six months ended June 30, 2005,
trailing the 1.70% return of its benchmark, the Russell Midcap Growth Index, and
the 0.92% decline of the Lipper Mid-Cap Growth Funds Index.
QUIRKY FIRST HALF
Investors waded through a choppy first half of 2005. Surging crude oil prices
and Federal Reserve interest rate hikes held sway over markets' emotions in the
first half of the six-month period. But tame inflation, job growth and a
temporary decline in oil prices improved investors' outlook shortly after spring
arrived, spurring a May rally.
Crude oil prices soon rebounded, reaching record highs of more than $60
per barrel as the six-month period ended - and just as the Fed's ninth
short-term interest rate increase in 12 months took effect. That increase
occurred as 10-year Treasury yields slumped flattening the yield curve and
further confounding investors and economists about the direction of the economy.
The markets' stops and starts produced divergent first-half 2005 returns that
wound up favoring mid-cap stocks. While the S&P 500 Index dropped 0.81% and the
Russell 2000 Index fell 1.25%, the Russell Midcap Index gained 3.92%.
STILL FAVORING VALUE
In the mid-cap space, though, value stocks again outperformed growth stocks in
the period, with the Russell Midcap Value Index outpacing its growth counterpart
by 381 bps. For the latest five-year stretch, the margin between the two has
expanded to 20 full percentage points. As such, VP Vista maintained an
overweight position in the utilities and energy sectors and an underweight in
information technology and consumer discretionary stocks.
The overweight in energy made the biggest contribution on a sector basis to VP
Vista's overall returns in the period. An overweight in homebuilders in the
consumer discretionary sector also proved beneficial as the U.S. housing market
continued booming. But the
TOP TEN HOLDINGS AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
NII Holdings, Inc. 3.0% 3.4%
- --------------------------------------------------------------------------------
Aetna Inc. 2.9% 2.5%
- --------------------------------------------------------------------------------
Cerner Corporation 2.5% --
- --------------------------------------------------------------------------------
Men's
Wearhouse, Inc. (The) 2.4% --
- --------------------------------------------------------------------------------
CVS Corp. 2.4% --
- --------------------------------------------------------------------------------
Abercrombie & Fitch Co. 2.4% --
- --------------------------------------------------------------------------------
Caremark Rx Inc. 2.4% 1.4%
- --------------------------------------------------------------------------------
Harrah's
Entertainment, Inc. 2.4% 0.5%
- --------------------------------------------------------------------------------
Monsanto Co. 2.3% 0.5%
- --------------------------------------------------------------------------------
Helmerich & Payne, Inc. 2.2% --
- --------------------------------------------------------------------------------
*All fund returns referenced in this commentary are for Class I shares.
Returns for periods less than one year are not annualized.
(continued)
- ------
4
VP Vista - Portfolio Commentary
portfolio couldn't overcome ineffective stock choices in information technology,
despite its underweight in that sector, or an overweight in health care stocks
that further hampered relative returns.
NII NOTCHES PERFORMANCE TOP SPOT
Two stocks in the energy sector and two gaming stocks made the portfolio's top
10 list of individual relative contributors during the period. Yet its leading
relative performer, NII Holdings, hailed from an otherwise sluggish
telecommunications sector in which VP Vista owned few other stocks.
Aetna, a longtime VP Vista holding and its third-biggest average individual
stake, again delivered solid performance. The insurance and health plan provider
defied otherwise weak relative performance for the portfolio in the health care
sector, even though that sector contributed on an absolute basis.
SOFTWARE LEADS IT LOSSES
The portfolio benefited from its underweight in IT, but that didn't keep the
sector from detracting on a relative and absolute basis. Stock choices that
suffered, particularly in software, explain much of the decline.
TIBCO Software, a maker of business software, led the portfolio in relative
performance in the fourth quarter of 2004 but ended the first half of 2005 as
its biggest relative detractor. TIBCO's shares fell sharply in early March 2005
after the company warned investors of surprisingly weak earnings results, and
the company's cloudy outlook caused us to liquidate our position in the stock.
The portfolio experienced losses outside of IT, too. Three gaming-related issues
made its top 10 list of detractors from both a relative and absolute
perspectives. In addition, American Pharmaceutical Partners helped offset
Aetna's positive performance in health care, which accounted for VP Vista's
largest average sector weighting in the period. Shares in the maker of injection
drugs fell after the company's disappointing sales in the first quarter of 2005
failed to meet market expectations.
INVESTMENT PHILOSOPHY
We adhere to an investment process that identifies mid-sized and smaller
companies with accelerating earnings and revenue. Ultimately, we believe this
selection strategy will produce solid, long-term gains for our investors.
TOP FIVE INDUSTRIES AS OF JUNE 30, 2005
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Health Care
Providers & Services 18.6% 6.8%
- --------------------------------------------------------------------------------
Specialty Retail 12.7% 2.2%
- --------------------------------------------------------------------------------
Household Durables 7.5% 0.8%
- --------------------------------------------------------------------------------
Energy
Equipment & Services 7.2% 4.6%
- --------------------------------------------------------------------------------
Hotels,
Restaurants & Leisure 5.5% 11.4%
- --------------------------------------------------------------------------------
TYPES OF INVESTMENTS IN PORTFOLIO
- --------------------------------------------------------------------------------
% OF % OF
NET ASSETS NET ASSETS
AS OF AS OF
6/30/05 12/31/04
- --------------------------------------------------------------------------------
Common Stocks 95.9% 95.0%
- --------------------------------------------------------------------------------
Temporary
Cash Investments 3.2% 4.2%
- --------------------------------------------------------------------------------
Other Assets
and Liabilities 0.9% 0.8%
- --------------------------------------------------------------------------------
- ------
5
Shareholder Fee Example (Unaudited)
Fund shareholders may incur two types of costs: (1) transaction costs, including
sales charges (loads) on purchase payments and redemption/exchange fees; and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in your fund and to compare these costs
with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2005 to June 30, 2005
(except as noted).
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is not
the actual return of a fund's share class. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
(continued)
- ------
6
Shareholder Fee Example (Unaudited)
EXPENSES PAID
BEGINNING ENDING DURING PERIOD(1) ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE 1/1/05 - EXPENSE
1/1/05 6/30/05 6/30/05 RATIO(1)
- ---------------------------------------------------------------------------------------
VP VISTA
SHAREHOLDER
FEE EXAMPLE
- ---------------------------------------------------------------------------------------
ACTUAL
- ---------------------------------------------------------------------------------------
Class I $1,000 $988.10 $4.93 1.00%
- ---------------------------------------------------------------------------------------
Class II $1,000 $1,054.10(2) $2.01(3) 1.15%
- ---------------------------------------------------------------------------------------
HYPOTHETICAL
- ---------------------------------------------------------------------------------------
Class I $1,000 $1,019.84 $5.01 1.00%
- ---------------------------------------------------------------------------------------
Class II $1,000 $1,019.09(4) $5.76(4) 1.15%
- ---------------------------------------------------------------------------------------
(1) Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 181, the number of days in the most recent fiscal half-year,
divided by 365, to reflect the one-half year period.
(2) Ending account value based on actual returns from April 29, 2005
(commencement of sale) through June 30, 2005.
(3) Expenses are equal to the annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
62, the number of days in the period from April 29, 2005 (commencement of
sale) through June 30, 2005, divided by 365, to reflect the period. Had the
class been available for the full period, the expenses paid during the period
would have been higher.
(4) Ending account value and expenses paid during the period assume the class
had been available throughout the entire period and are calculated using the
class's annualized expense ratio listed in the table above.
- ------
7
VP Vista - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 95.9%
AEROSPACE & DEFENSE - 4.8%
- ------------------------------------------------------------------------------
5,826 Goodrich Corporation $ 238,633
- ------------------------------------------------------------------------------
1,522 Precision Castparts Corp. 118,564
- ------------------------------------------------------------------------------
4,974 Rockwell Collins 237,160
- ------------------------------------------------------------------------------
594,357
- ------------------------------------------------------------------------------
BIOTECHNOLOGY - 2.4%
- ------------------------------------------------------------------------------
3,457 Affymetrix Inc.(1) 186,435
- ------------------------------------------------------------------------------
1,467 Celgene Corp.(1) 59,810
- ------------------------------------------------------------------------------
1,237 Techne Corp.(1) 56,791
- ------------------------------------------------------------------------------
303,036
- ------------------------------------------------------------------------------
CAPITAL MARKETS - 0.6%
- ------------------------------------------------------------------------------
698 Legg Mason, Inc. 72,669
- ----------------------------------------------------------------------------
CHEMICALS - 2.3%
- ------------------------------------------------------------------------------
4,617 Monsanto Co. 290,271
- ------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.6%
- ------------------------------------------------------------------------------
1,803 SVB Financial Group(1) 86,364
- ------------------------------------------------------------------------------
1,597 Zions Bancorporation 117,427
- ------------------------------------------------------------------------------
203,791
- ------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.2%
- ------------------------------------------------------------------------------
1,245 Administaff, Inc. 29,581
- ------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.9%
- ------------------------------------------------------------------------------
3,001 ADC Telecommunications, Inc.(1) 65,332
- ------------------------------------------------------------------------------
2,451 Adtran, Inc. 60,760
- ------------------------------------------------------------------------------
10,805 Powerwave Technologies Inc.(1) 110,427
- ------------------------------------------------------------------------------
236,519
- ------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.5%
- ------------------------------------------------------------------------------
3,127 Emulex Corp.(1) 57,099
- ------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 1.8%
- ------------------------------------------------------------------------------
10,570 Shaw Group Inc. (The)(1) 227,361
- ------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 1.5%
- ------------------------------------------------------------------------------
654 Eagle Materials Inc. 60,554
- ------------------------------------------------------------------------------
951 Martin Marietta Materials, Inc. 65,733
- ------------------------------------------------------------------------------
967 Vulcan Materials Co. 62,845
- ------------------------------------------------------------------------------
189,132
- ------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.5%
- ------------------------------------------------------------------------------
3,589 Nasdaq Stock
Market, Inc. (The)(1) 67,689
- ------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.5%
- ------------------------------------------------------------------------------
2,237 TXU Corp. 185,872
- ------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 3.2%
- ------------------------------------------------------------------------------
5,544 Itron Inc.(1) 247,706
- ------------------------------------------------------------------------------
2,943 Jabil Circuit, Inc.(1) 90,438
- ------------------------------------------------------------------------------
1,462 Trimble Navigation Ltd.(1) 56,974
- ------------------------------------------------------------------------------
395,118
- ------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 7.2%
- ------------------------------------------------------------------------------
5,853 Helmerich & Payne, Inc. $ 274,623
- ------------------------------------------------------------------------------
5,130 National Oilwell Varco, Inc.(1) 243,880
- ------------------------------------------------------------------------------
7,571 Patterson-UTI Energy Inc. 210,701
- ------------------------------------------------------------------------------
2,077 Tenaris SA ADR 162,567
- ------------------------------------------------------------------------------
891,771
- ------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 4.4%
- ------------------------------------------------------------------------------
10,399 CVS Corp. 302,299
- ------------------------------------------------------------------------------
2,099 Whole Foods Market, Inc. 248,312
- ------------------------------------------------------------------------------
550,611
- ------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.0%
- ------------------------------------------------------------------------------
2,165 Immucor, Inc.(1) 62,677
- ------------------------------------------------------------------------------
1,325 Intuitive Surgical Inc.(1) 61,798
- ------------------------------------------------------------------------------
124,475
- ------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 18.6%
- ------------------------------------------------------------------------------
4,353 Aetna Inc. 360,516
- ------------------------------------------------------------------------------
6,668 Caremark Rx Inc.(1) 296,859
- ------------------------------------------------------------------------------
4,645 Cerner Corporation(1) 315,721
- ------------------------------------------------------------------------------
1,160 CIGNA Corp. 124,155
- ------------------------------------------------------------------------------
4,710 Community Health
Systems Inc.(1) 177,991
- ------------------------------------------------------------------------------
2,081 Covance Inc.(1) 93,374
- ------------------------------------------------------------------------------
6,135 Henry Schein, Inc.(1) 254,725
- ------------------------------------------------------------------------------
3,177 Humana Inc.(1) 126,254
- ------------------------------------------------------------------------------
1,451 Kindred Healthcare Inc.(1) 57,474
- ------------------------------------------------------------------------------
1,519 LCA-Vision Inc. 73,611
- ------------------------------------------------------------------------------
935 PacifiCare Health
Systems, Inc.(1) 66,806
- ------------------------------------------------------------------------------
2,527 Pharmaceutical
Product Development, Inc.(1) 118,415
- ------------------------------------------------------------------------------
3,798 Universal Health
Services, Inc. Cl B 236,160
- ------------------------------------------------------------------------------
2,302,061
- ------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 5.5%
- ------------------------------------------------------------------------------
920 Aztar Corp.(1) 31,510
- ------------------------------------------------------------------------------
4,084 Harrah's Entertainment, Inc. 294,333
- ------------------------------------------------------------------------------
1,044 Panera Bread Co.(1) 64,817
- ------------------------------------------------------------------------------
1,731 Penn National Gaming Inc.(1) 63,182
- ------------------------------------------------------------------------------
3,528 Station Casinos Inc. 234,259
- ------------------------------------------------------------------------------
688,101
- ------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 7.5%
- ------------------------------------------------------------------------------
1,911 Hovnanian Enterprises Inc.(1) 124,597
- ------------------------------------------------------------------------------
1,171 Jarden Corp.(1) 63,140
- ------------------------------------------------------------------------------
3,292 KB Home 250,949
- ------------------------------------------------------------------------------
2,199 Pulte Homes Inc. 185,266
- ------------------------------------------------------------------------------
736 Standard Pacific Corp. 64,731
- ------------------------------------------------------------------------------
2,447 Toll Brothers Inc.(1) 248,493
- ------------------------------------------------------------------------------
937,176
- ------------------------------------------------------------------------------
See Notes to Financial Statements.
(continued)
- ------
8
VP Vista - Schedule of Investments
JUNE 30, 2005 (UNAUDITED)
Shares Value
- ---------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 1.4%
- ---------------------------------------------------------------------------
4,070 VeriSign, Inc.(1) $ 117,053
- ---------------------------------------------------------------------------
2,325 WebEx Communications, Inc.(1) 61,403
- ---------------------------------------------------------------------------
178,456
- ---------------------------------------------------------------------------
IT SERVICES - 1.5%
- ---------------------------------------------------------------------------
3,935 Cognizant Technology
Solutions Corporation(1) 185,457
- ---------------------------------------------------------------------------
MACHINERY - 1.1%
- ---------------------------------------------------------------------------
311 Joy Global Inc. 10,446
- ---------------------------------------------------------------------------
2,881 Pentair, Inc. 123,336
- ---------------------------------------------------------------------------
133,782
- ---------------------------------------------------------------------------
METALS & MINING - 0.1%
- ---------------------------------------------------------------------------
285 Titanium Metals Corp.(1) 16,185
- ---------------------------------------------------------------------------
MULTILINE RETAIL - 0.5%
- ---------------------------------------------------------------------------
1,138 J.C. Penney Co. Inc.
Holding Company 59,836
- ---------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 2.3%
- ---------------------------------------------------------------------------
1,898 Quicksilver Resources Inc.(1) 121,339
- ---------------------------------------------------------------------------
3,506 Southwestern Energy Company(1) 164,712
- ---------------------------------------------------------------------------
286,051
- ---------------------------------------------------------------------------
PHARMACEUTICALS - 0.5%
- ---------------------------------------------------------------------------
1,494 American Pharmaceutical
Partners Inc.(1) 61,628
- ---------------------------------------------------------------------------
REAL ESTATE - 0.5%
- ---------------------------------------------------------------------------
857 Simon Property Group, Inc. 62,124
- --------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT - 1.9%
- ---------------------------------------------------------------------------
7,444 LSI Logic Corp.(1) 63,200
- ---------------------------------------------------------------------------
5,867 Microsemi Corporation(1) 110,299
- ---------------------------------------------------------------------------
2,880 Trident Microsystems, Inc.(1) 65,347
- ---------------------------------------------------------------------------
238,846
- ---------------------------------------------------------------------------
SOFTWARE - 0.9%
- ---------------------------------------------------------------------------
2,203 McAfee Inc.(1) 57,675
- ---------------------------------------------------------------------------
1,347 Micros Systems, Inc.(1) 60,278
- ---------------------------------------------------------------------------
117,953
- ---------------------------------------------------------------------------
Shares/Principal Amount Value
- ---------------------------------------------------------------------------
SPECIALTY RETAIL - 12.7%
- ---------------------------------------------------------------------------
4,391 Abercrombie & Fitch Co. $ 301,662
- ---------------------------------------------------------------------------
1,959 Advance Auto Parts, Inc.(1) 126,453
- ---------------------------------------------------------------------------
2,457 Bebe Stores Inc. 65,037
- ---------------------------------------------------------------------------
3,597 Best Buy Co., Inc. 246,574
- ---------------------------------------------------------------------------
1,660 Hibbett Sporting Goods Inc.(1) 62,814
- ---------------------------------------------------------------------------
8,838 Men's Wearhouse, Inc. (The)(1) 304,293
- ---------------------------------------------------------------------------
5,754 Michaels Stores, Inc. 238,043
- ---------------------------------------------------------------------------
2,066 O'Reilly Automotive Inc.(1) 61,587
- ---------------------------------------------------------------------------
3,081 Urban Outfitters Inc.(1) 174,662
- ---------------------------------------------------------------------------
1,581,125
- ---------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 5.5%
- ---------------------------------------------------------------------------
4,070 America Movil SA de
CV Series L ADR 242,613
- ---------------------------------------------------------------------------
2,977 American Tower Corp. Cl A(1) 62,577
- ---------------------------------------------------------------------------
5,925 NII Holdings, Inc.(1) 378,844
- ---------------------------------------------------------------------------
684,034
- ---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $10,622,933) 11,952,167
- ---------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS - 3.2%
$400,000 FHLMC Discount Notes,
2.60%, 7/1/05(2)
(Cost $400,000) 400,000
- ---------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 99.1%
(Cost $11,022,933) 12,352,167
- ---------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES - 0.9% 116,232
- ---------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $12,468,399
===========================================================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLMC = Federal Home Loan Mortgage Corporation
(1) Non-income producing.
(2) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements.
- ------
9
Statement of Assets and Liabilities
JUNE 30, 2005 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $11,022,933) $12,352,167
- ----------------------------------------------------------------
Cash 133,486
- ----------------------------------------------------------------
Receivable for investments sold 650,875
- ----------------------------------------------------------------
Dividends and interest receivable 5,396
- --------------------------------------------------------------------------------
13,141,924
- --------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 663,871
- ----------------------------------------------------------------
Accrued management fees 9,640
- ----------------------------------------------------------------
Distribution fees payable 14
- --------------------------------------------------------------------------------
673,525
- --------------------------------------------------------------------------------
NET ASSETS $12,468,399
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $11,195,529
- -----------------------------------------------------------------
Accumulated net investment loss (19,077)
- ----------------------------------------------------------------
Accumulated net realized loss on investment and foreign currency
transactions (37,287)
- ----------------------------------------------------------------
Net unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 1,329,234
- --------------------------------------------------------------------------------
$12,468,399
================================================================================
CLASS I, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $12,347,066
- ----------------------------------------------------------------
Shares outstanding 932,312
- ----------------------------------------------------------------
Net asset value per share $13.24
- --------------------------------------------------------------------------------
CLASS II, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
Net assets $121,333
- ----------------------------------------------------------------
Shares outstanding 9,162
- ----------------------------------------------------------------
Net asset value per share $13.24
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- ------
10
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
INVESTMENT LOSS
INCOME:
- --------------------------------------------------------------
Dividends $ 29,992
- --------------------------------------------------------------
Interest 5,001
- --------------------------------------------------------------------------------
34,993
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------
Management fees 53,552
- --------------------------------------------------------------
Distribution fees - Class II 21
- --------------------------------------------------------------
Directors' fees and expenses 73
- --------------------------------------------------------------
Other expenses 424
- --------------------------------------------------------------------------------
54,070
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (19,077)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on investment and
foreign currency transactions 102,220
- --------------------------------------------------------------
Change in net unrealized appreciation on
investments and translation of assets
and liabilities in foreign currencies (171,219)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS (68,999)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (88,076)
================================================================================
See Notes to Financial Statements.
- ------
11
Statement of Changes in Net Assets
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2004
- -----------------------------------------------------------------------------
INCREASE IN NET ASSETS 2005 2004
OPERATIONS
Net investment loss $ (19,077) $ (2,273)
- ---------------------------------------------
Net realized gain (loss) 102,220 (46,266)
- ---------------------------------------------
Change in net unrealized appreciation (171,219) 1,065,749
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (88,076) 1,017,210
- -----------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets from
capital share transactions 2,944,154 6,388,807
- -----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 2,856,078 7,406,017
NET ASSETS
Beginning of period 9,612,321 2,206,304
- -----------------------------------------------------------------------------
End of period $12,468,399 $9,612,321
=============================================================================
Accumulated net investment loss $(19,077) --
=============================================================================
See Notes to Financial Statements.
- ------
12
Notes to Financial Statements
JUNE 30, 2005 (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 to seek long-term capital growth. The fund
pursues its investment objective by investing in medium-sized and smaller
companies that the investment advisor 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 and Class II 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 II shares commenced on April 29, 2005.
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 fund determines that the market price of a portfolio security is not
readily available, or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined by, or in accordance with procedures adopted by, the Board of
Directors or its designee if such fair value determination would materially
impact a fund's net asset value. Circumstances that may cause the fund to fair
value a security include: 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; or trading in a security has been
halted during the trading day.
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.
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 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.
(continued)
- ------
13
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria adopted
by the Board of Directors. Each repurchase agreement is recorded at cost. The
fund requires that the collateral, represented by securities, received in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the fund, along with other registered investment
companies having management agreements with ACIM or American Century Global
Investment Management, Inc. (ACGIM), may transfer uninvested cash balances into
a joint trading account. These balances are invested in one or more repurchase
agreements that are collateralized by U.S. Treasury or Agency obligations.
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, 2004, the fund has accumulated net realized capital loss
carryovers for federal income tax purposes of $87,239 and $33,277 expiring in
2010 and 2012, respectively, which may be used to offset future taxable gains.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require management to make certain estimates and assumptions at the date of
the financial statements. Actual results could differ from these estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement with
ACIM, under which ACIM provides the fund with investment advisory and management
services in exchange for a single, unified management fee (the fee) per class.
The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and
accrued daily based on the daily net assets of the specific class of shares of
the fund and paid monthly in arrears. The annual management fee for each class
of the fund is 1.00% and 0.90% for Class I and Class II, 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 and
accrued daily based on the Class II daily net assets and paid monthly in
arrears. The distribution fee provides compensation for expenses incurred in
connection with
(continued)
- ------
14
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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, 2005, are detailed in the Statement of
Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of American
Century Companies, Inc. (ACC), the parent of the corporation's investment
advisor, ACIM, the distributor of the corporation, ACIS, and the corporation's
transfer agent, American Century Services, LLC (formerly American Century
Services Corporation).
The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB).
JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan
Chase & Co. (JPM). JPM is an equity investor in ACC.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the six months
ended June 30, 2005, were as follows:
- --------------------------------------------------------------------------------
Purchases $20,512,51
- --------------------------------------------------------------------------------
Proceeds from sales $17,630,95
- --------------------------------------------------------------------------------
As of June 30, 2005, 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 $11,081,851
================================================================================
Gross tax appreciation of investments $1,316,342
- ----------------------------------------------------------------
Gross tax depreciation of investments (46,026)
- --------------------------------------------------------------------------------
Net tax appreciation of investments $1,270,316
================================================================================
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)
- ------
15
Notes to Financial Statements
JUNE 30, 2005 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2005
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 340,452 $4,501,976
- ---------------------------------------------------------
Redeemed (125,460) (1,677,175)
- --------------------------------------------------------------------------------
Net increase 214,992 $2,824,801
================================================================================
YEAR ENDED DECEMBER 31, 2004
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 569,739 $6,910,277
- ---------------------------------------------------------
Redeemed (42,782) (521,470)
- --------------------------------------------------------------------------------
Net increase 526,957 $6,388,807
================================================================================
CLASS II
- --------------------------------------------------------------------------------
PERIOD ENDED JUNE 30, 2005(1)
SHARES AUTHORIZED 50,000,000
================================================================================
Sold 9,172 $119,488
- ---------------------------------------------------------
Redeemed (10) (135)
- --------------------------------------------------------------------------------
Net increase 9,162 $119,353
================================================================================
(1) April 29, 2005 (commencement of sale) through June 30, 2005.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$575,000,000 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, 2005.
- ------
16
VP Vista - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
- ---------------------------------------------------------------------------------------------
CLASS I
- ---------------------------------------------------------------------------------------------
2005(1) 2004 2003 2002 2001(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $13.40 $11.59 $8.15 $10.15 $10.00
- ---------------------------------------------------------------------------------------------
Income From
Investment Operations
- ---------------------------------
Net Investment Loss (0.02)(3) (0.01)(3) (0.05) (0.02) (0.01)
- ---------------------------------
Net Realized and
Unrealized Gain (Loss) (0.14) 1.82 3.49 (1.98) 0.16
- ---------------------------------------------------------------------------------------------
Total From
Investment Operations (0.16) 1.81 3.44 (2.00) 0.15
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.24 $13.40 $11.59 $8.15 $10.15
=============================================================================================
TOTAL RETURN(4) (1.19)% 15.62% 42.21% (19.70)% 1.50%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net Assets 1.00%(5) 1.00% 1.00% 1.00% 1.00%(5)
- ---------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.36)%(5) (0.05)% (0.58)% (0.29)% (0.32)%(5)
- ---------------------------------
Portfolio Turnover Rate 168% 252% 262% 294% 50%
- ---------------------------------
Net Assets, End of Period
(in thousands) $12,347 $9,612 $2,206 $1,164 $1,072
- ---------------------------------------------------------------------------------------------
(1) Six months ended June 30, 2005 (unaudited).
(2) October 5, 2001 (fund inception) 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.
See Notes to Financial Statements.
- ------
17
VP Vista - Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD PRESENTED
- --------------------------------------------------------------------------------
CLASS II
- --------------------------------------------------------------------------------
2005(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period $12.56
- -------------------------------------------------------------------------------
Income From Investment Operations
- -----------------------------------------------------------
Net Investment Loss(2) --(3)
- -----------------------------------------------------------
Net Realized and Unrealized Gain 0.68
- --------------------------------------------------------------------------------
Total From Investment Operations 0.68
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $13.24
================================================================================
TOTAL RETURN(4) 5.41%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets 1.15%(5)
- -----------------------------------------------------------
Ratio of Net Investment Loss to Average Net Assets (0.20)%(5)
- -----------------------------------------------------------
Portfolio Turnover Rate 168%(6)
- -----------------------------------------------------------
Net Assets, End of Period (in thousands) $121
- --------------------------------------------------------------------------------
(1) April 29, 2005 (commencement of sale) through June 30, 2005 (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, 2005.
See Notes to Financial Statements.
- ------
18
Approval of Management Agreement for VP Vista
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors (the "Directors") each year. At
American Century, this process -- referred to as the "15(c) Process" -- involves
at least two board meetings spanning a 30 to 60 day period each year. In
addition to this annual review, the board of directors and its committees
oversee and evaluate at quarterly meetings the nature and quality of significant
services the advisor performs on behalf of the fund. At these meetings the board
reviews fund performance, shareholder services and feedback, audit and
compliance information, and a variety of other reports from the advisor
concerning fund operations. The board, or committees of the board, also hold
special meetings, as needed.
Under a new Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for its board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the half-year period, the
Directors requested and received extensive data and information compiled by the
advisor and certain independent providers of evaluative data (the "Independent
15(c) Providers") concerning VP Vista (the "fund") and the services provided to
the fund under the management agreement. The information included, but was not
limited to:
* the nature, extent and quality of investment management, shareholder services
and other services provided to the fund under the management agreement;
* reports on the advisor's activities relating to the wide range of programs and
services the advisor provides to the fund and its shareholders on a routine and
non-routine basis;
* data comparing the cost of owning the fund to the cost of owning similar
funds;
* data comparing the fund's performance to appropriate benchmarks and/or a peer
group of other mutual funds with similar investment objectives and strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and two special meetings to review and discuss the
information provided by the advisor and the Independent 15(c) Providers and to
complete its negotiations with the advisor regarding the renewal of the
management agreement, including the setting of the applicable advisory
(continued)
- ------
19
Approval of Management Agreement for VP Vista
fee. In addition, the independent directors met on several occasions in private
session to review and discuss the information provided and evaluate the
advisor's performance as manager of the fund.
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
Independent 15(c) Providers, and its independent counsel and evaluated such
information for each fund for which the board has responsibility. The Directors
did not identify any single factor as being all-important or controlling, and
each Director may have attributed different levels of importance to different
factors. In deciding to renew the agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based on
the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES - GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under the
management agreement, the advisor provides or arranges at its own expense a wide
variety of services including, but not limited to:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both in
terms of quantity and complexity in response to shareholder demands, competition
in the industry and the changing regulatory environment. In performing their
evaluation, the Directors considered information received in connection with the
annual review, as well as information provided on an ongoing basis at their
regularly scheduled board and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services
provided is quite complex and allows fund shareholders access to professional
money management, instant diversification of their investments within an asset
class, the opportunity to easily diversify among asset classes, and liquidity.
In evaluating investment performance, the board expects the advisor to manage
the fund in accordance with its investment objective and approved strategies. In
providing these services, the advisor utilizes teams of investment professionals
(portfolio managers, analysts, research assistants, and securities traders) who
require extensive information technology, research, training, compliance and
other systems to conduct their business. At each quarterly meeting the Directors
review
(continued)
- ------
20
Approval of Management Agreement for VP Vista
investment performance information for the fund, together with comparative
information for appropriate benchmarks and a peer group of funds managed
similarly to the fund. If performance concerns are identified, the Directors
discuss with the advisor and its portfolio managers the reasons for such results
(e.g., market conditions, security selection) and any efforts being undertaken
to improve performance. Annually, the Directors review detailed performance
information, as provided by the Independent 15(c) Providers, comparing the
fund's performance with that of similar funds not managed by the advisor. During
the past year, VP Vista's performance was above the median performance of its
peer group.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at its regular
quarterly meetings, including the annual meeting concerning contract review.
These reports include, but are not limited to, information regarding the
operational efficiency and accuracy of the shareholder and transfer agency
services provided, staffing levels, shareholder satisfaction (as measured by
external as well as internal sources), technology support, new products and
services offered to fund shareholders, securities trading activities, portfolio
valuation services, auditing services, and legal and operational compliance
activities. Certain aspects of shareholder and transfer agency service level
efficiency and the quality of securities trading activities are measured by
independent third party providers and are presented in comparison to other fund
groups not managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor
provides detailed information concerning its cost of providing various services
to the fund, its profitability in managing the fund, its overall profitability,
and its financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services under
the management agreement, and the reasonableness of the current management fee.
ETHICS OF THE ADVISOR. The Directors generally considered the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices and that the advisor was not implicated in the
industry scandals of 2003 and 2004.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes in
revenue, costs, and profitability. The Directors concluded that economies of
scale are difficult to measure with precision, particularly on a fund-by-fund
basis. This analysis is further complicated by the fact that the advisor is
required to make a continuing reinvestment in the business to
(continued)
- ------
21
Approval of Management Agreement for VP Vista
provide additional content and services for fund shareholders. Accordingly, the
Directors also seek to evaluate economies of scale by reviewing other
information, such as year-over-year profitability of the advisor generally, the
profitability of its management of the fund specifically, the expenses incurred
by the advisor in providing various services to the fund, and the breakpoint
fees of competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing any economies of scale through a competitive
fee structure, through breakpoints that reduce fees as the fund increases in
size, and through reinvestment in its business to provide shareholders
additional content and services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the fund's
independent directors (including their independent legal counsel). Under the
unified fee structure, the advisor is responsible for providing all investment
advisory, custody, audit, administrative, compliance, recordkeeping, marketing
and shareholder services, or arranging and supervising third parties to provide
such services. By contrast, most other fund groups are charged a variety of
fees, including an investment advisory fee, a transfer agency fee, an
administrative fee, distribution charges and other expenses. Other than their
investment advisory fees and Rule 12b-1 distribution fees, all other components
of the total fees charged by these other fund groups may be increased without
shareholder approval. The board believes the unified fee structure is a benefit
to fund shareholders because it clearly discloses to shareholders the cost of
owning fund shares, and, since the unified fee cannot be increased without a
vote of fund shareholders, it shifts to the advisor the increased costs of
operating the funds and the risk of administrative inefficiencies. Part of the
Directors' analysis of fee levels involves comparing the fund's unified fee to
the total expense ratio of other funds in the fund's peer group. The unified fee
charged to shareholders of the fund was at the median of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services to
advisory clients other than the fund. They observed that these varying types of
client accounts require different services and involve different regulatory and
entrepreneurial risks than the management of the fund. The Directors analyzed
this information and concluded that the fees charged and services provided to
the fund were reasonable by comparison.
(continued)
- ------
22
Approval of Management Agreement for VP Vista
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker dealers that execute
fund portfolio transactions and concluded that this research is likely to
benefit fund shareholders. The Directors also determined that the advisor is
able to provide investment management services to clients other than the fund,
at least in part, due to its existing infrastructure built to serve the fund
complex. The Directors concluded, however, that the assets of those other
clients are modest in comparison to the funds and that, in any event, the
addition of such other assets to the assets of the funds that use substantially
the same investment management team and strategy to determine whether
breakpoints have been achieved captures for the shareholders a portion of any
benefit that exists by accelerating fee reductions as breakpoints are reached at
lower fund asset levels.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, assisted by the advice
of legal counsel that is independent of the advisor, taking into account all of
the factors discussed above and the information provided by the advisor and the
Independent 15(c) Providers, concluded that the investment management agreement
between the fund and the advisor is fair and reasonable in light of the services
provided and should be renewed.
- ------
23
Share Class Information
Two classes of shares are authorized for sale by the fund: Class I and Class II
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 Class I shares.
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.
- ------
24
Additional Information
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor, is
responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and procedures
the advisor uses in fulfilling this responsibility is available without charge,
upon request, by calling 1-800-378-9878. It is also available on American
Century's Web site at americancentury.com and on the Securities and Exchange
Commission's Web site at sec.gov. Information regarding how the investment
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available on the "About Us" page at
americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's Web site at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal
year available on its Web site at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
25
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 LIPPER MID-CAP GROWTH FUNDS INDEX is a non-weighted index of, typically, the
30 largest mutual funds within the Mid-Cap Growth fund classification, as
defined by Lipper. The index is adjusted for the reinvestment of capital gains
and income dividends.
The RUSSELL 2000 INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
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 MIDCAP VALUE INDEX measures the performance of those Russell Midcap
companies 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.
- ------
26
Notes
- ------
27
Notes
- ------
28
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 ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
The American Century Investments logo, American Century
and American Century Investments are service marks
of American Century Proprietary Holdings, Inc.
American Century Investment Services, Inc., Distributor
0508
SH-SAN-44740 (c)2005 American Century Proprietary Holdings, Inc. All rights
reserved.
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. SCHEDULE OF INVESTMENTS.
The schedule of investments is included as part of the report to stockholders
filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant's board has adopted procedures by which shareholders may
recommend nominees to the board.
The Governance Committee of the board is responsible for identifying, evaluating
and recommending qualified candidates for election to the board. While the
Governance Committee largely considers nominees from searches that it conducts,
the Committee will consider candidates submitted by shareholders. Any
shareholder wishing to submit a candidate for consideration should send the
following information to the Corporate Secretary, American Century Funds, P. O.
Box 41041, Kansas City, Missouri 64141:
Shareholder's name, the fund name and number of fund shares owned and length of
period held;
Name, age and address of the candidate;
A detailed resume describing among other things the candidate's educational
background, occupation, employment history, financial knowledge and expertise
and material outside commitments (e.g., memberships on other boards and
committees, charitable foundations, etc.);
Any other information relating to the candidate that is required to be disclosed
in solicitations of proxies for election of directors in an election contest
pursuant to Regulation 14A under the Securities Exchange Act of 1934;
Number of fund shares owned by the candidate and length of time held;
A supporting statement which (i) describes the candidate's reasons for seeking
election to the Board of Directors and (ii) documents his/her ability to satisfy
the director qualifications described in the board's policy;
A signed statement from the candidate confirming his/her willingness to serve on
the Board of Directors.
The Corporate Secretary will promptly forward such materials to the Governance
Committee chairman. The Corporate Secretary also will maintain copies of such
materials for future reference by the Governance Committee when filling board
positions.
Shareholders may submit potential director candidates at any time pursuant to
these procedures. The Governance Committee will consider such candidates if a
vacancy arises or if the board decides to expand its membership, and at such
other times as the Governance Committee deems necessary or appropriate.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940) are effective based on their evaluation of these controls
and procedures as of a date within 90 days of the filing date of this
report.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940) that occurred during the registrant's second
fiscal quarter of the period covered by this report that have
materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable for semiannual report filings.
(a)(2) Separate certifications by the registrant's principal executive
officer and principal financial officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are filed and attached hereto as Exhibit
99.302CERT.
(a)(3) Not applicable.
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
By: /s/ William M. Lyons
-------------------------------------------
Name: William M. Lyons
Title: President
Date: August 12, 2005
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 12, 2005
By: /s/ Maryanne L. Roepke
-------------------------------------------
Name: Maryanne L. Roepke
Title: Sr. Vice President, Treasurer, and
Chief Accounting Officer
(principal financial officer)
Date: August 12, 2005
